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Brussels - ArcelorMittal has raised a bigger-than-expected $4bn selling shares and convertible bonds to strengthen its balance sheet, leaving the world's largest steelmaker better placed to cope with tough markets.
"The major concern for Arcelor was the fact that they were struggling with their balance sheet. They were too leveraged. With this transaction they remove this balance sheet issue totally," Petercam analyst Alan Vandenberghe said on Thursday.
ArcelorMittal, whose credit rating was cut to "junk" status last year, had said on Wednesday it planned to raise $3.5bn to cut debt to around $17bn by end-June from $22 billion on Dec. 31.
On Thursday, it said it had issued $2.25 billion in mandatory convertible notes with a 6 percent coupon, and raised $1.75bn selling shares at $16.75, a 4.4% discount to Tuesday's close in New York before the offer was announced.
"It went very well. It was multiple-times covered with a strong book of demand," a source close to the deal said.
"There was a very big component from the US (investors). But you do not get deals of this size done without a pretty broad mix of geographies. There were UK and continental European investors in there as well."
Shares in ArcelorMittal, which along with the rest of the steel sector has been squeezed by cooling Chinese demand and a languishing European market, were up 2.2% at €13.37 by 12:38. It hit a 38-week high at €13.67 on Monday.
Convertible boom
With investors hoping equity markets will rise and companies seizing the opportunity, the convertible bond market has seen a resurgence of activity since the European Central Bank said in September it would buy sovereign debt to save the eurozone.
Mandatory convertible issues - which see bondholders repaid in shares at maturity rather than cash - can help a company protect its credit rating because they tend to be treated as equity by ratings agencies. Such deals are rare, particularly in Europe, and investors are mostly US-based.
German carmaker Volkswagen raised $3.2bn through a mandatory convertible issues in November, the first such issue by a European corporate since 2009.
ArcelorMittal finance director Aditya Mittal said on Wednesday of its fundraising: "We are parking the balance sheet issue now. We are also parking, to some degree, the asset divestment process". Aditya's father, Lakshmi, is chairman and chief executive and regularly said to be Britain's richest man.
Analysts estimated the Mittal family, whose stake was almost 41 percent stake before the fundraising, would be diluted to around 38 percent after buying $300m of convertible notes and $300m in shares.
ArcelorMittal has stepped up debt-cutting efforts since Standard & Poor's became the first credit rating agency to cut it to junk in August.
It has slashed its dividend, cut costs and, last week, sold a 15% stake in one of its Canadian iron ore operations to raise $1.1bn.
ArcelorMittal also said on Wednesday it was interested in assets owned by German peer ThyssenKrupp - most likely a steel plant in Alabama. While Aditya Mittal said this would not affect the debt-cutting target, Moody's said more needed to be done to support the company's Ba1 rating.
"ArcelorMittal's declared interest in ThyssenKrupp's Alabama mill is a fly in the ointment," BNP Paribas analysts said in a note. "From a capital allocation standpoint, we struggle to see the positive in acquiring state-of-the-art downstream steel capacities in the US following the recent sale of a 15% stake in (ArcelorMittal's flagship Canadian iron ore assets)."
"The major concern for Arcelor was the fact that they were struggling with their balance sheet. They were too leveraged. With this transaction they remove this balance sheet issue totally," Petercam analyst Alan Vandenberghe said on Thursday.
ArcelorMittal, whose credit rating was cut to "junk" status last year, had said on Wednesday it planned to raise $3.5bn to cut debt to around $17bn by end-June from $22 billion on Dec. 31.
On Thursday, it said it had issued $2.25 billion in mandatory convertible notes with a 6 percent coupon, and raised $1.75bn selling shares at $16.75, a 4.4% discount to Tuesday's close in New York before the offer was announced.
"It went very well. It was multiple-times covered with a strong book of demand," a source close to the deal said.
"There was a very big component from the US (investors). But you do not get deals of this size done without a pretty broad mix of geographies. There were UK and continental European investors in there as well."
Shares in ArcelorMittal, which along with the rest of the steel sector has been squeezed by cooling Chinese demand and a languishing European market, were up 2.2% at €13.37 by 12:38. It hit a 38-week high at €13.67 on Monday.
Convertible boom
With investors hoping equity markets will rise and companies seizing the opportunity, the convertible bond market has seen a resurgence of activity since the European Central Bank said in September it would buy sovereign debt to save the eurozone.
Mandatory convertible issues - which see bondholders repaid in shares at maturity rather than cash - can help a company protect its credit rating because they tend to be treated as equity by ratings agencies. Such deals are rare, particularly in Europe, and investors are mostly US-based.
German carmaker Volkswagen raised $3.2bn through a mandatory convertible issues in November, the first such issue by a European corporate since 2009.
ArcelorMittal finance director Aditya Mittal said on Wednesday of its fundraising: "We are parking the balance sheet issue now. We are also parking, to some degree, the asset divestment process". Aditya's father, Lakshmi, is chairman and chief executive and regularly said to be Britain's richest man.
Analysts estimated the Mittal family, whose stake was almost 41 percent stake before the fundraising, would be diluted to around 38 percent after buying $300m of convertible notes and $300m in shares.
ArcelorMittal has stepped up debt-cutting efforts since Standard & Poor's became the first credit rating agency to cut it to junk in August.
It has slashed its dividend, cut costs and, last week, sold a 15% stake in one of its Canadian iron ore operations to raise $1.1bn.
ArcelorMittal also said on Wednesday it was interested in assets owned by German peer ThyssenKrupp - most likely a steel plant in Alabama. While Aditya Mittal said this would not affect the debt-cutting target, Moody's said more needed to be done to support the company's Ba1 rating.
"ArcelorMittal's declared interest in ThyssenKrupp's Alabama mill is a fly in the ointment," BNP Paribas analysts said in a note. "From a capital allocation standpoint, we struggle to see the positive in acquiring state-of-the-art downstream steel capacities in the US following the recent sale of a 15% stake in (ArcelorMittal's flagship Canadian iron ore assets)."
