Shares in Fortescue ripped higher as the pure play iron ore miner successfully raised $US2.3 billion to pay down debt, effectively giving it at least another three years breathing space during a period of market volatility.
At the same time, iron ore prices made the biggest percentage jump since 2012 overnight, trading now around $54 a tonne from lows a few weeks ago of $47.
Fortescue refinanced $US2.3 billion of its $US7.4 billion net debt overnight. The issue was upsized from $US1.5 billion.
The coupon interest rate for the seven-year bonds, with a non-call period of three years, is 9.75%.
Credit analysts say the move is a positive for Fortescue’s liquidity and credit profile.
Fortescue CEO Nev Power says the strong demand for the senior secured notes will result in the repayment of 2017 and 2018 debt in full, the refinancing of $US450 million of 2019 debt and an additional $US350 million of cash.
“Once again the US capital markets have shown great support for Fortescue,” Power says. “The March 2015 quarterly results, reduction in operating costs and our track record of delivery have all been key factors in this great outcome for Fortescue.”
Last month Fortescue withdrew plans to raise $US2.5 billion ($AU3.28 billion) in secured notes after weak interest from investors in the US.
The market was worried about the risks of iron ore with China’s economy slowing. This pushed yields up from about 7% to 8.5%. In this new issue, Fortescue ending up with a higher interest rate but strong demand from investors.
Fortescue, like all iron ore miners, is under pressure from steeply lower prices, down about 60% over 12 months. It says its break even price is $US39 a tonne and prices are hovering around $54, down from a high of $118.
The company has complained bigger players, such as BHP and Rio Tinto, are flooding the market with ore at a time when China, Australia’s biggest market, is cutting steel production.
Fortescue shares were up more than 13% to $2.16.