SYDNEY (Reuters) - Australia’s Fortescue Metals Group Ltd (FMG.AX), the world’s no.4 iron ore miner, said it planned to announce a restructuring of its hefty debt load next week, seeking to allay mounting liquidity concerns and arrest a plunge in its stock.
Fortescue has become something of a lightning rod for investor concerns about the prospects for Australia’s resources boom, which is stumbling after a seven-year bull run. The stock is down 39 percent since the end of June.
Almost entirely exposed to Chinese demand for the steelmaking ingredient, Fortescue’s fortunes have suffered in tandem with a near halving in iron ore prices over the past year.
Shares in the Fortescue dived the most in almost four years on Thursday after a report the company had asked its lenders to waive all debt covenants for the next 12 months.
“Fortescue remains concerned about continued rumors and speculation in respect of its bank related facilities. Discussions with its banks have progressed significantly overnight and it is in the best interests of shareholders to halt trading in Fortescue’s securities,” the company said in a statement.
Fortescue, which has more than $11 billion in debt, reiterated it was meeting all its debt covenants and said it expected to make an announcement regarding “the restructure of its bank related facilities” by the start of trade on Sept 18. It sought a halt on trading in its shares until then.
“It’s clearly a company in strife, and if they hadn’t gone into a trading halt today, who knows where their shares would have gone,” said Tim Gerrard, an analyst at Investec.
Since early September, Fortescue has shed 12 percent of its value on concerns that it will have to raise equity to shore up its funding, a move that its founder and one-third shareholder, Andrew “Twiggy” Forrest, has resisted.
Forrest, a hard-dealing former stock broker, has almost all his wealth tied up in the company he built, mostly with borrowed money.
Analysts at CLSA, which hosted Fortescue Chief Executive Nev Power at forum in Hong Kong on Thursday, said they expected Fortescue to have to raise more cash.
“If the iron ore price remains around current levels then we suspect Fortescue will need to source at least an additional $1 billion of funding in the near term and around $4 billion over a two year period to bring gearing down to the 30-40 percent target,” Hayden Bairstow and Amit Ramdev said in a note.
Earlier this month, Fortescue announced it was slamming the brakes on plans to triple its iron ore capacity, cutting hundreds of jobs and selling non-core assets to preserve cash.
Reuters Basis Point reported Fortescue secured a $1.5 billion loan facility in August fully underwritten by Bank of America Merrill Lynch (BAC.N), but sources said attempts since to syndicate the loan among a wider pool of lenders were struggling amid concerns about the outlook.
Bank of America Merrill Lynch has declined to comment on the covenant waiver talks.
Fitch analyst Vicky Melbourne said if Fortescue managed to extend the deadline on that $1.5 billion short-term loan and increase the portion of that loan that was a “revolver”, that would give the company more breathing room.
“It could give them a bit of headroom around liquidity, which is what they need,” Melbourne told Reuters.
Lenders to Fortescue include National Australia Bank (NAB.AX), Commonwealth Bank of Australia (CBA.AX), Westpac Banking Corp (WBC.AX), Australia and New Zealand Banking Group (ANZ.AX), JPMorgan (JPM.N), Bank of America Merrill Lynch, Deutsche Bank (DBKGn.DE), Credit Suisse CSGN.VX and RBS (RBS.L), according to Loan Pricing Corp data.
Reporting by Lincoln Feast, Narayanan Somasundaram and Sharon Klyne in Sydney and Sonali Paul in Melbourne; Editing by John Mair