In response to an article that was published in the Financial Times this morning, ArcelorMittal would like to state that the rumours mentioned within this article are not true. ArcelorMittal has a successful debt reduction programme in place and does not need to raise additional capital through a rights issue at this time. The Company has not retained any specific advisors for this purpose and the rumours within this article are without foundation and speculative. However the Company will continue to review and consider all options as is only prudent given the current challenging operating environment.
ArcelorMittal announces today its intention to offer, subject to market and other conditions, shares of its common stock and convertible senior notes for a total combined amount of approximately U.S.$3.0 billion, as part of its strategy to accelerate debt reduction and to further strengthen its balance sheet.
The convertible senior notes are expected to be issued in a minimum principal amount of $500 million, with a maturity of 2014.
The Mittal family has advised that they will subscribe for at least 10% of the offering of common stock.
Okay, so it’s not a rights issue – but still something of a U-turn from the world’s biggest steelmaker and no doubt a surprise for investors.
All the more so given that Mittal also raised €1.25bn via convertible bond in March, which carried the following small print. (Apologies for the legalese).
The Issuer has agreed that for a period of 90 days after the date of the underwriting agreement (March 24, 2009), it will not (and will not announce the intention to) issue, offer, sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of the Issuer or other securities that are substantially similar to the Shares of the Issuer, or any securities that are convertible or redeemable into or exchangeable for, or that represent the right to receive, shares or any such substantially similar securities, or enter into any derivative or other transaction having substantially similar economic effect with respect to the Shares or any such securities, in each case without the prior written consent of the Joint Lead Managers acting on behalf of the Managers (such consent not to be unreasonably withheld or delayed)
What is even more puzzling is that chairman and chief executive Lakshmi Mittal was relatively upbeat as he delivered (disappointing) first quarter figures this morning.
Although market conditions remain challenging, a technical recovery is inevitable and ArcelorMittal will benefit from this.
So what’s happening here? Could it be that AM’s lenders and bond holders do not share his Mittal’s view on the steel market?
AM sees the potential for prices increases through the second and third quarter of 2009 across major markets and products, but the World Steel Association forecast on Monday that steel demand would tumble 15 percent in 2009, its steepest fall since World War Two, and one exacerbated by consumer destocking.
This caused the FT’s Peter Marsh to remark:
The projection is considerably more pessimistic than the 10 per cent demand fall for 2009 that is the current central assumption by ArcelorMittal, the world’s biggest steelmaker, which reports its first-quarter results on Wednesday.
And the WSA gloomy prognosis was backed up US Steel, which issued a shocking set of numbers on Monday night.
Here are some of the lowlights, courtesy of MF Global:
US Steel reported Q1 2009 results that were significantly below market expectations. The size of the loss put them in breach of covenant forcing the company to issue debt and sell equities. Their senior unsecured debt was also downgraded to junk by Moody’s.
The company said it also expected a loss in Q2 and that it was difficult to forecast further out.
Analyst Charlie Dove-Edwin went on to comment;
The company said it also expected a loss in Q2 and that it was difficult to forecast further out. The World Steel Association expects European demand to fall 28.8% and North American demand to fall 32.2%.
Using this full year outlook, we would expect almost every steel company to be loss making in 2009. We would expect further debt issuance and equity offerings as companies try to stay solvent.
Not a bad call.
And with AM labouring under $26.7bn of net debt investors should probably expect more of the same. Shares in AM are currently down 7 per cent at €17.34.
Related link:
ArcelorMittal taps the market – FT Alphaville