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By Philip Blenkinsop
BRUSSELS (Reuters) - Having danced to the credit rating agencies' tune to no avail, ArcelorMittal
It should already have done enough to hit a mid-year net debt target of $17 billion, down from $22 billion at end-December; less than two weeks into 2013, it has raised $4 billion issuing stock and convertibles, $1.1 billion selling a Canadian mining stake, and has half a billion dollars coming from the sale of a manganese venture in South Africa.
That appears to meet the $5 billion debt reduction Moody's said in August was needed by early 2013 to keep its investment grade rating.
But Moody's cut the steelmaker's credit to junk status in November anyway, though Steve Oman, Moody's lead analyst for EMEA steel corporates, said the agency was then aware of ArcelorMittal's latest cash-raising efforts.
Now Moody's says ArcelorMittal needs to cut more to avoid a further drop.
"The landscape can change pretty quickly, that much is clear. Where ArcelorMittal's rating and rating outlook go next depends on debt reduction but also on the health of the steel industry and of iron ore," Oman said.
He added that a 25 percent increase in iron ore prices at the start of this year was a positive sign, but overall 2013 would be a tough year for steel, particularly in Europe.
Oman declined to give a new debt reduction figure, but said ArcelorMittal's debt/EBITDA (core profit) ratio, using a wider definition of debt, was 4 times after the measures already mentioned, and for an upgrade needed to pull back to 3. Based on expected 2012 earnings, that would be an extra $7 billion.
Fitch, with an equivalent rating but a stable outlook, said it also knew of ArcelorMittal's plans when it cut last month.
"Margins will be under pressure, cash generation will be under pressure. They will not be able to get debt levels down enough," said Roelof Steenekamp, a director at Fitch.
"The profile for the next two years is not going to be reflective of an investment grade rating."
ArcelorMittal appears unpersuaded.
It said on Friday that programmes it had in place to improve its credit status remained on track and it expected to see further progress in the coming months, and two days ago Chief Finance Officer Aditya Mittal left the dancefloor.
"We are parking the balance sheet issue now. We are also parking to some degree the asset divestment process," he told an investor conference call on Wednesday.
ArcelorMittal said in October its plan should ensure it retained investment grade, but added such a status was important but not imperative, adding a one-notch cut would cost it a relatively manageable $100 million.
Ironically, the rating cut has taken some pressure off the steelmaker; its shares gained after the Moody's downgrade.
"We were concerned that they could be pressured to sell some of their best assets to raise money and ultimately sacrifice future profitability. Following this week's capital raise, it looks like they should now be past this," said Jefferies analyst Seth Rosenfeld.
ArcelorMittal had a modest $3 billion of cash at the end of September, a third lower than at the end of June, meaning it will have to rely on cash generation to fund this year's needs.
Core profit is expected to be about $8 billion this year, according to ThomsonReuters I/B/E/S. Capital expenditure is likely to be little changed from last year's $4.5 billion.
Having already cut its 2012 dividend, payable this year, by more than 70 percent, it should have enough to buy ThyssenKrupp's
Aengus McMahon, credit analyst at ING, said ArcelorMittal probably wanted to get back to investment grade, but was not desperate to do so.
"In Europe, it was traditionally difficult as there wasn't a high-yield market. But since the financial crisis, a lot of industries are thriving now as sub-investment grade," he said.
(Editing by Will Waterman)