ArcelorMittal Seen Locked Out of Markets as Steel Punishes Bonds

  • Company faces $15 billion repayment bill over next six years
  • Steelmaker struggling to cope with metals-price plunge

ArcelorMittal SA, the steelmaker facing almost $15 billion of bond repayments over about six years, has been locked out of credit markets, according to money managers.

Bonds of the world’s largest producer of the alloy have fallen to levels that make an immediate return to the market too costly, said Olivier Monnoyeur, a high-yield portfolio manager at BNP Paribas Investment Partners. Thirteen of ArcelorMittal’s 16 notes due by 2022 have fallen this year, with some quoted at as low as 75 percent of face value, and with some yields as high as 12 percent, according to data compiled by Bloomberg.

“Yields in the market for ArcelorMittal are not sustainable and restrict their access to the bond market,” said Monnoyeur at BNP Paribas Investment Partners, which oversees about 509 billion euros. “I am not sure the appetite to invest will be there.”

A spokesman for ArcelorMittal in London said the company had a “very strong liquidity” position. He declined to comment on refinancing activity. The company said on Jan. 19 it had cut its 2016 cash needs by $1 billion and identified $1 billion of structural improvements.

Repayment Bills

Bond prices suggest the Luxembourg-incorporated company will pay back 1 billion euros due in June since the notes are quoted above face value, according to data compiled by Bloomberg. 

Still, investors are questioning whether the company will be able to refinance bonds maturing in 2017 through 2022. The 15 notes in euros, dollars and Swiss francs are trading below issue price. 

Philip Ngotho, Amsterdam-based metals and mining analyst at ABN Amro Bank NV said he didn’t think ArcelorMittal would be able to access the market. Mark Wade, head of industrials research at Rogge Global Partners Plc in London said it wouldn’t be “easy.” 

London-based ECM Asset Management portfolio manager Paul Suter said for the steelmaker to consider more bond sales, “the market will need to be considerably more stable.” 

ArcelorMittal’s 750 million euros of 3.125 percent notes due January 2022, which were sold about a year ago, were quoted at 75 cents on the euro on Wednesday, down from a high of 102.5 cents on March 6, according to data compiled by Bloomberg. The notes were initially priced at 99.7 cents. 

Yield Surge

The average yield investors demand to hold speculative-grade bonds in euros was at 6.3 percent on Jan. 26 from a record-low 4.02 percent in May, according to Bank of America Merrill Lynch Index data.

Credit-default swaps insuring ArcelorMittal’s bonds against losses are near the highest in about seven years, according to S&P Capital IQ’s CMA. It costs 1.7 million euros in advance to insure 10 million euros of the steelmaker’s bonds for five years, the data show. That’s in addition to 500,000 euros annually, and it implies a 57 percent likelihood of default in the period, compared with 25 percent a year ago, the data show.

A slowdown in China, the world’s second-biggest economy, is sapping demand for steel and fueling a global glut. European hot-rolled coil, a benchmark for steel prices, sank in November to the lowest since at least 2007, down 75 percent from the peak. ArcelorMittal has lowered annual production by about a fifth since 2007.

Credit Lines

The company controlled by Indian billionaire Lakshmi Mittal had $6 billion in revolving credit lines and $3.6 billion in cash at the end of the third quarter, according to a company statement.

ArcelorMittal would probably prefer to keep undrawn credit lines for working-capital needs and refinance bonds in debt markets, said Andrew Wilmont, head of European high-yield investment at Neuberger Berman, which oversees about $257 billion. Still this may not be possible.

“The market is not really open for anybody,” Wilmont said. “They will have to wait.”