Nippon Steel stock price falls, $4 billion bond issuance raises dilution concerns

Investing.com - Nippon Steel Corporation (TYO:5401) stock price plunged sharply on Wednesday after the company announced plans to issue nearly $4 billion in bonds to help fund its highly anticipated $15 billion acquisition of U.S. Steel.

Nippon Steel’s stock fell 5.5% to 627.2 yen in Tokyo trading, approaching the intraday low of 624 yen. The stock was the worst performer in the Nikkei 225 index, which reached a record high that day.

On Tuesday, the company said it was seeking to raise 600 billion yen ($3.9 billion) through an expanded issuance of zero-coupon convertible bonds, with all proceeds aimed at repaying loans taken out for the U.S. Steel acquisition.

The company is attempting to refinance the deal while also planning to invest 6 trillion yen over the next five years to drive growth.

However, the scale of this bond issuance — the largest in Japanese corporate history — has unsettled investors. While the bonds won’t immediately dilute the company’s capital, the convertible feature allows bonds to be converted into shares at a set price, which could ultimately dilute shareholder value.

The size of the deal has also heightened concerns about financial pressure, especially after Nippon Steel projected a net loss of 70 billion yen for this fiscal year, partly due to a blast furnace fire and costs related to the U.S. Steel acquisition.

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