--ArcelorMittal raises $4 billion from combined offering versus
initial expectation of $3.5 billion
--Combined offering of common shares and mandatorily convertible
notes multiple times over-subscribed
--Proceeds to be used to help reduce net debt to $17 billion by
June end
--Convertible notes more heavily subscribed than equity but
strong interest in both, says Goldman
(Updates with details of completed offering, and adds comments
from analysts, Goldman Sachs and ArcelorMittal executives.)
By Alex MacDonald
LONDON--ArcelorMittal (MT) said it has raised $4 billion from a
combined offering of common stock and convertible notes--more than
initially expected-- and plans to use the proceeds to strengthen
its balance sheet as it endures lackluster steel demand.
ArcelorMittal raised $1.25 billion from the issue of common
shares and $2.25 billion from notes that pay a 6% coupon annually.
The notes will be reimbursed with shares when they mature in
three-years' time. ArcelorMittal had originally planned to raise
$3.5 billion from the offering, a sign of strong investor appetite
for the securities and expectations that steel demand will pick up
given improving macro-economic indicators in many regions of the
world.
"We are pleased with how it went. The offering was multiple
times over-subscribed," said Alasdair Warren, head of European
Equity Capital Markets at Goldman Sachs, the sole global
coordinator of the offering. "It's pretty extraordinary," he noted.
Demand was "at the upper end or our expectations," he added.
The Mittal family agreed to invest $600 million in the offering,
split equally between common shares and convertible notes, a move
which steel analyst Jeff Largey of Macquarie Research said will
dilute the family's 41% holding in the company. The Mittal family's
investment in the offering was equal to only 15% of the total
amount raised.
ArcelorMittal said it will use the proceeds alongside the $1.1
billion sale of a 15% stake in its iron ore unit, ArcelorMittal
Mines Canada, to reduce its net debt to $17 billion by the end of
June from an estimated $22 billion in 2012. The net debt target
takes into account a bid submitted to German steelmaker
ThyssenKrupp AG (TKA.XE) that reflects its interest in Thyssen's
Alabama steel plant, according to Financial Chief Aditya
Mittal.
The combined offering is expected to support the company's
return to an investment grade credit rating in due course following
a downgrade to junk status last year by the world's three largest
credit ratings companies.
Moody's Investors Service, which had warned that the company was
at risk of breaching a credit-facility covenant unless it reduced
debt or increased profitability, said the action was "credit
positive" and would help relieve concerns about the company's
ability to comply with its covenant under the prevailing soft steel
market.
Still, it said it would maintain its negative rating outlook
until the company reduces debt further "and the global economy and
steel market conditions begin to improve."
Meanwhile Fitch Ratings, another credit ratings company, said
the offering would "moderately improve [ArcelorMittal's] liquidity
position," but added that the convertible notes would be treated as
debt rather than equity given its credit rating criteria.
The combined offering should significantly reduce debt and allay
concerns about the company's balance sheet, laying the groundwork
for the stock price to rise when steel demand recovers, said Credit
Suisse in a note.
"The take away from the capital raise...is that we are parking
the balance sheet issue," said Mr. Mittal, ArcelorMittal's
financial chief. "We are also parking to some degree, the asset
divestment process because we do not believe we need to be
divesting significant amounts of assets to further strengthen the
balance sheet," he added.
Mr. Warren said investors were attracted to the offering "by the
fact that they could own stock in a company which now has a very
robust balance sheet and the fact that the company's shares may
start to benefit from the recent improvement in macro-economic
indicators."
From ArcelorMittal's perspective, the steelmaker chose to make a
combined offering in order to allow shareholders to buy straight
equity if desired while at the same time taking advantage of the
strong demand for convertible notes at the moment, a company
spokeswoman said. The mandatory convertible notes have the benefit
of minimizing equity dilution should the share price rise and the
coupon payments are tax deductible, ArcelorMittal CEO Lakshmi
Mittal said.
Aditya Mittal said the steel market outlook is improving with
leading indicators in several regions rising over the last few
months. Europe was the exception, although a technical rebound in
demand there had prompted ArcelorMittal to restart two blast
furnaces, one in Dunkerque, France and another in Asturias, Spain,
he noted.
-John M. Miller in Pittsburg contributed to this story.
Write to Alex MacDonald at alex.macdonald@dowjones.com
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