Why ArcelorMittal shares fell 17% today
What happened
European steelmaker ArcelorMittal (MT 5.13% ) reported sound First quarter 2020 results last Thursday. Although the company posted a 23% decline in sales ($14.8 billion) and a net loss ($1.11 per share), investors reacted positively that day, buying the shares of ‘Arcelor by almost 6%.
Today, Arcelor is giving back all those winnings and more. Its stock was down 17.4% as of 1:20 p.m. EDT.
So what
Why is Arcelor’s stock so low? Two factors seem to be at play here. First, Moody’s downgraded ArcelorMittal’s senior unsecured debt to junk (Ba1) status on Friday. As Moody’s analysts explained: “The rapid and growing spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and falling asset prices are creating a severe credit shock and extended in… the steel sector… [and] weaknesses in ArcelorMittal’s credit profile, including its exposure to cyclical end markets as the automotive, machinery and construction industries have made it vulnerable to shifts in market sentiment under these unprecedented operating conditions, and ArcelorMittal remains vulnerable to the spread of the outbreak.”
Now what
Second, to address this risk, Arcelor announced this morning an offering of common stock and mandatory convertible subordinated notes for an expected total of $2 billion.
The details on the offers seem to be constantly changing. Many spaces to insert relevant information about the offerings in question, described in documents filed with the Securities and Exchange Commission today, remain blank. What is clear is that Arcelor intends to make two separate offerings (one selling ordinary shares and the other notes convertible into ordinary shares after three years) in order to raise funds and consolidate its balance sheet to improve its solvency.
Arcelor says these two offerings will help it deleverage and improve its liquidity, “thereby building additional resilience going forward in what remains an uncertain environment.” Investors today may be more concerned that the size of the offerings (for new shares and for debt-to-equity conversions) will dilute their stake. They are selling ArcelorMittal shares today before that happens.
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