S&P cuts ArcelorMittal ratings to junk status

London, Aug 3 (IANS) Ratings agency Standard & Poor's Friday cut Lakshmi Mittal-led steel firm ArcelorMittal's ratings to junk, saying the slowdown in the global economy, especially in Europe, would hurt the company's earnings and profits.

The agency has lowered long and short-term corporate credit ratings on the Luxembourg-registered steel group to 'BB+/B' from 'BBB-/A-3'.

The outlook is negative, which meant that the agency could cut the ratings further, making borrowings by the company costlier.

"The downgrade reflects the weaker steel industry environment and economic prospects globally, and particularly in Europe, that have led us to revise downward our forecast for ArcelorMittal's profits for the rest of 2012 and 2013," Standard & Poor's said in a statement.

"The negative outlook reflects the uncertainty related to the extent of the company's planned near-term debt reduction as well as the weak steel environment."

The US-based agency has also lowered the ratings on debt instruments issued or guaranteed by ArcelorMittal to 'BB+' and assigned recovery ratings of '4', indicating expectation of average recovery (30-50 percent) in the event of a payment default.

The agency assigned a recovery rating of '3' to the $500 million bond issued by operating subsidiary ArcelorMittal USA and guaranteed by ArcelorMittal, indicating S&P's expectation of meaningful recovery (50-70 percent) in the event of a payment default. The issue rating on this bond is also 'BB+'.

Standard and Poor's said it continues to view the company's business risk profile as "satisfactory" and its financial risk profile as "significant".

ArcelorMittal has leading global market positions, generating about 20 percent of earnings in Europe in 2011, 17 percent in North America, and 33 percent in emerging markets.

An additional 30 percent come from its profitable and growing iron ore mining operations. Negative rating factors, however, include the cyclicality of the steel industry, the weak performance of the group's European operations, and a sluggish global economic and steel industry environment, the agency said.