ArcelorMittal is relying on iron ore to help dodge the junkyard. A rights issue would keep the credit-rating agencies at bay, but that would be painful. So the financially creaky metals giant needs to sell assets, for example a minority stake in its Canadian iron-ore operations.
Weak steel demand, soft prices and poor profits have already led Standard & Poor's to cut the world's biggest steelmaker's rating to "junk". Rival Moody's warns it could follow suit - unless Arcelor trims its $32.8 billion of gross debts by about another $5 billion sharpish.
Having already agreed disposals worth nearly $2.7 billion, Arcelor is running out of easy levers to pull. Selling a stake in ArcelorMittal Mines Canada could be one way forward. Nothing is official yet, but reports suggest an Asian steelmaker could buy into AMMC, which Arcelor inherited in 2006 as part of its purchase of Dofasco, an Ontario-based competitor.
Following a big expansion programme, AMMC should generate Ebitda of about $1.36 billion, Morgan Stanley reckons. So, a one-third stake, valued at perhaps five times Ebitda , would go for about $2.25 billion. That, plus some smaller disposals and financial tweaks using hybrid bonds and subsidiary financing, could be enough to keep Moody's at bay.
An iron ore sale would represent a small strategic reversal. Arcelor says having an in-house supply of its main raw material brings extra growth and helps counter volatile raw material costs. But this deal would reduce Arcelor's self-sufficiency, since any new investor would probably claim a share of production. It could also slow decision-making over AMMC. Still, a partner would presumably reduce the financial strain of funding future expansion, and Arcelor's over-arching plan - churn out more iron ore - remains intact.
All told, then, this may be a clumsy workaround. But the main alternative, a rights issue, looks nastier. In general, cash calls are out of favour with equity investors. The controlling Mittal family would probably rather not relive the 2009 capital-raising, which diluted their holding slightly to 41 per cent. And, compared to historical valuation multiples, Arcelor shares already look cheap, even before any rights issue discount.