Recently, leading steel maker ArcelorMittal (MT), through its wholly owned subsidiary in Luxembourg, announced the issuance of a $750 million bond mandatorily convertible into preferred shares of the subsidiary.
The bond was placed privately with a Luxembourg affiliate of Calyon and will not be listed. The bond will have a maturity of 17 months and ArcelorMittal will be entitled to call it in the year prior to maturity.
The subsidiary will invest the proceeds of the bond and an equity contribution by ArcelorMittal in notes linked to shares of the listed companies Eregli Demir Ve Celik Fab. T. AS (“Erdemir”) of Turkey and Macarthur Coal Limited of Australia, both of which are held by ArcelorMittal subsidiaries. The subsidiary may also, in agreement with Calyon, invest in other financial instruments.
The steel maker has no intention to sell its shares in Erdemir or Macarthur. In ArcelorMittal’s consolidated financial statements, the mandatorily convertible bond is expected to be recorded as minority interest (in the amount of approximately $696 million) and debt (in the amount of approximately $54 million).
The steel maker, which recently posted its third quarter results, said that it has noticed the first signs of recovery during the reported quarter. The company saw a 7% sequential improvement in its steel shipments in the quarter. ArcelorMittal restarted a number of its facilities in response to the improved demand conditions and now expects crude steel capacity utilization of 70% for the fourth quarter.
Also, the company has reinitiated selected growth projects in some key emerging markets. The company expects to see a gradual improvement in steel market conditions through 2010.
In response to the recent uncertain market conditions, the company had implemented cost reduction initiatives and has achieved $2.2 billion of annualized sustainable cost reduction as of the reported quarter. Through its actions, the steel company has succeeded in offsetting some of the negative impact of weak market conditions. Though the profits were low compared to the previous year, the company witnessed a substantial improvement on a sequential basis.
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