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Nasty rumours are never helpful when you are trying to convince investors that your turnaround plan is bulletproof. ThyssenKrupp's chairman Gerhard Cromme resigned earlier this month after a series of misjudged investments and compliance probes. The company is putting those bad investments on the block. And it is moving away from steel, where the outlook is ugly, toward capital goods, where it is less ugly.
Yet news on Wednesday in German newspaper Handelsblatt that the country's largest steel maker is considering a capital raising of more than €1-billion ($1.3-billion) sent shares down 6 per cent.
Whether it needs to raise capital or not depends on the ability to sell its steel plants in Brazil and Alabama. In spite of pumping about €11-billion in costs into the plants, which made a loss before interest and tax of €4.7-billion last year, ThyssenKrupp is expected to raise just €3-billion from the sale. In the meantime, the steel maker's credit rating is below investment grade and with a negative outlook. Although due diligence by bidders has gone ahead, it is under pressure from the rating agencies to sell these assets this year.
Granted, ThyssenKrupp's balance sheet is stretched – its net debt of €5.2-billion is 2.6 times forecast earnings before interest, tax, depreciation and amortization. But with gearing of 123 per cent, the company remains within its financial covenant level of 150 per cent. Shoring up more capital would take the pressure off its Americas asset sales and free up funds to invest further in capital goods.
In its first quarter, marine systems and elevator technology were the only units to see an improvement in performance, the latter's EBIT was up 70 per cent to make up nearly two-fifths of ThyssenKrupp's total. The steel maker needs to assure investors that its steel disasters are finally behind it so that everyone can move on.