After acquiring US steel, Nippon Steel is considering issuing shares to raise funds

On Thursday (June 19) local time, Hiroshi Moritaka, Vice Chairman of Nippon Steel Corporation, stated that the company would consider raising capital to fund the acquisition of US Steel and related investment commitments.

In December 2023, Nippon Steel announced a $14.9 billion acquisition of US Steel, which faced strong resistance from the outset.

Nippon Steel attempted various measures to salvage the deal. After waiting for 18 months, Nippon Steel finally received approval from the White House last weekend.

US President Trump announced the approval of the deal under specific concessions, including Nippon Steel's commitment to invest $11 billion in US Steel and agreeing to grant the US government "golden share" rights, giving it veto power over key decisions.

Nippon Steel's acquisition of US Steel was completed on Wednesday this week.

At a press conference on Thursday, Moritaka stated that Nippon Steel would not rule out the possibility of issuing new shares, but the company would avoid financing structures that would affect the interests of existing shareholders and the earnings per share (EPS) of the merged company. He did not disclose further details.

"Given the large amount of capital required for this transaction, raising capital is naturally an option we are considering. However, as we have stated multiple times before, we will not consider methods of raising capital that would lead to dilution effects," Moritaka said. "Even if we proceed with financing, it will be done within a range that does not affect EPS."

According to a research report issued by Jefferies analyst Thanh Ha Pham, Nippon Steel disclosed to analysts that it would appoint eight out of nine members to the board of the merged US Steel, with two being US citizens, and key management positions would also be filled by Americans.

It is reported that to control the debt-to-capital ratio, Nippon Steel plans to raise funds by issuing hybrid financing instruments worth 500 billion yen (approximately $3.4 billion).

Earlier this week, Nippon Steel's share price came under pressure and fell due to market concerns that financing could lead to share dilution. Although the share price initially rose after the acquisition was approved, it subsequently pulled back. On Thursday, the stock rose as much as 5.1% and eventually closed up about 2.3%, reversing a two-day losing streak.

Analysts Atsushi Yamaguchi and Takuya Maeda from SMBC Nikko Securities stated in a report, "Uncertainty about when and how the company will raise capital may put pressure on the share price in the short term. We also need to observe whether US Steel's earnings can truly improve. Historical experience shows that investment returns often take time to materialize."