Expectations Soar for Vale-Xstrata

Brazil-based bankers and other executives close to the process say they are sure that Vale, the Brazilian mining giant, will succeed in acquiring Switzerland’s Xstrata. It is a matter of time and hammering out final details, including commodity marketing rights for Glencore, which has a 35% stake in Xstrata. People familiar with what will be by far the biggest M&A deal ever for LatAm, at around $90bn, are encouraged by talks that took place in Rio earlier this month between Vale CEO Roger Agnelli, Xstrata CEO Mick Davis and Glencore CEO Ivan Glasenberg. Proving that there is still a lot of cash out there for the right high grade names, $50bn in financing for the deal is advancing, with invitations out to a number of prospective participants. Bankers expect a bridge including an $8bn 18-month tranche at Libor plus 60bp and a $10bn 2-year at 75bp. A $15bn 3.5-year term loan is said to be priced at around 100bp over Libor. In export finance, a $15bn 5-year piece is heard at 120bp while a $2bn 7-year piece has apparently slid up to 150bp over Libor from an earlier 140bp. Santander, HSBC, Credit Suisse, RBS via ABN AMRO, Lehman, Citi, and BNP are all heard participating as leads, having committed to tickets of up to $7.5bn in some cases. Bankers supporting the deal play up the company’s dominance in a hot sector and increasing diversification out of LatAm. Investors are worried that Vale is biting off more than it can chew, but this deal looks close to being signed.