ArcelorMittal S. Africa to Sell More Stock Than It's Worth

  • Company's largest shareholder to convert loans into equity
  • ArcelorMittal sees full-year loss climbing 11 times from 2014

ArcelorMittal South Africa Ltd. plans to raise as much as 4.5 billion rand ($324 million) in a rights offer to reduce debt and invest in plants as the continent’s biggest steelmaker said its 2015 loss will be 11 times bigger than last year’s.

ArcelorMittal, which holds 46.8 percent of the company, will fully underwrite the offer, the local unit said in an statement Friday. It owes the parent 3.2 billion rand in loans and the fundraising exceeds the company’s current market value of 3.47 billion rand. The Vanderbijlpark, South Africa-based steelmaker sees its headline loss for the year to Dec. 31 widening by more than 6 rand a share from 0.57 rand 12 months earlier.

Proceeds from the share sale “will first be used to settle loans from companies within the ArcelorMittal Group, with any balance being retained for operational and capital expenditure purposes,” said AMSA, as the local unit is known. Apart from the loan, “there is no other material long-term debt outstanding,” it said.

South African steelmakers are operating at a loss as they struggle to compete against an increase in subsidized Chinese supplies at prices as much as 25 percent below local production costs while growth in the continent’s most industrialized economy are stagnating. Producers have asked the government for trade protection as companies including Evraz Plc’s South African unit and Scaw Metal Group announced plans to cut a total of more than 2,400 jobs.

Idle Plants

The company will idle the Vaal Meltshop at its Vereeniging Works, the country’s oldest steelmaking operations, this quarter, resulting in 283 job losses, it said. That’s less than the 400 initially seen as the forge plant will continue to operate.

Notwithstanding the loss and the closure of the plant, “initiatives are in place which will return ArcelorMittal to profitability,” the company said. These include the government agreeing to raise tariffs on some imports, while it is also discussing anti-dumping duties, it said. The state is also considering declaring that state infrastructure should be built with locally produced steel, the company said.

In return, AMSA will price its steel “appropriately to ensure that downstream steel-dependent industries are competitive while at the same time ensuring that the company remains sustainable,” it said.

Shareholders will be asked to vote on Dec. 11 on the rights offer, which is intended to proceed in January. The stock fell as much as 3.1 percent to the lowest since December 2001, and traded 1.8 percent lower at 7.70 rand by 10:15 a.m. in Johannesburg, extending the drop this year to 71 percent.

While AMSA is undertaking the share sale, “the possibility of raising further debt finance has not been excluded, including a possible offering of debt or notes on the international capital markets,” the company said.

Market Conditions

For the fourth quarter, “market conditions are expected to remain tough and all our units are expected to maintain their current below-capacity production levels,” it said. “Sales will decrease due to the seasonal impact.” South African businesses typically close for part of December for holidays.

AMSA and Anglo American Plc’s Kumba Iron Ore unit agreed to a revised deal for delivery of as much as 6.25 million metric tons of ore annually. The steelmaker will receive discounts of as much as 7.5 percent on the export price of the raw material backdated to Oct. 1, it said. The company would have saved 260 million rand had the deal been implemented at the beginning of the year, AMSA said.

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