ArcelorMittal SA

February 13, 2018

Summary of rated instruments

Current Rated Amount
Instrument Rating Action
(Rs. crore)
Issuer Rating Not applicable [ICRA]AA (Positive); Assigned

Rating action
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ICRA has assigned a long-term issuer rating of [ICRA]AA (pronounced ICRA double A) to ArcelorMittal SA (AM or the
company). The outlook on the long-term rating is Positive.

Rationale
The assigned rating factors in the strong market position of AM in the global steel industry with diverse operations, both
in terms of geographies and product portfolio, which is further supported by partial backward integration into iron and
coal mining. AM’s credit profile has strengthened substantially over the last two years with significant de-leveraging and
improvement in debt coverage indicators. Its liquidity is strong, supported by sizeable unencumbered cash, limited short-
term maturities and undrawn committed lines of credit. The positive outlook reflects ICRA’s expectation that the
company's credit metrics will improve further, over the short to medium term, given the favourable outlook on the steel
industry in most markets that AM operates in. Such supportive conditions would lead to healthy operating profitability
and cash flows, which in turn would facilitate the company’s plans of further de-leveraging, notwithstanding its capital
expenditure (capex) plans. Liquidity is also expected to remain strong.

The above credit strengths are, however, partially offset by the exposure to the cyclical steel industry, resulting in
volatility in profitability and cash flows of players, including AM. Also, the operating profitability of AM is relatively low,
when compared with some of its global peers, despite its partially backward integrated nature of operations.
Nonetheless, an expected reduction in debt going forward would further strengthen the credit profile of the company
over the near to medium term.

Outlook: Positive
The positive outlook underpins ICRA’s expectations that the company's credit metrics will further improve, driven by
favourable operating conditions and the company’s objective of using surplus cash to reduce debt. The outlook may be
revised to Stable if the operating conditions do not turn out to be supportive enough for the company to undertake the
extent of deleveraging and in turn improve its credit metrics, as envisaged. The outlook may be revised to Negative if
there is a significant reversal in the industry conditions and/or any other large merger and acquisition activity undertaken
by the company, other than that currently envisaged, which would have a material adverse impact on the credit metrics.

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For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

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Key rating drivers

Credit strengths
Largest steel company in the world with strong geographic and product diversifications - The company is the largest
steel producer globally with an installed capacity of ~113 million tonne. Regionally, AM is the largest steel producer by
installed crude steel capacity and shipments in Europe, the NAFTA region and Brazil. AM benefits from a strong market
share in all regions, except Asia. AM has a diversified portfolio of products to meet demand across many steel-consuming
industries, including automotive, appliance, engineering, construction, energy and machinery.

Partial vertical integration into iron ore and, to a lesser extent, coal mining - AM is partially backward integrated with
the mining of iron ore and coal. Owned mining assets, coupled with certain strategic long-term contracts with external
suppliers, provide considerable raw material security for the company. In CY2016, approximately 55% of its iron-ore
requirements and approximately 15% of pulverized coal injection (PCI) and coking coal requirements were supplied from
its own mines or strategic contracts with third-party suppliers.

Improving fundamentals in almost all its operating geographies - While AM remains exposed to the cyclicality in the
steel industry as well as the end user markets of automobile and construction, the demand outlook in most markets that
AM operates in is favourable. Also, the US and Europe - key markets of AM, are protected in the form of trade tariffs
against import threats. Such protection, combined with a reduction in steel supply from China, is expected to result in
supportive operating conditions in Europe and the US.

Significant reduction in leverage over the last two years; strong coverage indicators – Conversion of convertible notes
($2.2 billion) into equity, fresh equity infusion of $3.1 billion and disinvestment of an asset (~€0.9 billion) in CY2016,
coupled with healthy internal generations in CY2016 and CY2017 have led to significant reduction in debt levels of AM. In
Q4CY2017, the company pre-paid ~$1.2 billion of debt and refinanced ~$0.65 billion at a much lower rate and also
pushed back the repayment of the debt, from CY2018 to CY2023. Net debt as at end of CY2017 stood at $10.1 billion as
against $15.68 billion at the end of CY2015. With the reduction in debt and healthy profitability, debt coverage indicators
also witnessed an improvement, with Interest Cover improving from 5.34 times in CY2016 to 9.56 times in CY2017.
Coverage indicators are expected to remain comfortable in the medium term, given the expectation of healthy
profitability and a favourable debt repayment schedule. Net Debt / OPBDITA, which stood at ~ 1.2 times as at end of
CY2017, is also expected to improve going forward.

