Vale SA (VALE), the world’s biggest iron-ore producer, yesterday announced its plans to offer two series of US$65.7 million convertible notes due in 2012 in the global capital markets through its wholly-owned subsidiary Vale Capital II.
In 2012 or anytime earlier, the first series of VALE-2012 notes will be compulsorily converted to American Depositary Shares (ADSs), each representing one common share of Vale, and the second series of VALE-2012 notes will be converted to ADSs, each representing one preferred class A share of Vale.
Together, the ADSs will represent a total of 18.4 million common shares and 47.3 million preferred class A shares of Vale. The whole operation is expected to bring some R$$2 billion (US$1.0 billion) to Vale, which it will use to meet general corporate needs.
The uncertainty in the recovery of the global economy is affecting world metal prices. Last day base metal prices dropped to their two-week low and as such major stocks in the metals industry lost enormously.
Rio Tinto plc (RTP) lost 6.5%, VALE lost 3.4%, BHP Billiton Ltd. (BHP) lost 5.4%, and Cliffs Natural Resources Inc. (CLF) lost 6.4%. Price cuts worldwide will affect VALE primarily as it would reduce demand for exports.
However, demand from China seems to be growing in the short-term, but the lack of information on price negotiations between Vale and its Chinese customers is a source of concern. VALE’s sales and net profit are expected to reduce in the second quarter 2009.
Then again, the iron ore market is expected to perform well in 2010 as the global demand is expected to rebound. This will lead to a significant increase in iron ore price. Hence, we continue to have a neutral view on VALE.
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