Fortescue Metals Group’s decision to seek a restructuring of its debt and place its shares in a trading halt has unleased a torrent of speculation about the future of Australia’s third-biggest iron ore miner.
Fortescue boss Andrew Forrest is understood to be seeking a sale and leaseback of much of the company’s mining equipment and secure other asset sales in deals that could raise billions of dollars to repay debt and help save his iron ore empire.
Sources have told BusinessDay one potential transaction involved the embattled Fortescue selling its rolling stock and heavy machinery to potential customers. QR National is believed to be one potential buyer, while speculation also extended to Kerry Stokes’s Westrac.
Westrac, a distributor of Caterpillar equipment in Australia and China, already has contracts to supply equipment to Fortescue. However, a spokesman at Seven Group, which owns Westrac, has strongly denied the speculation involving Westrac.
Already a deal involving Gina Rinehart’s Hancock Prospecting and Fortescue has been mooted by BusinessDay.
Fortescue shares are suspended in the wake of revelations that its bankers had been asked to waive their loan covenants.
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, however, dismissed speculation of any imminent deal with Chinese group Baosteel, Fortescue’s biggest customer.
“Too premature,” said one, 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.”
China’s iron ore prices have dropped more than 40 per cent since the start of July, sending the shares of Fortescue and other iron ore miners sharply lower.
One market source said Forrest was looking to sell his equipment to raise as much as $4 billion which would leave Fortescue with $4.5 billion in debt and a clean takeover target.
Others said such figures were far too high and it was in Fortescue’s interest to create a sense of urgency to get a deal done.
Meanwhile, the Chinese, as the price makers in the iron ore market, would be the only natural buyers, but they were in no hurry, said the source.