--S&P downgrades ArcelorMittal's ratings to BB+/B from
BBB-/A-3 after cutting European GDP forecast
--ArcelorMittal's shares closed down 8.8% on a combination of
factors including the downgrade and ECB comments
--ArcelorMittal says it has clear roadmap to improving its
financial position
--One-notch credit downgrade equivalent to an additional $100
million in interest expenses, according to CFO
(Updates throughout with additional details.)
By Alex MacDonald
LONDON--A credit-rating downgrade and investor worries over the
European debt crisis's impact on future steel demand weighed on
ArcelorMittal (MT, MT.AE, MT.FR) Thursday, sending its stock down
8.8% in Amsterdam.
Standard and Poor's Ratings Services downgraded the steel
titan's long- and short-term ratings by one notch to junk status,
citing weaker-than-expected second-quarter results from the company
and a lowered view for European economic growth. The firm has a
negative outlook on ArcelorMittal.
The ratings cut comes despite ArcelorMittal's recent efforts to
maintain its investment-grade credit rating through the reduction
of debt. It has been selling noncore assets and reducing the cost
of pension plans in an effort to avoid the one-notch cut, which the
company's chief financial officer warned last week would result in
an additional $100 million in interest expenses.
Still, while the steelmaker's weaker-than-expected
second-quarter results were cited as a factor in the downgrade, the
company is also grappling with a tough economy that is out of its
control. S&P noted the cut to BB+/B from BBB-/A-3 followed
recent downward revisions to its forecasts on European economic
growth and steel demand.
ArcelorMittal's stock closed down 8.8% at 11.90 euros a share
Thursday, pressured by the downgrade as well as continued concerns
over the European debt crisis. Investors were disappointed Thursday
by the absence of new stimulus measures from the European Central
Bank at the conclusion of a policy meeting.
As the European economic troubles have hurt consumer demand for
steel, the world's largest steelmaker has reduced its adjusted
debt, a metric that includes liabilities that aren't always
apparent on the balance sheet, by $4 billion, ArcelorMittal Chief
Financial Officer Aditya Mittal said last week. He noted the
company had to reduce its adjusted debt by another $7 billion to
keep its investment-grade credit rating, according to S&P
guidelines.
"We have noted the recent action by S&P, which has been
driven by a change in their view on the macroeconomic environment,"
ArcelorMittal spokeswoman Nicola Davidson said in an emailed
statement. "We have a clear roadmap for improving our
already-robust financial position through the programs of
management gains, asset optimization and asset disposals, all of
which are proceeding according to plan and will further improve our
credit ratios," she said.
Nevertheless, S&P lowered its view for ArcelorMittal's
credit ratios for 2012 and 2013.
"We now expect that the company's adjusted ratio of funds from
operations to debt will be below 20% in 2012 and about 20% in 2013,
according to our scenario, compared with our previous forecast of
25% in 2013," S&P said. "This is in spite of our continued
assumption that management will likely undertake significant debt
reduction over the next six months through disposals and
potentially other significant credit-enhancing measures," it
added.
The credit-rating company said it could revise the outlook to
stable over the next six months if ArcelorMittal achieves its
envisaged debt reductions and if S&P deems it sufficiently
likely the adjusted ratio of funds from operations to debt will
return to about 20% in 2013.
"The proceeds of the disposals on which we understand the
company is progressing, will be an important first step toward
reducing debt," it said.
Write to Alex MacDonald at alex.macdonald@dowjones.com
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