(The following statement was released by the rating agency)
July 16 -
Summary analysis -- ArcelorMittal --------------------------------- 16-Jul-2012
CREDIT RATING: BBB-/Negative/A-3 Country: Luxembourg
Primary SIC: Metal ores, nec
Mult. CUSIP6: 03938L
Credit Rating History:
Local currency Foreign currency
02-Nov-2010 BBB-/A-3 BBB-/A-3
19-Feb-2010 BBB/A-3 BBB/A-3
05-Jun-2009 BBB/-- BBB/--
20-Nov-2007 BBB+/-- BBB+/--
The ratings on Luxembourg-registered steel group ArcelorMittal reflect Standard & Poor’s Ratings Services view of the group’s “satisfactory” business risk and “significant” financial risk profiles, according to our criteria. The business risk profile is supported by the group’s leading global market positions, with about 20% of EBITDA coming from Europe, 17% from North America, and 33% from emerging markets. ArcelorMittal also has greater product diversity than other steel companies, as 30% of its profits come from profitable and growing mining operations. Offsetting factors include the cyclicality of the steel industry and the weak performance of the group’s European operations in the sluggish economic environment.
ArcelorMittal’s financial risk profile is constrained by the group’s cyclical cash flow generation and substantial adjusted debt that was $39.1 billion on March 31, 2012. The company has informed us that its deferred tax assets related to its postretirement funding deficit of $11 billion amounted to $3.6 billion as of Dec. 31, 2011, rather than $1.7 billion explained to us earlier. Consequently we have changed our assessment of the postretirement obligation adjustment to debt to $7.4 billion from $9.3 billion. The company’s adjusted debt at March 31, 2012, therefore stood at $39.1 billion instead of $41.1 billion. The adjusted ratio of funds from operations (FFO) to debt was 18% as of March 31, 2012.
The financial risk profile is supported by what we view as the group’s moderate financial policy, and our expectation that ArcelorMittal will be able to deleverage to bring its fully adjusted ratio of FFO to debt to 25% by mid-2013, which we believe is commensurate with our ‘BBB-’ rating. Our base-case scenario includes a substantial reduction in adjusted debt to about $30 billion by the end of 2012, which we expect management to achieve through a series of bold actions, in particular disposals and the attainment of moderately positive free operating cash flow (FOCF). An additional supportive factor is the group’s medium-term maturity profile.