Healthy liquidity with sizeable cash, undrawn revolving credit lines; demonstrated access to bank funding and capital
markets supports financial flexibility - The liquidity of the company remains comfortable with total liquidity of ~$8.3
billion as at end of CY2017, which comprised $2.8 billion of cash/cash equivalents and undrawn credit lines of $5.5
billion. In addition to expected healthy free cash flows, liquidity is supported by AM’s demonstrated track record of fund-
raising from capital markets and banks.

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Credit challenges
Exposure to cyclicality of the steel industry; construction and automotive sectors too exhibit cyclical demand – Given
the significant volatility exhibited by steel prices, AM remains exposed to price risks. Also, the company faces cyclical
demand patterns from sectors such as construction and automobiles, which together formed about 40% of AM’s total
sales in CY2016.

Operating profit, on a per tonne basis, continues to be low, despite the partial integrated nature of operations – AM’s
operating profitability improved from ~11% in CY2016 to ~12.2% in CY2017 due to increase in steel and iron ore
realisations and cost savings, over the last two years, as a part of its ‘Action 2020’ programme. On a per tonne (of steel)
basis too, operating profits improved in CY2017. However, when compared with some of its global peers, operating
profits per tonne remains lower, despite the partial availability of captive minerals in its business.

Exposure to fluctuations in foreign currency – While AM’s financial accounts are dollar denominated, more than half of
its total debt (as at end of CY2017) is Euro denominated. As a result, a depreciation of the US dollar against the Euro
results in an increase in reported debt. Also a substantial portion of AM’s financials are denominated in currencies other
than the US dollar. Accordingly, the company is subject to translation risk as well as transaction risks. Foreign exchange
risks are however mitigated by sizeable earnings denominated in Euro (~45% of total earnings), which provide a natural
hedge. Also the company has implemented policies and procedures to manage and monitor foreign exchange risks.

Analytical approach: For arriving at the ratings, ICRA has taken into account the consolidated financial profile of AM and
also applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology
Rating Methodology for Entities in Ferrous Metals Industry

About the company

AM, including its subsidiaries, is the world's leading steel company, with presence in 60 countries. AM has steel-making
operations in 19 countries in four continents, including 51 integrated and mini steel-making facilities, with a total
installed capacity of ~ 113 million tonne per annum. ArcelorMittal is the successor to Mittal Steel, a business originally
set up in 1976 by Mr. Lakshmi N Mittal, current Chief Executive Officer and Chairman of the Board of Directors.
ArcelorMittal was created through the merger of Arcelor and Mittal Steel in 2006 and is a holding company with no
business operations of its own. All of AM’s significant operating subsidiaries are indirectly owned through intermediate
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holding companies. AM reports its business in five reportable segments - NAFTA, Brazil, Europe, ACIS and Mining.

In CY2017, on a consolidated basis, the company reported a net profit of $4.6 billion (Rs. 27,205 crore) on an operating
income of $68.7 billion (Rs. 447,144 crore), as compared to a net profit of $ 1.7 billion (Rs. 8,256 crore) on an operating
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income of $56.8 billion (Rs. 381,498 crore) in the previous year .

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Africa and CIS
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P&L items have been converted at INR 65.107 per USD for CY2017 and INR 67.176 per USD for CY2016

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Key financial indicators (audited)
CY2016 CY2017 CY2016 CY2017
(In US$ billion) (In US$ billion) (in Rs. Crore) (in Rs. Crore)
Operating Income 56.8 68.7 381,498 447,144
PAT 1.7 4.6 8,256 27,205
OPBDIT/ OI (%) 11.0% 12.2% 11.0% 12.2%
RoCE (%) 7.3% 10.9% 7.3% 10.9%

Total Debt/ TNW (times) 0.42 0.32 0.42 0.32

Total Debt/ OPBDIT (times) 2.21 1.51 2.21 1.51
Interest Coverage (times) 5.34 9.56 5.34 9.56
NWC/ OI (%) -13% -10% -13% -10%
Source: Company financials

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years:

Chronology of Rating History for the
Current Rating (FY2018) past 3 years
Date & Date & Date &
Date & Rating in Rating in Rating in
Amount Amount Rating FY2017 FY2016 FY2015
Rated Outstanding February
Instrument Type (Rs. crore) (Rs Crore) 2018 - - -
Issuer Rating Long Not Not [ICRA]AA - - -
Term applicable applicable (Positive)

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

Annexure-1: Instrument Details

Not applicable

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ANALYST CONTACTS
Jayanta Roy Kaushik Das
+91 33 7150 1120 +91 33 7150 1104
jayanta@icraindia.com kaushikd@icraindia.com

Priyesh Ruparelia
+91 22 6169 3328
priyesh.ruparelia@icraindia.com

RELATIONSHIP CONTACT
L Shivakumar
+91 22 6114 3406
shivakumar@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
naznin.prodhani@icraindia.com

Helpline for business queries:

+91- 124- 2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services
companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit
Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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