ArcelorMittal raises almost $4 billion to tide through troubled waters
ArcelorMittal announced its plans to raise $3 billion from issue of shares and an additional $1 billion by selling its minority stake in Spanish auto-parts maker, Gestamp. The decision was made to reduce the huge debts as well as survive the slump in steel market brought on by Chinese exports.
The CEO of the company, Lakshmi Mittal, who holds 37% stake in the business has said in a statement on Friday that he will maintain his stake while his family will be committed to take up about $1.1 billion, according to Reuters. "This capital raise, combined with the sale of our minority shareholding in Gestamp, will accelerate the company's debt-reduction plan and enable us to reduce net debt to less than $12 billion," he said. "This 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."
The world's largest steel company has confirmed that they have sold their 28% stake in Gestamp Automacion for $979 million, which ended the 1998-esablished joint venture. As per CNBC, Mittal revealed plans of rolling out five-year action 2020 plan, which focuses on improving each of its five segments and reinstating core profit (EBITDA) to above $85 per ton, from last year's $62 per ton. Mittal said, "2015 was a very difficult year for the steel and mining industries," as its core profit last year declined by 32%, to $5.2 billion. However, it expects the same to be "in excess of" $4.5 billion in 2016, which is still not good news.
In the meanwhile, the company took drastic measures by way of eliminating dividends, scrapping expansion plans, and shutting down plants, to pay off the debts. Its net loss snowballed into a whopping $7.95 billion after taking on write-downs worth $4.8 billion. Along with cost cuts, ArcelorMittal's capital expenditure and interest payments would see severe reductions by $300 million and $200 million respectively.
The Luxembourg-based company reduced its profit forecast for 2016 as Chinese exports took a huge bite out of its largest markets that is Europe and the US. Exports from China were reportedly 112 million tons in 2015, leading to a 40% drop in the US steel prices - lowest since the last 10 years - and an all-time low for the European hot-rolled coil, a yardstick for steel prices, since 2007. Mittal had spoken about this market situation in a separate statement, according to Bloomberg. "Although demand in our core markets remained strong, prices deteriorated significantly during the year as a result of excess capacity in China," he had explained.
For 2016, the company, which meets 6% of world demand, is steeling itself for a flat to slightly higher market for consumption. The increase in demand in the US and Europe are likely to be offset by the declining state of affairs in China, Brazil, and former Soviet states.