ArcelorMittal has been hit by a downturn in demand after automobile production and construction activity plunged © Yves Herman/Reuters

Steelmaker ArcelorMittal is seeking to raise $2bn as the company attempts to fortify its balance sheet and cut debt levels, just days after posting more than $1bn in first-quarter losses and suspending its dividend.

The Luxembourg-based company said it would raise about 20 per cent of its market capitalisation in a mixture of shares and mandatory convertible bonds, with the Mittal family contributing $200m.

Like other producers of the grey metal, ArcelorMittal is grappling with a sharp downturn in demand after automobile production and construction activity plummeted because of measures to prevent the spread of Covid-19.

Companies in a range of industries have tapped investors for funds, drawn down bank loans and in some cases begged politicians for bailouts to see them through the economic disruption.

Europe’s steel sector was struggling even before the pandemic and Tata Steel’s UK division has asked the government for hundreds of millions of pounds.

ArcelorMittal did not specify the relative proportion it would offer in shares and mandatorily convertible subordinated notes, which are expected to have a maturity of three years and pay an annual coupon between 5.25 and 5.75 per cent. 

The proceeds will be used to provide liquidity and to pay down borrowings, as the steelmaker speeds up a plan to lower net debt to $7bn from $9.5bn. It had liquidity of $10bn at the end of March and a credit facility will be reduced in line with the new funds raised.

Shares in the Amsterdam-quoted group slumped 16 per cent following the announcement to €8.63.

Convertible bonds give investors the option to be repaid in cash or stock and can offer companies a cheaper way to raise money than typical bonds, but they risk harming the share price by diluting its equity.

So-called mandatory convertibles mean the company is obliged to hand stock to investors in future.

The Mittal family, which owns just under two-fifths of the company’s shares, will contribute $200m to the fundraising through a trust, which will be subject to a lock-up period of 180 days. 

Despite the uncertainty around the duration and depth of the economic hit from coronavirus, ArcelorMittal last week said there were signs of customers restarting production.

BNP Paribas, Crédit Agricole, Goldman Sachs, JPMorgan and Société Générale are acting as joint global coordinators and joint bookrunners of the offerings.  

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