Fortescue Metals Group Limited (ASX:FMG) is deciding to forego their previously announced $US2.5bn Senior Secured Note offering. The company claims their decision was made after they were unable to meet disciplined cost objectives. “Debt capital markets were not favorable at this time and as a result we think it is a disciplined and prudent decision to defer the voluntary refinancing at this stage,” said Fortescue CEO Nev Power. The company cited volatility in the US credit markets leading to terms and conditions that did not meet their objectives. Despite this pullback, Fortescue underlines positive indicators in their debt maturity profile. The company does not have any debt maturing until April 2017 and around 60 per cent of their debt remains available for early repayment or refinancing before reaching maturity.
The reluctance of investors to accommodate Fortescue has not surprised analysts. The company tried looking to the bond market after US firms forced better terms on the company amid falling iron ore prices. But Mr. Power noted in January that iron ore margins had shrunk between $US7 and $US10 per tonne. Now it appears that Fortescue will look to Australian banks for refinancing, according to David Lennox, analyst for Fat Prophets. Shares of FMG are down 13.5c, or 6.85 per cent, at $1.84 about half way through trading hours today. FMG has been in a steady decline since February 2014. It is now trading below six-year lows. FMG has been struggling amid plummeting iron ore prices. FMG is down 62.4 per cent on its one-year return and is down 33 per cent so far this year.
Author: Imran Valibhoy
Mar 18, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.