Fortescue Metals Group, the world's No. 4 iron ore miner, plans to announce a restructuring of its hefty debt load next week, seeking to allay mounting liquidity concerns and arrest a plunge in its share price.
Fortescue has become something of a lightening rod for investor concerns about the prospects for the resources boom, which is stumbling after a seven-year bull run.
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. The stock is down 39 per cent since the end of June alone.
Shares of Fortescue dived the most in almost four years late yesterday after a report that the company had asked its lenders to waive all debt covenants for the next 12 months.
Fortescue, which has more than $US11 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 September 18. It sought a halt on trading in its shares until then.
"Fortescue remains concerned about continued rumours and speculation in respect of its bank related facilities," the company said in a statement. "Discussions with its banks have progressed significantly overnight and it is in the best interests of shareholders to halt trading in Fortescue's securities."
Loans in focus
Fortescue secured a $US1.5 billion loan facility in August fully underwritten by Bank of America Merrill Lynch, but sources told Reuters Basis Point that 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 $US1.5 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 head room around liquidity, which is what they need," Melbourne told Reuters.
Lenders to Fortescue include National Australia Bank, Commonwealth Bank, Westpac, ANZ, JPMorgan, Bank of America Merrill Lynch, Deutsche Bank, Credit Suisse and RBS, according to Loan Pricing Corp data.
Since early September, Fortescue has shed 12 per cent 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.
"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.
Mr Forrest, a hard-dealing former stock broker, has almost all his wealth tied up in the company he built, mostly with borrowed money. He has spent more than $US140 million buying more Fortescue shares since June, facing off against hedge funds betting the stock will fall.
Analysts at CLSA, which hosted Fortescue chief executive Nev Power at forum in Hong Kong yesterday, 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 $US1 billion of funding in the near term and around $US4 billion over a two year period to bring gearing down to the 30-40 per cent 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.
Further asset sales are on the cards, with the company in negotiations to sell a stake in a lower-grade iron ore project and to offload its worker accommodation sites to a third party.
Reuters