Steel Giant Desperate for Cash

On Wednesday, Arcelor – the biggest steel producer in the world – announced its intention to offer $US3.5 billion worth of common stock and mandatory convertible subordinated notes in the United States, saying it intends to use the money to pay down debt. That offer was later upped to $4 billion.

Arcelor says the transaction, combined with earlier announced initiatives, the most recent being a sale of a 15 per cent interest in its Labrador Trough iron ore mining and infrastructure assets in Quebec into a consortium it part owns with POSCO and China Steel Corporation, will enable it to reduce its overall debt load to $US17 billion by June 30 and accelerate the achievement of a medium term debt target of $15 billion.

It says deleveraging remains a priority in order to maintain ‘strategic flexibility.’

“We have consistently said that reducing net debt is a priority for the company,” company chairman and CEO Lakshmi Mittal said. “This transaction, supplemented by proceeds from ongoing asset disposals, the announced reduction in dividends and continued cost saving initiatives, will significantly lower our net debt and accelerate the achievement of a medium term net debt target of USD 15 billion.”

Recent conditions have been extremely challenging for steel manufacturers around the world as subdued manufacturing and construction conditions have impacted upon demand and prices.

As of December, the Global Composite Carbon Steel Price index was down more than 20 per cent from its May, 2011 peak.

Arcelor has not been immune to these developments. Last month, weak conditions forced it into a $US4.3 billion asset write-down, while last year, each of the ‘Big Three’ debt ratings agencies – Standard & Poor’s, Moody’s Investor Service and Fitch Ratings –  stripped the company of its investment grade rating, citing weak sales and concerns about its debt load.

All Images Credit: ArcelorMittal

By Andrew Heaton