ZAYBXC schreef op 23 november 2015 21:29:
Debt weighs heavily on Netherlands-listed steel giant
ArcelorMittal, the Netherlands-listed steel producer, towers over its peers. It has twice the capacity of the global number two, Japan’s Nippon Steel. Yet that scale has not helped ArcelorMittal control costs, and it desperately needs to do so. Interest expense eats up a large portion of its profits and it has posted a net loss every year since 2011.
Steel prices have fallen over the past year. Chinese steelmakers, facing a 5 per cent fall in domestic demand, have been exporting instead. Six of the world’s top ten steel producers are Chinese. Price deflation shows no sign of abating soon.
To the company’s credit, its net debt has declined for several years in a row. Its ratio of net debt to earnings before interest, tax, depreciation and amortisation, at three times, is no higher than its largest peers.
But this is one of those companies for which the use of ebitda hides the real problem. Its depressingly frequent asset writedowns are non-cash. But the resulting net losses still reduce shareholder equity — as they should, given that they represent real economic losses. Only US Steel has as poor a record when it comes to regular net losses. Its shares, along with ArcelorMittal’s, have trailed their global rivals this year.
So ArcelorMittal needs to do more to cut debt. The company believes it did enough three years ago, issuing equity while shutting down furnaces. Then the problem was falling steel demand, not increasing supply.
Yes, next year’s dividend has been suspended. That means savings of just a few hundred million dollars; the company needs multiples of that. Unless China’s steel market supply suddenly collapses, or demand surges, steel prices will not rebound sharply enough to help. Debt must come down more rapidly.
Giants stay strong as long as they remain upright. ArcelorMittal’s net debt threatens to lay it low. It should consider more radical action, such as an equity issue or even a sale of its iron ore business, to regain its poise.