Korean steelmaker POSCO (PKX) recently issued senior unsecured notes worth $ 700 million, maturing April 14, 2021. The notes were issued in a private placement market at an issue price of $ 99.5930.
The notes carry a coupon rate of 5.25% to be paid semi-annually by the company. Earlier in the fourth quarter of 2010, the company had raised funds by issuing $ 700 million worth of 10-year global bonds. POSCO’s long-term debt balance exiting the fiscal year 2010 grew 14.6% year over year, which resulted in higher interest payment during the year, up approximately 10% year over year.
Funds received from the issue are likely to be used to finance the company’s global growth strategies including building overseas steel mills and mine development. Recently, POSCO announced that the company will work toward the development of the fourth FINEX plant, the third wire rod plant and a new stainless steel plant.
For fiscal year 2011, POSCO’s consolidated investments are likely to be KRW 9.8 trillion with the company’s investments totaling KRW 7.3 trillion. Consolidated revenue is expected to be approximately KRW 66 trillion, product sales to be 34 million tons, crude steel production would be about 36 million tons and cost savings around KRW 800 billion.
POSCO’s relentless focus on regional diversification, self-sufficiency in raw materials and higher proportion of value-added products in its product mix are all encouraging attributes. However, rising competition and higher raw material costs remain the prime causes of concern. The company faces stiff competition from Arcelor Mittal (MT) and Nippon Steel Corp.
We currently maintain a Neutral recommendation on the stock.
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