Fortescue's small cash call raises eyebrows
Fortescue Metals Group's latest approach to debt markets has raised more questions than it has answered, given the smaller than expected target of the new raising.
The iron ore miner announced this morning that it would seek to raise $US1 billion in senior unsecured notes, in a move that comes just days after Standard and Poors improved Fortescue's credit rating.
The funds will be used on Fortescue's aggressive plan to almost triple iron ore production in the Pilbara, and particularly for the purchase of mining fleet for project.
Many observers were surprised that Fortescue did not seek to raise a larger amount, given the company has flagged that buying the mining fleet alone will cost around $US1.6 billion.
A further $US1.2 billion in funding for the $US8.4 billion project remains unsourced at the moment, meaning Fortescue may return to debt markets again later this year to find the remainder of their funding.
Fortescue defied bad market conditions late last year to succesfully raise $US1.5 billion on American markets, and this latest raising is expected to tap the same US debt markets. The October raising offered senior unsecured note with a coupon of 8.25 per cent.
The raising comes as stresses in global credit markets appear to be easing, and just five days after Standard and Poors improved Fortescue's rating from B+ to BB-.
That rating is still considered below investment grade, but moves Fortescue closer to escaping ''junk'' territory.
Standard and Poors said the $US8.4 billion growth strategy to export 155 million tonnes of iron ore per year was weighing down Fortescue's credit rating.
The ratings agency said it would consider raising the rating if the project is delivered on time and on budget, but the rating could slip if iron ore prices were to fall consistently lower than $US120 per tonne.
Iron ore prices are currently around $US140 per tonne.
Fortescue shares were trading 8 cents, or 1.6 per cent, higher at $5.85 around midday.