ArcelorMittal Asks Investors for $3 Billion Amid Steel Rout

Updated on
  • Mittal family to follow rights, contributing $1.1 billion
  • Full-year Ebitda declines 28%; 2016 profit seen lower

ArcelorMittal plans to raise $3 billion from investors and sell a $1 billion stake in Spanish auto-parts maker Gestamp as the world’s largest steelmaker looks to ride out an industry slump caused by record Chinese exports.

Billionaire Lakshmi Mittal, the chief executive officer who owns about 37 percent of the business, has committed to maintain his stake and his family will take up about $1.1 billion, the Luxembourg-based company said in a statement Friday. Full-year earnings before interest, taxes, depreciation and amortization declined 28 percent to $5.2 billion.

“These are steps in the right direction, but ArcelorMittalis running out of levers to pull,” Seth Rosenfeld, an analyst at Jefferies LLC in London who has a sell rating on the stock, wrote in a report. The company’s assumption of “continued spot margins may indeed be generous given a potential sustained deterioration of global steel market conditions.”

Shares of ArcelorMittal, which supplied steel for New York’s One World Trade Center and London’s Wembley stadium, have dropped 60 percent in the last 12 months. They’ve been hit by declining prices for steel as China pushes the material onto the world market at record levels to counter its slowing economy.

Shares, CDS

The stock fell as much as 11 percent, the biggest intraday drop since Dec. 2, and closed 5.5 percent lower at 3.484 euros in Amsterdam.

The cost of insuring 10 million euros ($11 million) of ArcelorMittal’s debt for five years sank to 1.28 million euros in advance from 1.65 million euros, according to S&P Capital IQ’s CMA. That’s in addition to 500,000 euros annually and signals a 52 percent chance of default.

“This capital raise, combined with the sale of our minority shareholding in Gestamp, will accelerate the company’s debt-reduction plan,” Mittal said in the statement. “This will help ensure that the business is resilient in any market environment and puts ArcelorMittal in a position of strength from which to further improve performance.”

Underwriting Arrangements

Bloomberg News reported Thursday that the company was planning to raise capital, citing people familiar with the situation. Goldman Sachs International, Bank of America Merrill Lynch and Credit Agricole Corporate & Investment Bank are joint global coordinators for the share sale and will underwrite the portion not taken up by the Mittal family, subject to conditions. The share sale, which should be completed in the first half, will cut debt to less than $12 billion. Lazard Ltd. advised Gestamp on the deal.

“2015 was a very difficult year for the steel and mining industries,” Mittal said in a separate statement. “Although demand in our core markets remained strong, prices deteriorated significantly during the year as a result of excess capacity in China.”

The company has scrapped its dividend, cut expansion plans and shuttered plants as it seeks to pay down debt. It reported net debt of $15.7 billion. Full-year sales declined 19 percent to $31.9 billion. Ebitda will drop to “in excess of” $4.5 billion in 2016, it said.

ArcelorMittal, whose full-year net loss swelled to $7.95 billion after taking $4.8 billion in writedowns, said it would continue to cut costs. The company said it would trim capital spending by $300 million to about $2.4 billion this year and reduce interest payments by $200 million. It also unveiled a plan to make more than $85 profit per ton of steel produced and eventually deliver $2 billion of free cash flow a year.

ArcelorMittal twice reduced its profit forecast last year as China’s exports undercut steel prices in Europe and the U.S., its biggest markets. Exports from China rose by a fifth to a record 112 million metric tons in 2015. European hot-rolled coil, a benchmark for steel prices, sank in November to its lowest since at least 2007, down 75 percent from its peak. U.S. prices slid 40 percent in 2015 to a decade low.