The steel group Salzgitter has raised fresh capital for its decarbonisation project „Salcos“ through the issuance of a convertible bond, using part of its nearly 30% stake in the multi-metal producer and copper recycler Aurubis.

The 500 million euros worth of senior unsecured bonds, maturing in 2032, are backed by an initial 3.4 million Aurubis shares, representing 7.6% of the Hamburg-based MDax company’s share capital.

The Joint Global Coordinators, concurrently with the placement of the bonds, conducted a placement of existing Aurubis AG Shares on behalf of certain subscribers of the bonds who wished to sell shares in short sales to purchasers procured by the Joint Global Coordinators in order to hedge the market risk to which they are exposed with respect to the bonds that they were acquiring. Proceeds from the share sale under this delta placement will not flow to Salzgitter, either directly or indirectly.

BNP Paribas, Commerzbank in cooperation with Oddo BHF, Deutsche Bank, and Unicredit acted as joint global coordinators.

Salzgitter stated that the proceeds from the 3.375% annual coupon bond will be used for general corporate purposes, restructuring measures, and further expenses related to the first phase of the multiyear project to decarbonise steel production. The first stage of „Salcos,“ aimed at converting production to green steel by the first half of 2027, involves planned investments of around 2.5 billion euros. The federal government and the state of Lower Saxony, which holds a 26.5% stake in Salzgitter, are contributing almost 1 billion euros in total funding for this initial phase.

In September, Salzgitter announced that the second and third phases of the project would be delayed by about three years. „We will therefore not decide on the next investments until 2028 or 2029, rather than in 2026 as previously planned,“ CEO Gunnar Groebler told Reuters. He attributed the delay to a significant deterioration in economic and political-regulatory conditions since 2022. The project’s full completion, originally scheduled for 2033, is now expected to be delayed until the mid-2030s. The postponement of later stages is said to free up around 1 billion euros in capital.

Investors in the convertible bonds will be able to exchange their securities from November 12th, 2030 at the earliest, provided that the Aurubis share price exceeds the then-applicable conversion price by 30%. The initial conversion price is set at 145.80 euros, representing a 35% premium to the 108 euro price established in the delta placement.

Investment bank Jefferies commented that the company was able to secure more favourable financing for its investment needs through the issuance, without having to sell its Aurubis stake in the short term. Aurubis has a market capitalisation of around 5 billion euros, while the market capitalisation of Salzgitter’s is around 1.7 billion euros.

Salzgitter has used the same financing instrument – a convertible bond backed by Aurubis shares – in the past. After reducing its stake during the bond’s redemption, the company later increased it again. According to a voting rights notification, Salzgitter regained a blocking minority in autumn 2018. The steel group has no plans to reduce its stake this time either. „We are very satisfied with our long-standing shareholding in Aurubis AG,“ a company spokesperson said.