S&P Global Ratings raised ArcelorMittal to investment-grade, citing the world's largest steelmaker's focus on cutting its debt and buoyant demand in its main markets.
The one-notch increase to BBB-, with a stable outlook, came after the Luxembourg-based company committed to prioritize using excess free cash flow to reduce its net debt to US$6 billion, after slashing it by US$1 billion in 2017 to US$10.1 billion as of Dec. 31, 2017.
S&P Global Ratings said Feb. 1 that the company's credit metrics will increasingly exceed the minimum thresholds for a BBB- rating.
It expects the ArcelorMittal's ratio of funds from operations to debt to rise to at least 30% in 2018 and 2019, from 27.2% at the end of 2017.
The rating agency forecast that the company will have at least US$1.5 billion in cash flow available in 2018 after the year's CapEx and dividend payouts.
In 2018, ArcelorMittal will benefit from supportive conditions in its key markets — namely Europe, North American Free Trade Agreement countries, and Brazil — including steel demand growth on par with Europe together with generally below-average steel inventory levels, the rating agency said.
Additionally, higher steel prices have absorbed the rising costs of raw materials such as coal and iron ore, while high margins in China will likely remain supportive for the global industry. China's steel production capacity cuts of about 20%, including winter pollution-control measures, have led to improved capacity utilization and domestic profitability.
"We now project ArcelorMittal's EBITDA to be at least US$8.5 billion for full-year 2018, up from US$6.3 billion on an underlying basis in 2016," S&P Global Ratings said, adding that it reflects growing shipments, stronger average steel margins and the company's efficiency projects.
ArcelorMittal booked net income of US$4.57 billion for 2017, more than doubling from US$1.78 billion recorded for 2016.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.
