Mittals to sell 50% in ship unit to DryLog
ArcelorMittal is going to offload a 50 per cent share of its shipping business to DryLog Ltd in a bid to cut debt, the deal coming close on the heels of the $5.7-billion acquisition of Essar Steel in India.
The stake sale to DryLog and formation of an equal joint venture subsequently will impact ArcelorMittal’s net debt by $530 billion, with $400 million on completion and another $130 million due in early January. The transaction is part of company’s commitment to unlock up to $2 billion in value by the middle of 2021, ArcelorMittal told bourses.
The Luxembourg-based company, where Indian businessman Lakshmi Niwas Mittal is the largest shareholder, had a net debt of $10.7 billion as on September 30, 2019.
While the net debt position is not known now, it is likely to have gone up following the closure of the long pending Essar deal.
ArcelorMittal formed a 60:40 joint venture with Nippon Steel to take over the asset. While a third of the fund is accounted for by partners’ equity, the rest is taken on as debt, which will sit on the balance sheet of Essar Steel only.
A back-of-the envelope calculation would show that ArcelorMittal had to plough in $1.14 billion as its share of partner equity on account of Essar.
The company had guided that an investment grade credit rating remains ArcelorMittal’s financial priority with a target to reduce net debt to $7 billion to support solid investment grade matrix at all points of the cycle.
It had a gross debt of $14.3 billion at the end of third quarter on September 30, 2019. “We continue to expect a substantial working capital release in the fourth quarter which should enable us to further reduce net debt year on year,” chairman and CEO L.N. Mittal said after announcing those results.
The transaction with DryLog, an international asset owning company, a significant player in dry bulk cargo like iron ore and coal, is expected to close before the end of 2019.
Global Chartering Ltd, the wholly owned shipping business, currently operates 28 dry cargo vessels, which range from Supramax to Cape Size, 25 of which are on long-term leases and will be transferred into the joint venture, with the remaining three being owned outright. The JV will benefit from the combination of the two businesses respective knowledge and expertise.