PARIS -- Top global steel producer ArcelorMittal (IW 1000/ 35) announced Wednesday plans for a stock and subordinated notes offer to raise $3.5 billion to reduce its massive debt that has worried investors.
"ArcelorMittal intends to use the net proceeds from the combined offering to reduce existing indebtedness," the company said in a statement.
The announcement initially sent ArcelorMittal shares down more than 5% in afternoon trading on the Paris stock exchange.
They clawed back some ground later however to stand down 2.42% at 13.09 euros in afternoon trading while the overall Paris market was up 0.36%.
An Unexpected Announcement
"The market was taken a bit by surprise by the announcement, all the more so given the amount is not negligible," said one Paris trader.
The offering of common stock and mandatorily convertible subordinated notes would be made in the United States, said ArcelorMittal, and reserved the right to adjust the proportions.
"Deleveraging remains a priority for ArcelorMittal to retain strategic flexibility," said the company.
It said the offering plus other measures should enable the company to reduce its net debt to approximately $17 billion by the end of June, from about $22 billion at the end of 2012.
The three top ratings agency's stripped ArcelorMittal of an investor-grade rating at the end of last year, citing the company's massive debt amid sluggish global steel sales.
CEO Mittal Says Reducing Net Debt is Priority
"We have consistently said that reducing net debt is a priority for the company," CEO Lakshmi Mittal was quoted as saying.
"This transaction, supplemented by proceeds from ongoing asset disposals, the announced reduction in dividends and continued cost saving initiatives, will significantly lower our net debt and accelerate the achievement of a medium term net debt target of $15 billion."
Existing shareholders will receive a preferential allocation of new shares, and the Mittal family that controls the company has indicated its intention to participate to a total extent of $600 million.
The three-year notes will carry average interest of 5.875% to 6.375%. They will be mandatorily convertible in ArcelorMittal shares at their expiration or earlier under certain circumstances.
A successful placement of the stock and notes should be enough for the company to meet the goal of reducing its debt by $5 billion in the first half of the year, given recently announced sales and expected earnings.
Several Sales Announced Recently
ArcelorMittal is due to receive $1.1 billion in the first half of this year from the sale of a 15% stake in its iron ore mines in Canada to Asian rivals in a deal announced earlier this month.
It has also announced the sale of its 50% stake in South African mining group Kalagadi Manganese for $447 million.
The company has previously said it would cut dividends to 20 cents per share from $1.20.
ArcelorMittal also confirmed its guidance of full year 2012 EBITDA operating profit of approximately $7 billion.
Moody’s Welcomes Share Offering
Moody's rating agency welcomed the share offering, estimating that it along with asset sales would help the company bring its debt-to-operating profit ratio back into line with conditions under its borrowing agreements.
"However, Moody's believes the company needs to reduce debt further in order to support the Ba1 rating and will maintain its negative rating outlook until that happens and the global economy and steel market conditions begin to improve," it said in a statement.
ArcelorMittal said last month that European steel sales had plunged by 27% since the global economic crisis began and announced a $4.3 billion write down on the value of its European operations.
Copyright Agence France-Presse, 2013