Fortescue successfully refinances its debt, share climb 16%+ with iron ore price rebounding to over $105 per ton. Shareholders come out in better shape with no maturities until 2015. Suppliers continue to get paid for their services (not sure if there was ever a risk...)
Fortescue Metals Group Ltd. (FMG), Australia’s third-biggest iron ore producer, arranged $4.5 billion of new debt to refinance its existing bank loans, prompting the biggest jump in its shares in three years.
The five-year facility, underwritten by Credit Suisse Group AG and JPMorgan Chase & Co., extends the earliest repayment date of the company’s debt to 2015, the Perth-based company said today in a statement. It also removes earnings-linked covenants, which applied under the previous loans.
The package eases the pressure on billionaire Andrew Forrest, the biggest shareholder, to sell more assets or shares to bolster the company’s finances, which were strained after iron ore prices neared a three-year low this month on slowing economic growth in China. It gives Fortescue about an extra $900 million in cash to assist with expansion projects.
“It will be sufficient to cover their working capital requirement and obviously to repay those debts that were associated with the covenants,” David Lennox, a resources analyst at Fat Prophets in Sydney, said today by phone. It gives “them a needed cash injection and removes some of the risks that they had in those projects,” he said.
Fortescue rose as much as 18 percent to A$3.52, the most since June 11, 2009, as trading resumed after a halt on Sept. 13. They traded at A$3.475 at 11:48 a.m. Sydney time, giving the company a market value of A$10.8 billion ($11.3 billion).
Ore Prices
The company has also been boosted by a rebound in iron ore prices, which have gained 18 percent this month with ore for immediate delivery at the Tianjin port in China rose 3.4 percent yesterday to $105.1 a metric ton, the highest since Aug. 21. They’ve gained on speculation steel mills will speed imports because of a 1 trillion-yuan ($158 billion) building program.
There’s no need “whatsoever” for an equity raising, Chief Executive Officer Neville Power said today on a conference call. The company, which signed an agreement this month to raise $300 million selling a power plant to TransAlta Corp. (TA), isn’t in any rush to sell assets now, he said.
“We have a large number of those projects in the future that we could introduce partners to,” Power said. “Underlying all of that is that we’ll only consider those options if we get the true long-term value of those assets.”
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