MT Arcelor Mittal New

Brazilian steel producer, Gerdau S.A. (GGB) announced pricing of its global offering of common and preferred shares. The plan to raise funds from the global platform was earlier announced in March 2011.

The company will issue approximately 68 million common shares at a price of R$15.60 per share for both the Brazilian and international public. About 203.8 million preferred shares will be offered at a price of R$19.25 per share to the Brazilian public, while at a price of US$12.13 per preferred ADS to the international public.

The company anticipates raising approximately R$2.3 billion, net of underwriting discounts and commissions, from the common and preferred shares issuance. Amount raised will be used to fund the company’s future capital investment plans.

Preferences for share subscriptions were given to the existing shareholders residing in Brazil. Metalurgica Gerdau S.A., a prime shareholder, subscribed for the number of common shares required to maintain its proportionate interest after the capital increase.

Gerdau S.A. is the second largest steel producer in the world and the largest in the Americas. Exiting the fiscal year 2010, the company’s equity amounted to R$20.1 billion, with share capital accounting for 78% of the total.

We believe the company is in an advantageous position to leverage the growing world steel market, particularly with the Brazilian market emerging stronger than ever with demand emanating from the manufacturing and construction industry. Moreover, the company’s continuous investment in mineral resources is an encouraging attribute.

On the flip side, risks arising from volatile raw material prices, foreign currency fluctuation, cyclicality of the industry and increasing competitive threat create a challenging business environment for Gerdau. The company faces stiff competition from peers like Companhia Siderurgica Nacional (SID) and privately-held Arcelor Mittal (MT).

We currently maintain an Underperform recommendation on the stock.

 
GERDAU SA ADR (GGB): Free Stock Analysis Report
 
ARCELOR MITTAL (MT): Free Stock Analysis Report
 
CIA SIDERUR-ADR (SID): Free Stock Analysis Report
 
Zacks Investment Research