ArcelorMittal, whose credit rating was cut to junk by Standard & Poor’s in August, would reduce the need for a stock offering to pay debt should it sell part of its Canadian iron ore unit, said Credit Suisse Group AG.
ArcelorMittal is considering selling about 30 percent of the unit, according to a person familiar with the matter, who asked not to be named because the deliberations are private. The Luxembourg-based steelmaker had its debt rating downgraded to junk Aug. 2 by S&P, which cited uncertainty about its debt reduction plan.
Moody’s Investors Service, which lowered its outlook to negative the same day, said it wouldn’t reduce the rating to junk if ArcelorMittal, the world’s largest steelmaker, stayed on schedule to repay about $5 billion of debt by year-end.
“Assuming ArcelorMittal can achieve $2 billion from a stake sale this would go some way to cutting into the $5 billion of debt reduction required by Moody’s to maintain investment grade,” Credit Suisse said in a note to investors today. “The removal of the risk of a major $5 billion rights issue would be seen as a positive.”
ArcelorMittal is working with Goldman Sachs Group Inc. and Royal Bank of Canada, according to the person. Officials for ArcelorMittal, Goldman Sachs and Royal Bank of Canada declined to comment.
The steelmaker is selling assets, moving production to more cost-efficient sites and idling some plants to lower its borrowing. The company said July 25 it was selling a 48 percent stake in Paul Wurth Group to SMS GmbH for 300 million euros ($391 million) and in May agreed to sell Skyline Steel LLC to Nucor Corp. for about $605 million.
ArcelorMittal is seeking to reduce its debt as deteriorating global growth erodes demand. Steelmakers are reporting lower earnings as the European crisis deepens and commodity prices weaken amid slowing Chinese economic growth. The company’s net debt was $22 billion at the end of the second quarter.
“Given the challenged state of the global steel industry, it should come as no real surprise that ArcelorMittal would consider selling all or a portion of key mining assets in order to raise capital and strengthen the balance sheet,” Macquarie Group Ltd. said. “We do believe ArcelorMittal is likely keeping all strategic options on the table as it attempts to push through the current challenging steel cycle.”
ArcelorMittal Mines Canada, which the company gained through its 2006 purchase of Dofasco, produced about 15 million tons of iron ore last year, and is being expanded to produce 24 million tons a year.