Reuters reported that Usiminas may have to raise additional capital through a share offering to support its growth strategy.

Mr Rodrigo Barros and Mr Silvia Baracaldo analysts at Deutsche Bank said in a report that Usiminas would tap equity investors for additional funds. Both analysts cut their price target on Usiminas' nonvoting shares to BRL 18 from BRL 25.

The situation underscores the challenges that Usiminas faces as local mills grapple with their worst crisis in years. The company will likely report a 53% drop in second quarter net income when it unveils results on August 2nd 2011.

A share sale could help CEO Mr Wilson Brumer finance plans to make Usiminas self sufficient in iron ore and energy by 2015. Poor access to raw materials resulted in rising costs and lower profits for Usiminas as the price of coal, ore and other steel ingredients soared in recent years.

The analysts estimated that Usiminas may have to spend BRL 3.5 billion to bolster its mining division and improve access to raw materials and energy in the future. Cash flow could weaken this year as conditions for steelmakers worsen. As international prices remain stagnant, this year's gain in Brazil's currency, the real, pared pricing power for producers.

The report said that "Raising equity may be a required step to promote the company's growth capital in expenditures in light of current adverse market conditions."

The equity offering could also allow Usiminas to improve some of its debt metrics amid a deterioration in operating earnings and other liquidity indicators. The analysts expect Usiminas' net debt to rise this year to the equivalent of three times earnings before interest, tax, depreciation and amortization, a level they consider to be high.

EBITDA, a widely used gauge of operational profitability, is expected to plummet 59% in the second quarter from a year earlier. Net debt as a percentage of EBITDA is an indicator followed by creditors to monitor the creditworthiness of borrowers.

Recently, analysts said Usiminas could speed up debt repayments in the coming months as the deterioration of some of those debt metrics could put at risk compliance on debt covenants.

(Sourced from www.reuters.com)