News Room - Steel Industry

Posted on 06 May 2009

BlueScope May Sell $1 Billion in Stock to Trim Debt

BlueScope Steel Ltd. plans to raise as much as A$1.4 billion ($1 billion) from its second share sale in three months as the slump in metals demand drives Australia’s largest steelmaker to a half-year loss.

 

The company is offering stock to existing holders at A$1.55 each, 40 percent less than the last traded price, Melbourne- based BlueScope Steel said today in a statement. The steelmaker has also arranged a A$1.3 billion syndicated loan.

 

Chief Executive Officer Paul O’Malley said BlueScope Steel won’t pay a dividend this half as export markets remain “challenging.” Steel producers from Europe’s ArcelorMittal to Australia’s OneSteel Ltd. have taken advantage of a global stocks rally to sell shares this year, strengthening finances as they cut output and conserve cash to cope with the recession.

 

“There is plenty of money around and they are taking advantage of that,” Andrew Sekely, head of Australian equities at Intersuisse Ltd., said in Sydney. “‘It is a bit of surprise because they raised capital not so long ago.”

 

BlueScope Steel, halted from trading for the announcement, has dropped 27 percent this year on the Australian stock exchange to A$2.57 yesterday. The benchmark index has gained 4.6 percent this year, and jumped 24 percent since March 6, this year’s low, bolstering attempts by companies to raise cash. The stock will resume trading on May 7.

 

Refinance Debt

 

BlueScope, which raised a total of A$413 million in two offerings in December and February, said it will use the money from today’s announced stock sale and loans to refinance A$2.1 billion of existing debt. The share sale has been underwritten to A$825 million by Credit Suisse Group AG.

 

The company’s interest cover of 3.2 times is less than the 11.1 times average of its Asian peers, Deutsche Bank AG said last week in a report flagging possible raising. The interest coverage ratio is a company’s pretax operating income or cash flow divided by its interest obligations for a given period.

 

Steel demand will stabilize in the “latter part” of 2009, leading to a mild recovery in 2010, the World Steel Association said last month. China, the world’s biggest steel consumer, is spending 4 trillion yuan ($586 million) to spur domestic demand.

 

BlueScope is heading for its first-ever half-yearly loss because of the drop in demand, the company said in February. O’Malley confirmed the forecast to reporters on a call today.

 

The company posted a more than threefold increase in first- half profit to A$407 million in February. Its full-year net income may be A$200 million, Royal Bank of Scotland Group Plc said in March, citing lower pries and weakening demand.

 

Steel Prices

 

Steel prices are now lower than they were in the December half, the company said in the statement. Global market conditions remain challenging, though the decline in domestic sales volumes that was seen toward the end of 2008 has leveled out, it said.

 

BlueScope today also said it may delay restarting the Number 5 blast furnace at Port Kembla after a major reline is completed in June. Its other furnace, Number 6, is operating at about 75 percent capacity, O’Malley said to reporters.

 

“We want to ensure there is sufficient demand to require us to run two blast furnaces, even if it was at minimum levels,” he said. “What we don’t want to do is turn on No. 5 blast furnace and turn it back off again.”

 

The company last week said there are signs that steel de- stocking cycles in China and the U.S., which have cut demand for the raw material, are ending. Sales in Australia have been steady through March and April and at a lower level than a year before, O’Malley said.

 

“The hardest question to answer is what is the right inventory level relevant to demand and at the moment we can’t see out much more than a month,” he said. “We think our de- stocking is well underway but still some way to go.”