The company issued 14 million new shares, representing about 5% of its total issued capital. Allocations were confirmed last night after the deal was upsized from its initial target of $300 million. JPMorgan acted as sole bookrunner and joint lead manager with Southern Cross Equities.
The deal is FortescueÆs first significant equity capital raising and is part of a new A$1 billion fund raising plan announced by the company earlier this month. The money will be used to top up its cash reserves and fund an expansion of its project in the Pilbara region of Western Australia.
The company, run by entrepreneur Andrew Forrest, is sitting on large deposits of iron ore and is in the process of building the necessary rail and port infrastructure to export its harvest. With the new equity raising it plans to increase the capacity of the Pilbara project from 45 million tonnes of iron ore to 55 million tonnes. The company has yet to produce a single tonne for export but has already signed significant offtake agreements with Chinese customers.
FortescueÆs stock last traded at A$39.50 per share when the counter went into a trading halt last Thursday as the companyÆs executives embarked on a four-day roadshow taking in London, Paris, the Netherlands, Singapore, Hong Kong, Sydney and Melbourne. The roadshow group split into two teams to cover different cities.
Early talk was that the shares were being pitched at A$32 apiece, a full 19% discount to the last trade, but after a three-day bookbuild, the dealÆs arrangers were able to achieve a tight price on the deal, particularly given the nascent nature of FortescueÆs project.
ôSince this was the first serious equity capital raising by the company, investors wanted to get to know the management team and learn about the details of the offtake agreements,ö says a source close to the deal. ôIn the end, they believed the story and the investors who bought the shares were high-quality blue-chip investors. This is exactly what the company was seeking in terms of investor profile.ö
No specific details of the share allocation have been made available, however, much of the marketing focused on investors in Europe and Asia because Australian fund managers were restricted from taking part because the company is not part of the S&P/ASX100 index.
ôPrice tension came from investors in all parts of the world,ö says the source.
The equity deal is designed to take some of the pressure off the credit rating of the companyÆs bonds. Fortescue has been on Standard & PoorÆs credit-watch list since early this year following concerns about the development, timing and liquidity of the iron ore project. The companyÆs railway infrastructure camp was badly hit by Cyclone George in March this year, delaying construction. The storm killed one employee and injured a further 28.
Fortescue has over $2 billion in debt outstanding following a high-profile bond transaction arranged by Citigroup last year. Citi helped the company to raise $2.05 billion in 144a/Reg S notes in the largest high-yield bond ever issued by an Aussie corporate. The bank drew on its relationships to place the multi-tranche dual-currency issue with US hedge funds and other high-yield buyers.
The only other equity issued by the company occurred in July last year when it sold a 10% stake to NYSE-listed Leucadia National. Leucadia paid just under $400 million for the stake, valuing shares in the mining company at A$15.20 each. At the time, FortescueÆs shares were trading at around A$9.41 each.
In this latest equity placement, Leucadia exercised its pre-emptive rights to take up 1,398,600 shares to maintain its 9.99% shareholding.
Leucadia has also agreed to extend a 13-year loan of $100 million with interest calculated as 4% of revenues, net of government royalties, from the sale of iron ore from the tenements in Cloud Break and Christmas Creek, just two of six tenements in which major deposits have been identified.
The deal with Leucadia was conditional on Fortescue raising the $2 billion in debt which it managed to do via Citigroup.
Prior to signing the deal with Leucadia, Fortescue had been in equity discussions with Hong KongÆs Noble Group, but the negotiations fell through when the two parties failed to reach an agreement on the right to market the iron ore to steel mills in China.
FortescueÆs shares opened lower this morning, trading down A$2.25 to A$37.25.
The second half of the A$1 billion fund raising announced earlier this month is likely to come in the form of a global bond.
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