Australia's Fortescue Metals scraps US$2.5b bond issue
Iron ore miner pulls refinancing deal as anxiety mounts over weak demand growth in China and oversupply, sending shares to six-year lows
Australia's Fortescue Metals, the world's fourth-largest iron ore miner, pulled a US$2.5 billion high-yield bond issue after investors rattled by tumbling ore prices baulked at the offer, sending its shares to six-year lows.
The scrapped refinancing deal is the latest sign of anxiety about massive oversupply in the iron ore market and weak demand growth in China, which has left many smaller miners operating at a loss.
Built from scratch over the past decade, Fortescue's US$11 billion mine won the support of Chinese steelmakers who were eager for a new supplier to compete with the likes of giants Rio Tinto and BHP Billiton.
Saddled with US$7.5 billion of net debt, Fortescue had been looking to extend debt payments by up to four years to 2021 and cut interest costs as slumping iron ore prices squeeze profits.
"It's disappointing, because if they were successful, it would have meant there was basically no debt due this decade," Macquarie analyst Hayden Bairstow said. "Their ability to weather any volatility in the iron ore price would have been much better."
Macquarie expects iron prices to drop further to US$48 a tonne in the third quarter of this year from US$57.60 at present, the lowest since index pricing was introduced in 2009.
Big iron ore producers are still ramping up production, while China, the world's biggest user of the steel-making material, has set its lowest target for economic growth in 15 years.