CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB+' rating to today's proposed issuance by Vale Overseas of notes due in 2022 that will be unconditionally guaranteed by Vale S.A. Proceeds from this issuance, which is expected to be a benchmark in size, are expected to be used for general corporate purposes.
Fitch currently rates Vale S.A. as follows:
--Foreign currency and local currency Issuer Default Rating (IDR) at 'BBB+';
--Unsecured debt at 'BBB+';
--National Scale Rating at 'AAA (bra)';
--Unsecured Brazilian real denominated debentures at 'AAA(bra)'.
The ratings of Vale Overseas Limited are:
--Foreign currency and local currency IDR at 'BBB+';
--Unsecured debt at 'BBB+'.
The Rating Outlook for both Vale S.A. and Vale Overseas Limited is Stable.
The ratings of Vale Overseas Limited have been linked to those of Vale S.A. through Fitch's 'Parent Subsidiary Rating Linkage' criteria. Vale Overseas Limited is domiciled in the Cayman Islands.
The ratings of Vale take into consideration the company's solid business position as one of the world's leading mining companies. The company's strong business position is viewed to be sustainable due to its leading market positions in iron ore; a strong global presence in nickel; low production cost structures for both iron ore and nickel relative to competitors within these industries; and large proven and probable mineral reserves. Vale's business position is being enhanced by significant investments in coal, copper and fertilizer, which will improve the company's product and geographic diversification.
The majority of Vale's assets - especially iron ore - are in Brazil. This provides the company with a competitive advantage because the Brazilian government and its development bank, BNDES, are generally supportive of leading global companies that are exporters. This support accelerates Vale's ability to obtain permits and financing. It has also fostered a more stable and predictable royalty scheme than in many countries where Vale's competitors' key mines are located. Balanced against these positives is the potential for an increase in the government's influence within the company as a result of its ownership of 12 golden shares, or through Brazilian government pension funds, which own 49% of Valepar, a consortium that controls Vale.
The ratings also reflect Vale's strong balance sheet, conservative capital structure and strong cash flow from operations. As of Sept. 30, 2011, the company had USD23 billion of total debt and USD7.6 billion of cash and marketable securities. This compares with a latest 12-months EBITDA of USD35.2 billion. Vale's amortization schedule is manageable with USD1.6 billion of short-term debt. The company also has USD4.1 billion available under revolving credit lines.
The recent softness in iron ore prices will likely result in the company's EBITDA falling short of Fitch's July projection for 2011 EBITDA of approximately USD37.5 billion. Offsetting the decline in EBITDA from early projections is the slow pace of capital expenditures being made by the company. For the first nine months of 2011, Vale spent only USD11.3 billion on capex. This figure falls short of Fitch early projection of USD20 billion for 2011 and the company's targeted investment plan for 2011 of USD24 billion. Vale is projecting to spend about USD9 billion on dividends and USD3 billion on share buybacks during 2011. Despite the company's aggressive return of cash to shareholders, net debt is not likely to exceed 1.0x during 2011 or 2012.
Factors that could lead to a negative rating action include a large, debt-funded acquisition; a change in management's strategy with regard to the conservative capital structure that the company has maintained; or a prolonged downturn in demand and prices for commodities, particularly iron ore. A reduction in demand for Vale's products from its Chinese clients and/or a deterioration of its relationship with its customers in China could also lead to a negative rating action. During 2010, China accounted for 33.1% of the company's sales revenues.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 13, 2010);
--'Parent and Subsidiary Rating Linkage' (July 14, 2010);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Rating Corporates Above the Country Ceiling' (Jan. 5, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Rating Corporates Above the Country Ceiling
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=594985
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.