By Rhiannon Hoyle
SYDNEY-- Fortescue Metals Group Ltd. scrapped a planned $2.5
billion bond sale Wednesday, a surprise move that highlights
investor jitters toward iron-ore exporters because of slack demand
for the commodity from China and rising supply.
Fortescue--the world's fourth-largest iron-ore exporter by
volume--had hoped to lower its interest charges as part of a
broader campaign to protect profits from falling iron-ore prices.
The company earlier this month outlined plans for a
multibillion-dollar debt refinancing, that included the debt issue
as well as a plan to extend the maturity on an existing $4.9
billion credit facility.
Fortescue has been grappling with a halving in iron-ore prices
over the past year, as supplies from new and expanded mines outpace
demand for the raw material. The company's net profit tumbled more
than 80% in the six months through December despite a sharp rise in
shipments.
"The objective of the refinancing was to extend Fortescue's
maturity profile and minimize interest costs," Chief Executive Nev
Power said. "Debt capital markets were not favorable at this time
and as a result we think it is a disciplined and prudent decision
to defer the voluntary refinancing at this stage."
Iron-ore prices have been hit by a glut in supply coming from
Australian companies including Fortescue and its larger peers Rio
Tinto PLC and BHP Billiton Ltd. That has coincided with moderating
demand growth in China, the world's biggest consumer of the
commodity.
Many banks are forecasting iron-ore prices to fall further this
year as global supplies continue to rise.
Analysts said Fortescue's decision to abandon the debt
restructuring illustrates weak sentiment toward iron ore. Still,
they believe Fortescue can meet future repayments and maintain its
current dividend, as long as iron-ore prices don't fall
further.
"They have miscued in terms of seeking to refinance now, but it
would be much worse if the debt and bond markets were totally
closed to them," said Mike Harrowell, Sydney-based resources
analyst at broker BBY.
Fortescue accelerated debt repayments in recent years as it
earned healthy margins on iron-ore prices above $100 a metric ton.
Iron ore now trades at $58 a ton, closer to Fortescue's operating
expenses.
It costs Fortescue in the mid-$40-a-ton range to produce and
deliver its ore, which it sells at a discount to benchmark spot
prices due to lower iron content than its larger rivals.
Mr. Power has previously said paying down a hefty debt pile,
that was used to fund past rapid expansion and at its peak topped
$12 billion, is Fortescue's top priority. The mining company,
founded by billionaire Andrew Forrest, used large loans to build up
a network of land assets, power-and-water infrastructure, and
rail-and-port facilities in the resource-rich Pilbara region of
Western Australia state.
Fortescue said the next deadline for repayments on current loans
is in April 2017.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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