Vallourec to Raise $1.1 Billion With Nippon Steel's Helpby
Nippon Steel, Bpifrance to each own 15% of company after deal
Vallourec to cut production capacity, jobs to revive earnings
Vallourec SA, the French maker of steel tubes for the oil and gas industry, plans to raise 1 billion euros ($1.1 billion) by selling bonds and shares to fund a restructuring prompted by the slump in crude.
About 510 million euros will come from a share rights offering, the company based near Paris said Monday in a statement. The balance will come from a convertible bond reserved for state-owned fund Bpifrance and Japan’s Nippon Steel & Sumitomo Metal Corp., giving both companies a 15 percent stake in Vallourec after the deal. Vallourec shares climbed the most in 11 years.
Oil-service companies, including Italy’s Saipem SpA and French oilfield surveyor CGG SA, are selling assets and raising funds to ride out the industry slump. Vallourec won’t pay a dividend this year after its loss in 2015, Chief Executive Officer Philippe Crouzet said on Monday.
“We’re in the midst of an oil cycle downturn,” Crouzet told reporters on a conference call. “It’s having a very strong impact on the entire supply chain, and probably a lasting one.”
Vallourec rose as much as 20 percent in Paris, the biggest intraday gain since January 2005, after a 14 percent decline on Friday triggered a halt to trading. The shares traded up 12 percent as of 1:46 p.m. local time, paring this year’s drop to 47 percent.
The equity issuance, if approved by Vallourec shareholders at a meeting due April 6, will take place in the second quarter, the company said.
To restore profitability, Vallourec also plans to cut European production capacity by half by 2017, leading to about 1,000 job cuts on top of 1,150 losses announced in April. It will also cut 500 jobs outside Europe as it streamlines operations in Brazil. That will boost earnings before interest, taxes, depreciation and amortization by 750 million euros by 2020, Vallourec said.
The company is also seeking to buy all the shares it doesn’t already own in Chinese pipe maker Tianda Oil Pipe, and has entered exclusive talks to sell a unit specialized in welded stainless steel and titanium tubes with assets in France, India, the U.S., China and South Korea.
Net debt would not exceed 1.5 billion euros at the end of 2016 after taking into account the Tianda acquisition, the reorganization in Brazil and the capital increase, Vallourec said.
Vallourec said it’s targeting a negative free cash flow of about 600 million euros for 2016, based on current market conditions and currency trends, and negative earnings before interest, taxes, depreciation and amortization.
Goldman Sachs Group Inc., Rothschild and Societe Generale SA are advising Vallourec, while Lazard and Morgan Stanley are advising Nippon Steel.