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Nippon Steel will raise $5.6 Billion in Subordinated Loans to Fund U.S. Steel Deal

Nippon Steel, Japan's steel giant, announced on Wednesday that it will raise 800 billion yen (5.6 billion dollars) via two subordinated loan to partially finance its recent $14.9 Billion acquisition of U.S. Steel as well as refinance existing loans.

The largest steelmaker in Japan will partially repay the 2 trillion yen loan it secured for this deal by using a subordinated 500 billion yen loan. Separately, a 300 billion yen refinancing loan will be used to refinance an earlier 450 billion subordinated loan.

Nippon Steel's spokesperson confirmed that the 500 billion yen loan would be covered by Japan’s three major banks – Mitsubishi UFJ Financial Group Sumitomo Mitsui Financial Group Mizuho Financial Group – as well as Sumitomo Mitsui trust group and Development Bank of Japan, by September 18.

On July 22, the 300 billion yen will be divided among four banks, including Sumitomo Mitsui Trust and three megabanks.

According to the spokesperson, the remaining 1.5 trillion yen will be financed using a variety of methods based on interest rates, market conditions, and other factors.

The spokesperson stated that "although additional capital-based funding is one of the options being considered, any such move will be based on avoiding earnings per share (EPS) diluting."

Nippon Steel’s debt-to equity ratio increased to around 0.8 as a result of the acquisition. It was 0.35 on March 31, but it rose to 0.8 after the bridge loans were made and the loss from the sale of a joint venture in the U.S. with ArcelorMittal.

Nippon Steel sold its joint venture stake in order to get approval for U.S. Steel's acquisition.

The company wants to reduce the ratio to 0.7 by the end March 2026 using measures like cash flow from earnings or asset sales.

(source: Reuters)