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ArcelorMittal Initiates Bond Issue to Repay Existing Debt

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ArcelorMittal (MT - Free Report) has started an offering of USD-denominated notes.

The company plans to use the net proceeds from the offering toward repayment of existing debt. Per the company, this will include the $1 billion outstanding under a $7 billion term facilities agreement associated with the proposed buyout of Essar Steel India Limited through a joint venture (JV) with Nippon Steel and Sumitomo Metal Corporation (“NSSMC”).

The JV agreements will enable ArcelorMittal and NSSMC to own 60% and 40% of the share capital of the JV, respectively. Moreover, the companies will have equal representation and voting rights on its board of directors, such that the JV will be considered to be controlled jointly. ArcelorMittal expects that its investment in the JV will be equity accounted.

ArcelorMittal’s shares have lost 33.8% in the past year compared with 25% decline of the industry.


 

As of Dec 31, 2018, ArcelorMittal’s long-term debt was around $9.3 billion, down roughly 8.2% year over year.

For 2019, ArcelorMittal anticipates global apparent steel consumption (ASC) growth in the range of 0.5-1%, down from 2.8% in 2018.

In the United States, the company projects ASC growth of 0.5-1.5% in 2019. While automotive demand is likely to remain stable, the growth is expected to be driven by sustained albeit weaker demand in machinery and construction. This compares to growth of 1.7% witnessed in 2018.

In Europe, sustained strength in construction is likely to be balanced by slower growth in machinery and stable automotive demand. These factors are expected to support ASC growth of roughly 0.5-1% in 2019 compared with growth of 2.9% in 2018.

ASC is expected to rise 3.5-4.5% in Brazil as growth in machinery and automotive slows in the region but construction activity is witnessing an uptick for the first time since 2013. Notably, ASC expanded 7.3% in 2018.

In China, the company expects overall demand to decline 0.5-1.5% in 2019 against growth of 3.5% in 2018. A relatively stable demand from construction and automotive is likely to be offset by declining machinery output.

Based on these expectations, the company expects to witness increased steel shipments in 2019 on year-over-year basis. Capital expenditure is also expected to increase to $4.3 billion from $3.3 billion in 2018.

ArcelorMittal Price and Consensus

ArcelorMittal Price and Consensus | ArcelorMittal Quote

Zacks Rank & Key Picks

ArcelorMittal currently carries a Zacks Rank #5 (Strong Sell).

A few better-ranked stocks in the basic materials space are Kirkland Lake Gold Ltd. (KL - Free Report) , Ingevity Corporation (NGVT - Free Report) and Materion Corporation (MTRN - Free Report) , all currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirkland has an expected earnings growth rate of 8.8% for 2019. The company’s shares have surged 118.2% in the past year.

Ingevity has an expected earnings growth rate of 17.9% for 2019. The company’s shares have gained 48.2% in a year’s time.

Materion has an expected earnings growth rate of 12.6% for 2019. Its shares have gained 9.2% in a year’s time.

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