ArcelorMittal SA (ADR) (NYSE:MT) is planning to issue fresh shares towards a fundraiser targeted to bring in $3 billion. The move comes after the company posted massive losses in 4Q2015 and full-year 2015. The management is targeting to at least trim the company’s debt position to $12 billion by end of this year from the present $15.7 billion.
Input of controlling shareholders
Among the investors expected to buy the additional shares in the announced secondary offering is Mittal family, the controlling shareholder of ArcelorMittal steel group. Mittal family is expected to invest an additional $1.1 billion in the company through the new shares to be issued. That investment is expected to boost the family’s stake of ArcelorMittal shares above 39.4% it owned at the end of last year.
Choosing dilution over debt
ArcelorMittal SA (ADR) (NYSE:MT)’s decision to raise $3 billion through equity instead of bonds shows the management’s strategy to reduce exposure to debt market. Perhaps that makes more sense if you consider that the company already carries a heavy debt load on its shoulders. At the end of last year, ArcelorMittal had no less than $15.7 billion in net debt, which the management is struggling to bring down to less than $12 billion by the end of 2016.
ArcelorMittal reported a loss of $6.7 billion in 4Q2015, significantly up from $955 million in a similar quarter in the prior year. For the full-year, the loss ballooned to $7.9 billion, thanks in part to the $4.8 billion in impairment charges.
For the most part, ArcelorMittal SA (ADR) (NYSE:MT) suffered massive losses in 4Q and full-year 2015 because of low demand and weak prices for steel. The problem majorly stems from oversupply of steel in the market. That explains why ArcelorMittal’s 4Q revenue contracted 25$% to just $14 billion. The topline decline came on the back of 7% drop in steel shipments compared to a year ago.