ArcelorMittal (MT - Free Report) has inked a share purchase agreement with DryLog Ltd to divest 50% stake in its fully-owned shipping business, Global Chartering Limited (GCL). Subsequently, the company will establish a 50:50 shipping joint venture (JV) with DryLog. ArcelorMittal expects this transaction to close before the end of 2019.
The sale of stake and JV formation are likely to impact ArcelorMittal’s net debt by $530 million, including $400 million on deal completion and an additional $130 million due in early 2020. The latest deal underpins the company’s commitment to unlock value worth up to $2 billion from its portfolio of assets by mid-2021.
The JV will exclusively handle a portion of ArcelorMittal’s extensive annual cargo commitments. Moreover, the JV is likely to gain from DryLog’s technical and commercial vessel management expertise, as well as transport solutions optimization abilities. These factors will enable the JV to boost operations and position itself as a significant player in the international shipping industry.
Notably, GCL operates 28 dry cargo vessels ranging from Supramax to Cape Size. Currently, 25 of these dry cargo vessels are on long-term leases, which will be transferred into the JV. Also, the remaining three will be owned outright.
ArcelorMittal’s shares have lost 11.2% in the past year against the 1.9% rise of the industry.
In November, ArcelorMittal revised expectations for global apparent steel consumption (ASC) growth for 2019. It now expects global ASC growth in the range of 0.5-1% compared with 0.5-1.5% rise projected earlier.
For the United States, the company expects a decline in ASC in the range of 0.5-1% compared with flat to 1% growth expected earlier. In Europe, it anticipates ASC decline of up to 3% compared with 1-2% fall projected earlier. Automotive demand weakness and slowing construction are expected to hurt ASC in Europe.
For Brazil, the company expects a rise in ASC within 0.5-1%, down from earlier projection of 1.5-2.5% growth. For China, it expects overall ASC growth in the range of 1.5-2%, up from 0.5-1.5% expected previously. The company expects real estate demand to drive the upside in China.
Zacks Rank & Key Picks
ArcelorMittal currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Kirkland Lake Gold Ltd. (KL - Free Report) , Impala Platinum Holdings Limited (IMPUY - Free Report) and Pan American Silver Corp. (PAAS - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kirkland Lake Gold has an expected earnings growth rate of 99.3% for 2019. The company’s shares have surged 64% in the past year.
Impala Platinum Holdings has projected earnings growth rate of 255.2% for fiscal 2020. The company’s shares have skyrocketed 312.7% over a year.
Pan American Silver has an estimated earnings growth rate of 56.4% for the current year. Its shares have returned 55.1% in the past year.
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