Nippon Steel Corp (TYO:5401) shares fell sharply on Wednesday after the company said it planned to sell nearly $4 billion in bonds to help fund its high-profile, $15 billion acquisition of United States Steel Corp.
Nippon Steel shares slid 5.5% to 627.2 yen in Tokyo trade, remaining close to an intraday low of 624 yen. They were by far the worst performers on the Nikkei 225 index, which rallied to record highs.
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The company said on Tuesday it was seeking to raise 600 billion yen ($3.9 billion) from an upsized sale of zero coupon convertible bonds, all aimed at helping repay loans it took out to fund its U.S. Steel acquisition.
The company is attempting to refinance the acquisition, while also investing 6 trillion yen over the next five years to spur growth.
But the size of the bond issuance– the largest ever in Japanese corporate history– unnerved investors. While the bond issuance does not immediately dilute the company’s capital, convertible bonds can be exchanged for shares at a set price– heralding an eventual dilution in shareholder value.
The size of the deal also added to concerns over financial stress, especially after Nippon Steel widened its net loss forecast for the current fiscal year to 70 billion yen. This was in part due to a fire at a blast furnace and due to costs linked to the U.S. Steel acquisition.
