Moody's: Proceeds from Mitsui deal will allow Vale to deleverage debt
The sale of part of Vale's coal and logistics assets in Mozambique to Japan's Mitsui, concluded March 27, will give the Brazilian giant the means to deleverage its debt and complete its coal expansion.
This is according to Moody's, who also said the US$770mn deal is relatively small for Mitsui, which recorded about 9.6tn yens (US$80.1bn) in revenues in the fiscal year that ended March 31, 2016.
Vale's net debt decreased to US$25.1bn in 2016 from US$25.2bn the year before, with a cash balance of US$4.28bn. Average debt maturity was 7.9 years with an average cost of debt of 4.63%/y, Vale said in its latest earnings release.
Moody's said: "The conclusion of the transaction gives Vale US$733mn in proceeds now, improving its liquidity, a credit positive. The remaining US$37mn payment of proceeds will come once an agreement for up to US$2.7bn in project finance related to the coal project goes through, probably by the end of 2017. The transaction also supports the continuity of Vale's investments to complete the coal expansion, a key project toward product diversification and organic growth."
"If Vale uses the US$770mn cash infusion and US$2.7bn from project finance to pay down debt, the company's total debt/EBITDA ratio, including our standard adjustments, will improve to 2.3x from 2.6x at the end of December 2016. Vale's leverage will likely decline further through mid-2018, based on our ore [iron ore] price forecast of US$45-65/t. Meanwhile, Vale continues to cut costs and reduce its annual capital spending to an average US$4.5bn from 2017 onward, which will reduce its debt requirements and lead to positive free cash flow generation," Moody's said in a note to clients on Thursday.
According to the note, Vale will remain the key partner in the operations behind Moatize and Nocala.
"As part of the deal, Mitsui will pay Vale US$255mn for a roughly 14% stake in Moatize, leaving Vale with 81% ownership in the Moatize mine, and US$350mn for half of Vale's 70% share in the Nacala Logistics Corridor, which includes railway and port facilities. The deal also includes a US$165mn long-term loan to Nacala, and an additional contribution of up to US$195mn based on meeting certain conditions, including mine performance."
According to Moody's, Vale has already spent about US$2.1bn on Moatize and US$4.2bn on Nacala, most of its projected US$4.5bn cost. The partners will seek to raise US$2.7bn in non-recourse project finance debt for Nacala, which will be fully returned to Vale to repay the shareholder loan used to fund the project until now.
In 2016 Moatize produced 5.5mn tons of coal, or 76% of Vale's total coal production.
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