Moody’s Considers Vale Upgrade

Moody’s has put the Baa3 ratings of Vale on review for possible upgrade, including Vale Overseas and Vale Inco, affecting approximately $10bn in debt securities. The Brazilian miner Vale last week walked away from a $90bn acquisition of Switzerland’s Xstrata, which investors feared would have prompted a downgrade. “The review will focus on the sustainable level of earnings and cash flow generation in a more normalized metals cycle and the company’s level of debt within its capital structure,” says Moody’s. “An important part of the analysis will be the company’s capital expenditure plans for growth projects given Vale’s announced $59bn in capital investments over the next five years, of which $11bn is planned for 2008, and the continued capital cost increases being experienced in general across industries given rising material costs and equipment and skilled labor availability challenges,” it adds. Moody’s will also look at other cash use requirements, including dividend payout levels. The Xstrata deal may yet be revived, snuffing out any hopes of an upgrade.