The Fortescue Ltd (ASX: FMG) share price is in focus after the ASX mining share revealed a large Chinese loan.
Fortescue is one of the biggest iron ore miners and it also has green technology ambitions.
Fortescue secures US$2 billion loan
The business announced that it has been successful with a Renminbi-denominated (RMB – Chinese currency) syndicated term loan facility of 14.2 billion, or US$2 billion.
The lenders include leading Chinese, Australian and international lenders.
According to Fortescue, this is the first RMB syndicated term loan of its kind by an Australian corporate. The miner called this a landmark transaction that “reflects the depth of Fortescue’s long-standing relationships in China”.
Fortescue said proceeds will be used for general corporate purposes and support Fortescue’s “ambitious decarbonisation agenda” including partnerships with Chinese suppliers and technology leaders. It noted that Fortescue is a core supplier of iron ore to China and generates RMD revenue through its iron ore sales.
The term is for five years and it’s an unsecured loan. It has a fixed interest rate of 3.8% per year. The principal repayment is 0.5% every six months, in arrears (starting 18 months after the financial close of the agreement).
Fortescue revealed the arrangers of the loan were Bank of China and Industrial and Commercial Bank of China, as the lead arrangers, underwriters and bookrunners.
Management commentary
The Fortescue Executive Chair Andrew Forrest said:
This isn’t just a financial transaction. It’s a signal of what is possible when partners are aligned in ambition. As the United States steps back from investing in what will be the world’s greatest industry, China and Fortescue are advancing the green technology needed to lead the global green industrial revolution.
China continues to lead the world in industrial scale and innovation. Fortescue shares that ambition and drive. This landmark RMB financing strengthens our long-standing partnerships with Chinese institutions and opens new frontiers for collaboration.
The Fortescue chief financial officer (CFO) Apple Paget said:
This financing deepens our engagement with existing financial partners and further expands our banking syndicate to institutions with Renminbi lending capabilities. The exceptional demand through the syndication process is recognition of Fortescue’s strong credit profile, track record for operating excellence and disciplined capital allocation.
It marks another milestone in execution of our capital management strategy, diversifying funding sources, enhancing flexibility and lowering our cost of capital, including achieving Fortescue’s lowest ever cost of debt. It reinforces our position as responsible custodians of capital.
Final thoughts on the Fortescue share price
It’s a very interesting move by Fortescue to go to Chinese lenders, it certainly suggests that Fortescue is in the good books of China, which is a good thing considering the Asian powerhouse is the key customer of all the iron ore.
Will this lead to more collaboration between Fortescue and China on various ‘green’ technology plans? We’ll see. It’d be great for Fortescue if that did happen.
I wouldn’t call Fortescue shares a buy just based on this news, but it’s an interesting development.
