S&P Downgrades Brazil Miner Vale--Update
January 29 2016 - 1:12PM
Dow Jones News
By Paul Kiernan
RIO DE JANEIRO--Ratings firm Standard & Poor's downgraded
Brazilian mining giant Vale SA to one level above junk, saying low
commodities prices will continue to pressure the company's balance
sheet and make asset sales difficult.
S&P downgraded Vale debt to BBB-, the lowest level in the
investment-grade category, and maintained a negative outlook on the
company. The move came after S&P reduced its price assumptions
for iron ore and nickel, of which Vale is the world's largest
producer, as well as copper.
"The low iron-ore prices are pushing Vale to divest non-core
assets at a faster speed to finance the cash-flow deficit stemming
from its significant capital expansion plan," S&P said. If Vale
struggles to complete these sales, or if iron-ore prices fall below
$40 per ton, its debt levels would likely rise, forcing an
additional downgrade.
A Vale spokeswoman said she could not immediately comment on the
S&P downgrade.
Not included in S&P's base-case scenario were any potential
outlays Vale may face from fines and lawsuits related to a massive
dam failure at its Samarco Mineração SA joint venture. But S&P
noted that if a judge rules in favor of the Brazilian government's
roughly $5 billion civil lawsuit against Samarco and its parent
companies, it would raise Vale's "leverage metrics" by about 0.5
times.
"We would proportionally consolidate half of that compensation
into the company's numbers," S&P said. The company added that
it assumes Samarco will resume operations at 50% capacity in 2017,
something that remains far from certain as authorities continue to
assess the damage from the accident.
The downgrade brings S&P's rating of Vale's debt in line
with that of Moody's Investors Service, which put its rating on
negative review earlier this month.
Write to Paul Kiernan at paul.kiernan@wsj.com
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January 29, 2016 12:57 ET (17:57 GMT)
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