Republican Presidential candidate Donald Trump declared Monday that “American steel will send new skyscrapers soaring” if he is elected in November. Rhetoric or not, Trump’s plan to “put new American metal into the spine of this nation” provided a helpful lead to United States Steel’s follow-on sale of 17m new shares (11.6% of outstanding) launched after the market close Monday.
US Steel was vague about use of proceeds (financial flexibility, capital expenditure and general corporate purposes), but the circa-US$400m of cash raised will offset some US$3.1bn in total debt and bolster liquidity.
The steelmaker is marketing the deal over one-session for pricing post-close Tuesday and against Monday’s close of US$25.83. In Tuesday’s session, the shares re-opened down 4.4% to US$24.69 and traded at a late session VWAP of US$24.86.
Followers of the ECM calendar are now well versed in the steel recovery story as a result of stock sales this year from the likes of AK Steel (US$228m at US$4.40 a share in April) and Ryerson (US$76.3m at US$15.25 a share last month).
Waiting a little longer than others has seen US Steel benefit from a near doubling in its share price from US$13.25 in May alongside the improvement in steel prices and aggressive anti-dumping duties on Chinese imports. US Steel shares are now up more than 200% this year, after touching a low of US$6.15 in January.
ECM sources said investors had expected US Steel to sell stock.
Nevertheless a number of investors are not buying into the operational turnaround, as evidenced by 30% of the available free float was loaned out to short-sellers as of July 15, according to Thomson Reuters data.
US Steel’s management said on last month’s earnings call they were not done strengthening the balance sheet and liquidity to deal with the vicissitudes of the global steel market.
“We always say here: ‘Cash is king’,” chief financial officer Dave Burritt told analysts on the July 27 call.
“We must keep strong liquidity. It’s really important to us. We feel more comfortable with more cash on the balance sheet and so we’re continuing to focus on that.”
US Steel already has considerable liquidity with US$820m in cash sitting on its balance sheet prior to the offering.
Pointing to the cash on the balance sheet and the refinancing of debt through 2020 and 2021, he said US Steel believed it should carry enough cash to be very flexible no matter what economic conditions it faced.
Although the filing doesn’t indicate US Steel’s intention to redeem US$161m of 7% bonds due 2018 with the offering proceeds, the company said last month it had “very manageable maturities now” and did not want to “pay a big premium to clean up something with that small of a number”.
Analysts say US steel spot prices may have peaked and normalisation of imports and exports could ease prices but domestic supply discipline could keep the sector in favour with investors for the time being.
