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Australia's Fortescue to tackle $10 bln debt headache
September 17, 2012 / 7:17 PM / 5 years ago

Australia's Fortescue to tackle $10 bln debt headache

* Fortescue faces Tuesday deadline for debt restructure

* Asset sales, covenant relief seen mostly likely

* Shares on trading halt, having halved since March

SYDNEY, Sept 18 (Reuters) - Fortescue Metals Group, the world’s No.4 iron ore miner, faces a self-imposed deadline of Tuesday to detail a restructuring of at least part of its $10 billion debt pile, with investors expecting sales of assets, if not equity.

Trading in shares of the company, one-third owned by billionaire founder Andrew “Twiggy” Forrest, was halted last week after the stock slumped 14 percent on reports that Fortescue was seeking waivers on its debt covenants. The company said on Friday it remained in compliance on its debt, was in constructive talks with lenders and would update investors on a restructuring before the market open on Tuesday.

Analysts expect lenders to give Fortescue some leeway on its debt conditions, and predict the company will free up cash by selling non-core assets.

“They could delay capex or sell stakes in infrastructure assets. The company does not want to raise equity, but it’s still a possibility - after all, it’s a $9 billion market cap company,” said one Hong Kong-based credit analyst, who asked not to be named as he’s not authorised to talk about the company.

Fortescue could sell undeveloped and lower grade iron ore assets, worker accommodation facilities, airports or mining equipment.

Earlier this month, Fortescue announced it was slamming the brakes on plans to triple its iron ore capacity, cutting hundreds of jobs and selling a power station to preserve cash.

The moves shocked investors, coming less than a week after Fortescue CEO Nev Power had said the company was comfortable with its funding, remained on track with its expansion and was confident iron ore prices would recover in the near term.

The price of the steelmaking ingredient traded as high as $180 a tonne a year ago, but plummeted to a 3-year low of $86 earlier this month as demand in China shrinks. Late on Friday, benchmark iron ore with 62 percent iron content had rallied to $101.60 a tonne, according to data provider Steel Index.

Forrest has been fighting not to have his stake diluted in a company he built from scratch. He has spent close to $180 million in recent months to take his holding to 32.8 percent.

The Perth-based company’s highly illiquid bonds were not traded in Asia on Monday, but its 2022 bonds were last seen at 92 percent of par on Friday, off a low of 90, but down from the par value around mid-August.

According to Thomson Reuters data, its 5-year credit default swap was quoted at close to 800 basis points, up more than 100 bps this month - raising the cost of insuring against a Fortescue debt default, according to Markit.

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