* Aims to cut net debt to $17 bln by mid-2013
* Credit at junk rating with S&P, Moody's, Fitch
* Moody's says no immediate impact, demands more
* Notes to have 3-yr maturity, coupon 5.875 to 6.375 pct
* Shares down 3 pct, biggest losers in FTSEurofirst 300 index (Updates after conference call, adds Moody's)
By Philip Blenkinsop
BRUSSELS, Jan 9 (Reuters) - ArcelorMittal SA, the world's largest steelmaker, will issue $3.5 billion of shares and convertible notes to sharply reduce the heavy debts that led to a cut in its credit rating to "junk" status.
The company said on Wednesday the issue, the exact make-up of which is yet to be determined, would help to reduce its net debt to about $17 billion by the end of June from an expected $22 billion at the end of 2012.
It would also reduce the need for further large disposals.
"We are parking the balance sheet issue now. We are also parking to some degree the asset divestment process," Chief Financial Officer Aditya Mittal told a conference call.
He also confirmed ArcelorMittal had bid for assets German rival ThyssenKrupp has put up for sale - most likely the steel plant in Alabama - and said this would not compromise the debt reduction target.
However, credit rating agency Moodys's said the cash-raising would have no immediate impact on ArcelorMittal's rating, adding the company needed to do more to support its reduced Ba1 status.
ArcelorMittal shares, barely changed before the announcement, were down 3.3 percent at 12.98 euros at 1610 GMT, making them the weakest in the FTSEurofirst 300 index of leading European stocks at that time.
Chairman and Chief Executive Lakshmi Mittal said the new issue, along with asset disposals, a planned reduction in dividends and cost savings would bring forward the achievement of a medium-term debt target of $15 billion.
He repeated a forecast for ArcelorMittal to make a core profit (EBITDA) of $7 billion in 2012, against $10.1 billion a year before.
Analyst Maarten Bakker at ABN AMRO said the combination of measures should ensure ArcelorMittal reached this target.
"It looks to be enough to me, $15 billion net debt seems even on the conservative side on the longer-term view, but it seems an appropriate measure ... given the fact that the market has declined structurally in Europe," Bakker said.
Seth Rosenfeld at brokerage Jefferies said the move was painful in the short term but should help ArcelorMittal put its debt problems behind it this year. He added the share sell-off was to be expected but was not dramatic given a 16 percent rally since late November.
"Many investors seem to recognise that much of the positive sentiment behind the steel sector as a whole is gradually fading as iron ore prices have likely topped out and steel price increases may decelerate moving through the first quarter," Rosenfeld said.
ArcelorMittal said the mandatory convertible subordinated notes would have a maturity of three years and pay a coupon in the range of 5.875 to 6.375 percent. The Mittal family intends to pump $600 million into the new shares and notes.
Moody's said the stock and note issue - as well as the recent sale of a stake in a Canadian mining operation - were positive, but did not affect ArcelorMittal's rating because Moody's had already factored them into its November downgrade.
"Moody's believes the company needs to reduce debt further in order to support the Ba1 rating and will maintain its negative rating outlook until that happens and the global economy and steel market conditions begin to improve," it said.
ArcelorMittal, formed in 2006 when Mittal's steel business bought European peer Arcelor, last month wrote down the value of its European business by $4.3 billion following an 8 percent slump in European demand in 2012 and no sign of a quick recovery.
The $500 billion-a-year steel industry, a gauge of the global economy, slowed sharply last year as a slowdown in China combined with weak demand in Europe, where austerity drives have cut demand for cars and construction, steel's top markets.
The World Steel Association in October forecast steel demand would rise 2.1 percent in 2012, down from 6.2 percent in 2011. ArcelorMittal makes between 6 and 7 percent of the world's steel, principally in Europe and the Americas.
The Luxembourg-based group has scaled back investments and made a number of divestments in the past year, but has upped its debt-cutting efforts since Standard & Poor's became the first credit agency to cut the group's rating to junk in August.
It slashed its dividend to $0.20 per share this year from $0.75 in 2012, saving $860 million.
A week ago, it said it would sell a 15 percent stake in ArcelorMittal Mines Canada for $1.1 billion, having in December ceded a 20 percent stake in Canada's Baffinland Iron Ore Mines.
It has also been in a battle with the French government over the planned closure of two blast furnaces. (Additional reporting by Ben Deighton and Robin Emmott; Editing by Rex Merrifield and David Holmes)