ArcelorMittal Sells $3.5 Billion in Stock, Notes to Cut Debt

ArcelorMittal (MT), the biggest steelmaker, is seeking about $3.5 billion through a sale of shares and bonds that automatically become stock to reduce debt. It also announced a bid for a ThyssenKrupp AG (TKA) plant in Alabama.

“ArcelorMittal intends to use the net proceeds from the combined offering to reduce existing indebtedness,” the company said in a statement today. The Luxembourg-based steelmaker said the sale, along with other initiatives, will help cut debt to about $17 billion by the end of June.

ArcelorMittal is offering $1.75 billion in common shares and another $1.75 billion in mandatory convertible subordinated notes, according to a copy of the term sheet obtained by Bloomberg News. It’s the biggest share sale by the company since it sold $3.2 billion in stock in 2009, according to data compiled by Bloomberg.

The transaction adds to ArcelorMittal’s efforts to improve its finances after the producer’s credit rating was cut to below investment grade by Moody’s Investors Service, Standard & Poor’s (SPY) and Fitch Ratings. The company has reduced its dividend, disposed of assets and is moving output to cheaper sites to pare $23.2 billion of debt. European steel stocks gained 11 percent last month and last week rose to the highest since April.

Photographer: Vincent Mundy/Bloomberg

Steelworkers operate machinery during the steel-making process at the ArcelorMittal steel factory in Kryvyi Rih, Ukraine. Close

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Photographer: Vincent Mundy/Bloomberg

Steelworkers operate machinery during the steel-making process at the ArcelorMittal steel factory in Kryvyi Rih, Ukraine.

“It’s a positive move, opportunistic with the recent momentum in the sector,” said Tim Cahill, an analyst at J&E Davy Holdings Ltd. in Dublin. “Their recent moves of cutting the dividend, selling the iron ore unit and now this shows real intent to sort out the balance sheet. They’ll have around $17 billion debt by June, which could be a game changer for the stock.”

Alabama Steel

ArcelorMittal has prepared a bid for ThyssenKrupp’s Alabama steel plant, Chief Financial Officer Aditya Mittal said on a conference call. A purchase wouldn’t increase the company’s debt target, he said.

“It’s clearly a world class asset,” the CFO said. “We believe we’ve structured a bid which will allow us to participate, which does not detract from us achieving a net debt target of $17 billion by June end.”

ArcelorMittal fell 2.5 percent to 13.08 euros in Amsterdam trading, the steepest decline since Oct. 31. ThyssenKrupp rose 3 percent to 18.50 euros in Frankfurt.

ThyssenKrupp is seeking to dispose of assets in Brazil and the U.S., where it has spent 12 billion euros ($16 billion) on Steel Americas plants, according to CFO Guido Kerkhoff. A sale would help execute Chief Executive Officer Heinrich Hiesinger’s plans to transform the Essen-based company into a diversified industrial group by building up its technologies division.

ThyssenKrupp Writedowns

The company wrote the two plants down by 2.1 billion euros in fiscal 2010-11 and by a further 3.6 billion euros in the year ended September 2012 to 3.9 billion euros now.

Cia. Siderurgica Nacional SA, Brazil’s third-largest steelmaker by output, offered about $3 billion to buy the two ThyssenKrupp AG plants in the Americas, two people familiar with the matter said at the end of November.

ThyssenKrupp declined to comment on details such as timetables for the sale of the assets, names of bidders or valuations, Stefan Ettwig, a spokesman, said today in an e- mailed statement.

Steel-industry earnings have slumped as Europe’s economic crisis saps demand and slower Chinese growth weighs on commodity prices. European steelmakers are grappling with excess capacity that’s eroding prices, while they can’t cut operating costs. The region has capacity to make about 210 million metric tons of steel a year, while demand in a “normal market” is 150 million to 160 million tons, according to industry lobby group Eurofer.

Mittal’s Priority

“We have consistently said that reducing net debt is a priority for the company,” Chief Executive Officer Lakshmi Mittal said in the statement. “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.”

ArcelorMittal reported the lowest quarterly profit in almost three years on Oct. 31 and cut its 2013 dividend by 73 percent to save about $1 billion. The company said last week it will sell 15 percent of its ArcelorMittal Mines Canada Inc. unit for $1.1 billion to a group led by China Steel Corp. (2002) and Posco.

The transaction announced today will move ArcelorMittal toward a “medium term” debt target of $15 billion, it said. The Mittal family, which owns about 41 percent of the company, plans to participate in the deals for a total of $600 million, the company said.

Earnings Forecast

ArcelorMittal reiterated its full-year forecast that earnings before interest, taxes, depreciation and amortization will be about $7 billion and net debt will be about $22 billion.

The bonds will pay a coupon of 5.875 percent to 6.375 percent and convert into stock after three years, it said. The minimum conversion price will be the level used in the stock placement that’s running alongside the sale of bonds, while the maximum will be 20 percent to 25 percent higher.

The minimum price guarantees the company at least receives the money it would have got had it sold the underlying shares in a stock sale, while the maximum price limits dilution if the shares perform. Investors deciding to convert prior to maturity will receive the shares indicated by using the maximum price, according to the company.

The company has retained the right to defer coupon payments on the subordinated bonds, which will be issued at par.

Goldman Sachs Group Inc. will be the sole global coordinator of the offering, while Goldman, BofA Merrill Lynch, Credit Agricole SA (ACA), and Deutsche Bank AG will serve as joint bookrunners.

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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