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Arrium to raise $754m to cut debt

Sep 15, 2014

Whyalla-based steel manufacturer Arrium is seeking to raise $754 million from investors in a capital raising as the iron ore market faces uncertainty with prices at a five year low.

The capital raising is in two parts; $656 million from retail entitlements and a $98 million placement to institutional investors.

The company said in a statement to the stock exchange today that net proceeds of the raising will be used to repay debt, in line with the company’s stated priority of debt reduction.

“The raising will strengthen the company’s balance sheet and provide it with a more appropriate capital structure for the current environment,” it said.

The entitlement offer is priced at 48 cents per new share via a bookbuild with an underwritten floor of 48 cents

The offer price is a 26 per cent discount to Arrium’s closing share price of 65 cents as the close of trade Friday.

Arrium’s chairman Peter Smedley said the move “positions the company for current markets”.

“Debt reduction is a key priority for the company and today’s announced capital raising reduces our debt significantly in a single step,” he said.

“While the company last month reported it had achieved significant progress with debt reduction, iron ore prices have fallen significantly in the last month to 5 year lows and there is increased uncertainty over the extent and timing of recovery.

“We are taking this action to position Arrium with a more appropriate capital structure in the current environment.

“In addition, we believe the offer provides shareholders with a good opportunity to increase their investment in Arrium on attractive terms.

“The company will have a strengthened balance sheet with significant leverage to improved iron ore prices, a sustained lower Australian dollar, increased steel volumes including from stronger investment in infrastructure and recovery in steel margins.”

Arrium also announced today that its previously announced dividend reinvestment plan will not apply to the 2014 final dividend of 3.0 cents per share payable on 16 October 2014 in order to facilitate shareholders participating in the Entitlement Offer.

The company was spun out from BHP in 2000 as OneSteel to focus on  domestic steel manufacturing and distribution.

The company has subsequently focussed on growing its resource-based businesses and now has significant mining and mining consumables businesses, as well as Arrium Steel.

Arrium Mining currently exports approximately 12 million tonnes per annum of hematite ore from its mining operation in South Australia.

The business also supplies ore to the company’s integrated steelworks at Whyalla, which is primarily pelletised magnetite ore.

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