Investors express confidence in Vale

Investors express confidence in Vale

Debt Capital Markets Corporate & Sovereign Strategy Bonds Fixed Income Brazil

Investors have expressed confidence that Brazil's Vale can emerge from the crisis triggered by a dam collapse in late January.

Vale has cancelled share buybacks and put off negotiations for a $3bn revolving credit facility, but they still have access to funding in both the bond and loan markets, an investor in New York told LatinFinance.

"If they need to come to market, there will be investor interest and bank lines will be available for them," the investor said.

However, Moody's cut Vale's ratings to junk status on Wednesday, saying the company still does not know the full costs of the disaster.

"Some credit agencies downgrade first and then ask questions," the investor said in response to the Moody's report.

Vale faces 70m tons of lost production from closing upstream tailings dams, but it is "very focused on resolving the dam issue," the investor said.

The collapse of a tailings dam at the Córrego do Feijão mine in Minas Gerais killed at least 179 people and left 131 people missing. The disaster came three years after a tailings dam maintained by Samarco, a joint venture between Vale and BHP, collapsed and killed 19 people.

Ray Zucaro, CIO at RVX Asset Management in Miami, agreed that Vale has the mettle to survive the ordeal.

"I am not concerned about any defaults on their bond payments," he said. "From a cash-flow perspective, they have $20bn and they are one of the 800-pound gorillas in the industry with very low production costs and a very diversified business."

Still, Vale "now carries more risk" and likely faces higher financing costs in the foreseeable future, Zucaro said.

"Their bonds were trading at $118 with a 5.4% yield before the dam collapse. Today, they are trading at 6%, so they have a 60pb increase in costs," he said. "For a company like Vale, that is not a huge deal."

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