After Moody’s downgraded ArcelorMittal’s debt rating by one notch yesterday, causing it to lose its “investment grade” status, the company has proposed a $2 billion capital increase via shares and mandatory convertible bonds. It will decide what proportion is covered by each of the two offers. Furthermore, it reserves the right, depending on demand, to increase the amount of $2 billion.
The issue is intended for qualified investors. Its objective is to strengthen the company’s capital and accelerate reducing its net debt to $7 billion, a goal that has been set for the medium term (current net debt stands at $9.5 billion, 2.1x EBITDA for the last 12 months).
The amount announced for the operation is equivalent to 18% of ArcelorMittal’s capitalisation at the Spanish stock market’s close last Friday.
According to Renta4’s analysts, the management wants to clear up doubts about the fulfilment of the net debt reduction target.
“This partly depended on the firm’s plan to sell $2 billion dollars worth of assets by June 2021. We also believe ArcelorMittal’s board would in this way seek to regain “investment grade” status
So far the company has received about $600M from asset sales. And the board recently gave an assurance that they had well-valued assets in the market with which to complete the operation.
The company’s liquidity position at end-Q1’20 stood at $9.8bn, to which a $3bn credit line was added in mid-April.
In the opinion of experts at Bankinter:
“The incorporation of the $2 billion of liquidity from the asset disposals transaction ($750M net of cash) will improve the estimated debt/EBITDA ratio from 2.65x to 2.5x (taking market consensus data this year).”
Yesterday, ArcelorMittal’s share price plunged (-15%) in the wake of Moody’s decision and the subsequent announcement of a capital hike.
