13/09/2012 - 16:10

FMG plunges on debt speculation

13/09/2012 - 16:10

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Shares in Fortescue Metals Group dropped by nearly 14 per cent today, on media speculation that the iron ore miner had asked its lenders to waive its debt covenants for the next 12 months.

Fairfax newspapers this morning reported that FMG made the proposal on Friday, and put it in writing earlier this week.

FMG confirmed late this afternoon that it was in the process of talking to its lenders about potential waivers in the event that covenants are put under pressure by extended volatility in the iron ore market.

The company said this was prudent action taken well ahead of the next reporting date and in response to market conditions.

It said that it was in full compliance with its all banking covenants which were not due to be reviewed until December 31.

Fortescue shares finished down 48 cents, or 13.8 per cent, trading at $2.99.

The drop saw Fortescue’s market capitalisation fall by around $1.5 billion, reducing chairman Andrew Forrest’s stake by around $500 million.

Fortescue has been the subject of intense media and investor scrutiny since announcing last week it had decided to cut jobs, halt expansion plans and sell Pilbara assets in an effort to keep its head above water.

Ratings agency Moody’s flagged Fortescue for a downgrade at the end of August, Fitch revised its outlook to negative four days ago, while Standard & Poors today placed the company on CreditWatch with negative implications.

Standard & Poors warned today that Fortescue could breach its debt covenants unless the iron ore spot price rebounds to more than $US120 a tonne.

Fortescue has around $9 billion in gross debt that could fall due immediately if it is found to be in breach of its covenants.

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