By Paul Kilby
NEW YORK, June 7 (IFR) - Brazilian miner Vale was poised to raise US$1.25bn in its first international bond foray in over three years on Tuesday after watching order books swell to US$4.2bn on a new five-year deal.
The iron ore miner hit the screens on another positive day for the region's debt markets, amid higher oil prices and hopes that the Fed will further delay rate hikes in the US.
"Dovish Fed comments combined with a rally in oil have made for a good two-day start to the week," one syndicate manager told IFR.
Decent demand helped the miner squeeze pricing a good 25bp from start to finish before launching the deal at a final yield of 5.875%.
At that level, pricing was almost flat to the 2022s, which were bid Monday at a yield of around 5.86%, or 12.5bp over the 5.75% fair value leads calculated for a new five-year bond.
That was not enough for some investors, who thought they could find better value further up the Vale curve, where the 2042s have been trading 7.645%.
"We expect some curve flattening and find the long end more attractive," said one, who reckoned the new deal helps relieve some of the liquidity concerns surrounding the credit.
Vale was forced to draw down US$3bn from a US$5bn revolving credit facility earlier this year to tide it over until it completed asset sales.
Proceeds from Tuesday's bond are slated to repay revolvers that currently cost Libor plus 110bp, according to the offering memorandum.
Markets were also cheered by news on Tuesday that the Mozambique government had cleared the way for Mitsui to purchase certain stakes in Vale-controlled projects - a sale that is expected to unlock US$2.5bn-US$3bn in cash.
"People were not giving them the benefit of the doubt about (their ability to generate) enough liquidity, so this is positive news," said the investor.
"This is a good day for Vale."
Fitch estimates that Vale will likely sell some US$2bn in assets over the next six months, but if it can raise US$5bn over that period, net leverage could fall to 3.7 times this year from a projected 4.1 times.
"Vale's ambitions to reduce net debt to around US$15bn over the next 18 months could be realized through the sale of non-core and core assets," Fitch said.
Aside from the broader risk-on tone, gains in commodities, including iron ore, have helped the credit in recent weeks.
The company was last in the market in September 2012, when it was rated Baa2/A-/BBB+.
At the time, it issued a US$1.5bn 5.625% 30-year bond to yield 5.681% or a US Treasury spread of 300bp. But concerns about Chinese growth and a subsequent commodities tumble left the securities struggling.
Last year a dam burst at Samarco - a joint venture between BHP Billiton and Vale - which exacerbated investor concerns about the credit.
The new senior unsecured notes are expected to be rated Ba3/BBB-/BBB, with a negative outlook from all three major rating agencies.
BB Securities, Bank of America Merrill Lynch, Bradesco, HSBC and Santander are acting as joint bookrunners. (Reporting by Paul Kilby; Editing by Marc Carnegie)