ArcelorMittal to Raise $3 Billion After Hefty Net Loss - 2nd Update

By Alex MacDonald 

LONDON-- ArcelorMittal, the world's largest steelmaker, said Friday it will issue $3 billion worth of shares to strengthen its balance sheet as it grapples with a world-wide steel glut which contributed to a near $7 billion fourth-quarter net loss.

The Mittal family, the steel group's controlling shareholder, will subscribe to its entitlement of the share issue, or about $1.1 billion. Lakshmi Mittal is ArcelorMittal's chairman and chief executive. At the end of last year, the family owned 39.4% of the company's shares.

The Luxembourg-based company will also sell it 35% stake in Spain's automotive metals component firm Gestamp Automoción for about $1 billion by the end of June as part of the cash-raising program to pay down debt.

ArcelorMittal said it wants to reduce net debt to less than $12 billion from $15.7 billion at the end of December.

"This capital raise, combined with the sale of our minority shareholding in Gestamp, 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," said Mr. Mittal.

The urgency of ArcelorMittal's debt-reduction plan was underscored by the company's latest results, released Friday a week earlier than scheduled. Its net loss ballooned to $6.7 billion in the three months to end-December from $955 million the same quarter a year before on a 25% drop in revenue to $14 billion.

ArcelorMittal said impairment charges of $4.8 billion largely related to its iron-ore operations led to a full-year loss of $7.9 billion.

The prospect of the stock sale put more pressure on the group's share price, down more than 5% on Friday after a more than 60% drop in the past year, but it reassured investors about Arcelormittal's creditworthiness. The cost of insuring $10 million of the company's debt against default over a five-year period dropped 12% to $869,000.

Arcelormittal has tapped shareholders for funds rather than focus on asset sales amid signs that the steel market has bottomed out, said Chief Financial Officer Aditya Mittal.

"We have to make sure we don't destroy value" through asset sales, Mr. Mittal said. "The best value decision [is] a rights issue," he said.

Falling steel prices in its regional markets and excess steel supply from China, the world's largest steel producer, have hammered the performance of Arcelormittal and its iron-ore and steel making rivals. China has exported record amounts of the metal to Europe and other markets amid shrinking demand at home. The average global steel price fell 23% last year, according to consultancy firm MEPS International Ltd, while the benchmark iron-ore price dropped 43% during the same period.

Slack demand and falling prices has led other mining and metals companies--ArcelorMittal mines iron ore and coal itself--to ask shareholders for cash to shore up their finances as investors worry about their ability to finance their borrowings amid the slump in commodity producers' revenues.

French specialty steelmaker Vallourec SA announced this week plans to raise EUR1 billion ($1.1 billion) from bonds and shares amid drastic cutbacks in its business. Other resources companies have sold assets, cut back capital spending, and suspended dividends.

Mr. Mittal said the steel group faces continued tough trading conditions.

"[This year] will be another difficult year for our industries," said Mr. Mittal. "It is clear that China has a challenge to restructure its steel industry...Until this situation is fully addressed the effective and swift implementation of trade defense instruments will be critical," he said.

His comments echoed those of other steelmakers. Tata Steel Ltd. of India, in announcing plans to cut a further 1,050 jobs from its U.K. operations last month, urged governments to do more to stem the tide of inexpensive steel from China.

In the fourth quarter, ArcelorMittal said earnings before interest, taxes, depreciation and amortization fell 39% to $1.1 billion, in line market expectations.

Looking ahead, ArcelorMittal said it expects to generate more than $4.5 billion in Ebtida this year following a 28% drop to $5.2 billion last year.

Earnings might improve more if the company successfully implements a new plan to generate an additional $3 billion in Ebitda and more than $2 billion in free cash flow annually from 2020 by reducing costs and enhancing the efficiency of its mines and steel plants.

Write to Alex MacDonald at [e-mail]

(END) Dow Jones Newswires

February 05, 2016 07:24 ET (12:24 GMT)

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