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UPDATE 1-S&P cuts ArcelorMittal debt to junk status
* Long-term debt cut to BB+ from BBB-
* Outlook negative
* Shares close down 8.8 percent
Aug 2 (Reuters) - Rating agency Standard & Poor's cut ArcelorMittal's long-term debt to junk status on Thursday and said uncertainty about the debt reduction plans of the world's largest steelmaker and a weak sector outlook meant it could cut further.
S&P said it downgraded the Luxembourg-based company because it felt the steel industry was continuing to weaken. ArcelorMittal's second-quarter results were below its expectations.
The company reported second-quarter core profit (EBITDA) last week broadly in line with market expectations, when a one-off gain was removed. It forecast steel earnings would be lower in the second half than the first, but with rising income from mining.
Europe was stalling a steel industry pick-up, it added.
The global steel industry, often seen as a gauge for the world's economy, is suffering from falling demand in Europe, due to the euro zone debt crisis, and a slowdown in China.
S&P expected ArcelorMittal's adjusted ratio of funds from operations to debt to drop below 20 percent in 2012 and be around 20 percent in 2013. It previously forecast 25 percent for next year.
It said this new forecast came despite ArcelorMittal's disposal of non-core assets and other measures to enhance its credit.
ArcelorMittal shares closed down 8.8 percent on Thursday, making them the third worst performers in the FTSEurofirst 300 index of leading European stocks.
When reporting second-quarter earnings last week, ArcelorMittal's chief financial officer told an investor conference call that it was a strategic priority for the company to retain its investment grade rating.
He also said the cost of a one notch downgrade was $100 million of higher interest expense, adding this extra cost was "not significant."
S&P said it could revise its outlook to stable over the next six months if ArcelorMittal achieved its planned debt reduction.
It could also raise its rating back to BBB-, again in the next 18 months, although this was not anticipated, if adjusted debt declined to $30 billion or below from $37.6 billion at the end of 2011 and there were signs of an industry improvement.
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