OREANDA-NEWS. This announcement corrects the version originally published on 6 May 2016. The Negative Rating Sensitivities now reference a failure to improve leverage to below 3.5x by end 2018, in line with the preceding paragraph, rather than above as previously stated.

Fitch Ratings has affirmed ArcelorMittal S. A's (AM) Long-Term Issuer Default Rating (IDR) at 'BB+'. The Outlook is Negative.

KEY RATING DRIVERS

The affirmation reflects the positive steps AM has taken since the beginning of the year to decrease its debt levels which we expect to translate into a slight improvement in credit metrics in 2016, despite weaker average steel prices than 2015. In February 2016, AM announced debt protection measures including the USD1bn asset sale of Gestamp Automocion and the USD3bn rights issue. While this will decrease net debt by USD4bn, AM's funds from operations (FFO) adjusted leverage remains high (2015:7.4x). Consequently, the Outlook remains Negative.

The Negative Outlook also reflects the potential risks and uncertainties in the global steel industry, which could easily derail AM's deleveraging path. We currently project leverage to be around 3.6x in 2018, given no recovery in steel prices in 2016 and a gradual recovery in prices after 2016. While we are seeing some evidence of price recovery materialising, such as steel prices being supported by rationalisation of higher cost producers or protectionist measures in AM's key markets, we believe that this will take longer than we initially expected. As a result, the USD4bn cash proceeds received from the asset sale and rights issue, although positive, will not accelerate deleveraging beyond our previous estimates.

KEY ASSUMPTIONS

Elevated Leverage Metrics

Fitch expects AM's leverage metrics to decrease to 6.7x in 2016 from 7.4x in 2015, and reach 3.6x by 2018. The deleveraging path is largely in line with what we previously projected, primarily due to a longer steel market recovery timeframe than previously expected off-setting the impact of the rights issue and asset sale. The deleveraging in 2016 is driven by the USD1.8bn conversion of the convertible bonds from debt to 100% equity and the recently announced USD3bn rights issue and USD1bn asset sale of Gestamp, which is being used to repay debt.

After 2016 we expect the decrease in leverage to be driven by a gradual improvement in steel prices and the asset optimisation programme. We expect AM's leverage to reach a level more in line with a 'BB+' rating by 2018, but we still believe that the key risks and uncertainties in the global steel market remain and acknowledge that the current projected deleveraging profile could easily be disrupted, as reflected by the Negative Outlook.

No Major Change In Fundamentals

AM has faced pressure from falling steel prices since the start of 2015, which was driven by Chinese exports. While we have seen some progress in protectionist measures in AM's key markets and the expectation of cutbacks in production in China, we believe that these measures will take longer to translate in to an improvement in AM's credit metrics. The recent price pick up has been driven by a number of factors and we remain more cautious and continue to monitor the impact of protectionist measures and capacity rationalisation.

There may be pressure on steel prices in China as Fitch expects the supply of steel to increase as rising prices has led to capacity resumption, as seen in March production figures, where daily crude steel production rose to 2.28m tonnes, up 12.9% compared with January and February 2016. Fitch expects production to increase further in April, as the suspended furnaces are fired up. Together with weak demand growth for steel in 2016, this may result in moderating steel prices. However, AM's ratings factor in that prices will not reach the lows seen in December 2015 and January 2016.

Underlying end-market demand for AM's products continue to remain neutral/positive for 2016 in North America and Europe, and more difficult in Brazil and some Africa & CIS countries. Fitch expects AM's total steel shipments in 2016, of around 86mt, to remain flat in 2016. We project sales volume growth of 1.2% yoy in 2017.

Cost Cutting & Debt Protection Measures Continue

In February AM announced actions to further strengthen its balance sheet with the USD3bn rights issue and the USD1bn asset sale of Gestamp. The rights issue and the proceeds from the asset sale are being used to repay debt. Additionally, AM outlined its 'Action 2020 plan', which indicates further structural improvements. Together with the previously announced cost-cutting measures this will lead to around a USD3bn improvement in EBITDA, and free cash flow (FCF) generation of around USD2bn, at steel spreads of 85/t by 2020. While these steps are positive, the short-term impact will be muted given the low steel prices the industry is currently experiencing.

Significant Scale and Diversification

The ratings continue to reflect AM's position as the world's largest steel producer. AM is also the world's most diversified steel producer in product and geography, and benefits from a solid and increasing level of vertical integration into iron ore.

KEY ASSUMPTIONS

- Chinese exports continue to impact the market in 2016: Total shipments remain flat, coupled with a decline in average steel selling price for 2016.

-Price stabilisation by end-2016/2017

-Continued reduction in cash costs in 2016 to support profitability.

-Iron ore price - USD45/t in 2016- 2017, USD50/t in 2018 and long term).

-Capex of USD2.4bn in 2016.

-Assets sales of USD1bn in 2016.

-No dividends.

- USD3bn rights issue in 2016

RATING SENSITIVITIES

We reviewed ArcelorMittal's rating sensitivities in comparison with those of its peers. Considering our views of the relative business risks of the issuers, we have widened the upgrade and downgrade triggers by 0.5x. The current threshold for a downgrade is FFO adjusted gross leverage above 3.5x by 2018. Previously this was 3.0x.

Positive: Future developments that could lead to the Outlook being revised to Stable:

-Successful implementation of 'Action 2020' and price improvements that translate into stronger cash flow generation and hence more rapid deleveraging towards the expected FFO gross leverage of 3.5x than currently forecast.

-EBIT margins of at least 5% (2015: 3.2%).

-Positive FCF across the cycle.

Negative: Future developments that could lead to negative rating action include:

- Further material price declines in 2016 vs. 2015 prices.

- Inability to execute the recently announced 'Action 2020' plan.

-FFO margin below 4%.

-Inability to achieve FFO adjusted (including true sale of receivables (TSR)) gross leverage below 3.5x by end-2018.

-Persistently negative FCF.

LIQUIDITY

At 31 December 2015, AM had a cash of USD4.0bn and undrawn long-term credit lines of USD6bn (USD2.5bn matures in April 2018, USD3.5bn matures in April 2020). This is more than adequate to cover its short-term debt of USD2.3bn. We view AM's liquidity as strong and supportive for the ratings, given that they are actively managing their debt maturity profile and are using the proceeds from the rights issue and asset sale to pay down debt.

CORRECTION OF ERROR

Fitch has adjusted its analysis of AM's TSR programme and now includes this off balance-sheet receivables factoring as debt in its credit metrics. We first outlined this change in analysis in the Special Report, "Debt Factoring: Analytical Adjustments for Corporate Issuers and Their Recovery Ratings" published in February 2013. Including the receivables increases reported debt by USD4.6bn. Based on our previous projections, this would have increased 2015 FFO adjusted gross leverage by approximately 1.0x from 5.5x to 6.5x and 2018 leverage by approximately 0.8x from 2.8x to 3.6x.

FULL LIST OF RATING ACTIONS

Long-term IDR affirmed at 'BB+', Outlook Negative

Short-term IDR affirmed at 'B'

Senior unsecured rating affirmed at 'BB+'