THE chairman of Fortescue Metals Group, Andrew Forrest, was hopeful of stitching up a suite of asset sales last night in a deal to save the iron ore empire he founded a decade ago from the hands of its bankers.
Speaking from New York yesterday, Mr Forrest said the media leak on Thursday afternoon that revealed Fortescue was in talks with its creditors regarding its loan covenants was ”an attempt by some institutions to short sell the company’s stock and misinform the market”.
”The company believes it has the support of companies, institutions and governments and stands in no fear of the future,” Mr Forrest said.
Fortescue went into a trading halt before the market opened yesterday. As rumours swirled – including speculation of potential takeovers and restructurings – sources said Mr Forrest had been trying to thrash out a sale and leaseback deal with the likes of Queensland rail operator QR National.
Speculation that Mr Forrest was in talks with Kerry Stokes’s company WesTrac over a billion-dollar sale and leaseback deal were denied by a spokesman for Mr Stokes.
According to sources, the deal was to involve the embattled Fortescue selling its rolling stock and heavy machinery for cash. The cash would be deployed to pay down debt and would require the Fortescue banking syndicate to change its loan covenants.
Sources close to Fortescue maintained late yesterday that any deal would not involve either the sale of the rail line or any dilution of Mr Forrest’s 33 per cent stake.
Fortescue stakeholders however, who preferred to remain anonymous, said it would be a miracle if Mr Forrest could manage to pull off a deal which did not involve at least a heavy dilution in his shareholding.
”At current iron ore prices, he is dead,” one said.
At the height of Fortescue’s value in 2008, Mr Forrest’s stake was worth $12 billion. With the stock in suspension yesterday, it was valued at $3 billion. Trading had been suspended after it was revealed in The Australian Financial Review that Fortescue had been in talks with its bankers to secure a waiver to its debt covenants.
Iron ore sales at current prices – down 30 per cent in two months – are not sufficient to cover the interest on the group’s $8 billion-plus in borrowings and the company needs to draw down further on its facilities to complete the expansion of its mining operations, an endeavour that now appears a line ball.
”Discussions with its banks have progressed significantly overnight and it is in the best interests of shareholders to halt trading in Fortescue’s securities,” the company’s secretary, Mark Thomas, said in a statement filed to the Australian Securities Exchange on Thursday evening.
Things were fluid last night, however, with discussions still afoot. And late yesterday the Fortescue debt market indicated a potential deal remained in the offing.
Any sale and leaseback deal would require approval from Fortescue’s banking syndicate.
Sources said Fortescue was looking to retain ownership of its train tracks while selling the trains, trucks and other equipment
Sources dismissed speculation of any imminent deal with Chinese group Baosteel, Fortescue’s biggest customer.
”Too premature,” one said, referring to rumours Fortescue was shopping a stake of as much as 15 per cent to Baosteel.
”The Chinese are in no hurry. There is classic Art of War stuff going on. At the moment there is no reason for the [iron ore] price to go up.”
”The iron ore price is the big driver in all this.”
Meanwhile, the Chinese, as the price makers in the iron ore market, would be the only natural buyers, but they were in no hurry to move, the source said.
Correction: The original version of this story incorrectly said that Andrew Forrest is the chief executive of Fortescue Metals Group.