Fortescue Pulls $2.5 Billion Bond as Price War Hits Iron Ore – by Benjamin PurvisBrett Foley (Bloomberg News – March 17, 2015)

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(Bloomberg) — Fortescue Metals Group Ltd., the world’s fourth-largest iron ore exporter, pulled plans to refinance some of its debt with a $2.5 billion bond as tumbling prices for commodities spook investors.

The stock hit a six-year low in Sydney trading Wednesday, matching the plunge in iron ore and crude oil prices, after the producer said the sale had been scrapped, citing volatile U.S. credit markets and a failure to achieve the terms it wanted.

Iron ore sank 47 percent in 2014 and extended losses this year as surging supplies from Fortescue, BHP Billiton Ltd. and Rio Tinto Group, outpaced demand growth, spurring a surplus just as economic growth slowed in China, the biggest buyer.

“This iron ore capacity war, the race to the bottom was always going to shake the tree and maybe we are starting to see that in earnest,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., said by phone. “And it’s probably going to get worse before it gets better.”

Australia, the world’s biggest exporter of iron ore, on Wednesday cut its price forecast for 2015, saying the raw material will average $60 a metric ton, down from its estimate of $63 in December. Macquarie Group Ltd. overnight cut its forecast for the year by 20 percent to $54.

Chief Financial Officer Stephen Pearce said in an interview that the company had sounded out the U.S. term loan market as well as bond investors for the $2.5 billion debt issue. Since Perth-based Fortescue announced plans for the refinancing, the price of iron ore has slid 8 percent.

Capital Markets

“This was an opportunity we thought was right to take in the capital markets and unfortunately with the fall in the oil price in particular today just wasn’t the day,” Pearce said by phone from New York. Cash margins weren’t an issue in talks with investors, he said.

Fortescue, which has a market value of A$5.8 billion ($4.4 billion) and net debt of $7.5 billion as of Dec. 31, fell 5.3 percent on Wednesday in Sydney to a six-year low of A$1.865.

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