ArcelorMittal to Raise $3 Billion After Hefty Net Loss - 2nd Update
February 05 2016 - 7:39AM
Dow Jones News
By Alex MacDonald
LONDON-- ArcelorMittal, the world's largest steelmaker, said
Friday it will issue $3 billion worth of shares to strengthen its
balance sheet as it grapples with a world-wide steel glut which
contributed to a near $7 billion fourth-quarter net loss.
The Mittal family, the steel group's controlling shareholder,
will subscribe to its entitlement of the share issue, or about $1.1
billion. Lakshmi Mittal is ArcelorMittal's chairman and chief
executive. At the end of last year, the family owned 39.4% of the
company's shares.
The Luxembourg-based company will also sell it 35% stake in
Spain's automotive metals component firm Gestamp AutomociĆ³n for
about $1 billion by the end of June as part of the cash-raising
program to pay down debt.
ArcelorMittal said it wants to reduce net debt to less than $12
billion from $15.7 billion at the end of December.
"This capital raise, combined with the sale of our minority
shareholding in Gestamp, will...help ensure that the business is
resilient in any market environment and puts ArcelorMittal in a
position of strength from which to further improve performance,"
said Mr. Mittal.
The urgency of ArcelorMittal's debt-reduction plan was
underscored by the company's latest results, released Friday a week
earlier than scheduled. Its net loss ballooned to $6.7 billion in
the three months to end-December from $955 million the same quarter
a year before on a 25% drop in revenue to $14 billion.
ArcelorMittal said impairment charges of $4.8 billion largely
related to its iron-ore operations led to a full-year loss of $7.9
billion.
The prospect of the stock sale put more pressure on the group's
share price, down more than 5% on Friday after a more than 60% drop
in the past year, but it reassured investors about Arcelormittal's
creditworthiness. The cost of insuring $10 million of the company's
debt against default over a five-year period dropped 12% to
$869,000.
Arcelormittal has tapped shareholders for funds rather than
focus on asset sales amid signs that the steel market has bottomed
out, said Chief Financial Officer Aditya Mittal.
"We have to make sure we don't destroy value" through asset
sales, Mr. Mittal said. "The best value decision [is] a rights
issue," he said.
Falling steel prices in its regional markets and excess steel
supply from China, the world's largest steel producer, have
hammered the performance of Arcelormittal and its iron-ore and
steel making rivals. China has exported record amounts of the metal
to Europe and other markets amid shrinking demand at home. The
average global steel price fell 23% last year, according to
consultancy firm MEPS International Ltd, while the benchmark
iron-ore price dropped 43% during the same period.
Slack demand and falling prices has led other mining and metals
companies--ArcelorMittal mines iron ore and coal itself--to ask
shareholders for cash to shore up their finances as investors worry
about their ability to finance their borrowings amid the slump in
commodity producers' revenues.
French specialty steelmaker Vallourec SA announced this week
plans to raise EUR1 billion ($1.1 billion) from bonds and shares
amid drastic cutbacks in its business. Other resources companies
have sold assets, cut back capital spending, and suspended
dividends.
Mr. Mittal said the steel group faces continued tough trading
conditions.
"[This year] will be another difficult year for our industries,"
said Mr. Mittal. "It is clear that China has a challenge to
restructure its steel industry...Until this situation is fully
addressed the effective and swift implementation of trade defense
instruments will be critical," he said.
His comments echoed those of other steelmakers. Tata Steel Ltd.
of India, in announcing plans to cut a further 1,050 jobs from its
U.K. operations last month, urged governments to do more to stem
the tide of inexpensive steel from China.
In the fourth quarter, ArcelorMittal said earnings before
interest, taxes, depreciation and amortization fell 39% to $1.1
billion, in line market expectations.
Looking ahead, ArcelorMittal said it expects to generate more
than $4.5 billion in Ebtida this year following a 28% drop to $5.2
billion last year.
Earnings might improve more if the company successfully
implements a new plan to generate an additional $3 billion in
Ebitda and more than $2 billion in free cash flow annually from
2020 by reducing costs and enhancing the efficiency of its mines
and steel plants.
Write to Alex MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
February 05, 2016 07:24 ET (12:24 GMT)
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