The AFR reports today that:
Fortescue Metals Group is likely to win some relief on some of its debt covenants as it continues to pursue asset sales rather than raising equity to shore up its balance sheet.
Fortescue…has sold a Pilbara power plant for $US300 million. It is considering other asset sales, including airstrips, accommodation villages, other power plants, water treatment facilities and a stake in its Northstar magnetite project and undeveloped hematite projects.
It may not announce any completed deals along the debt restructure but it is believed to have assured lenders that options are being advanced.
The AFR goes on with a further list of possible asset sales.
Needless to say, this approach, if true, implies something interesting about the banks. With FMG in trouble, asset sales at this point are going to be distressed and almost certainly below balance sheet value. That means they will only increase FMG’s leverage.
But it still makes sense if you believe that the dip in the iron ore price is temporary. Then FMG’s issues are only of liquidity and selling assets to build FMG’s $2 billion cash war-chest will reassure the banks that if it all goes pear-shaped they can seize the money.
If FMG owned me a billion dollars, I would not be making anywhere so generous assumptions about the future ore price.
