4 MIN. DE LECTURA
NEW YORK, Aug 3 (IFR) - Brazilian miner Vale returned to the debt markets for a second time in a matter of months on Wednesday, approaching investors with a US$1bn 10-year offering to fund bond redemptions.
The mining giant, having seen its bond prices rally of late, also looked to be taking advantage of stronger iron ore prices and a renewed bid for Brazilian and emerging markets assets.
The company is highly exposed to China, where the growth in demand for iron ore is slowing down, meaning prices could well tumble in the second half of the year.
"Vale is being very savvy here," one New York-based trader told IFR. "They know there could be pricing pressures on iron ore in the second half of the year."
On the back of a modest US$3bn order book, the company launched a US$1bn deal at 6.25%, opting for size even as some observers thought fair value was closer to 6.125%.
But others had drawn the line at 6.25%, particularly as Brazil's headline risks remain significant and taking into account the fact that Vale sold US$1.25bn of debt in June.
"Below 6.25% didn't make much sense for a lot of accounts," said an investor.
"There seems to be some pricing sensitivities, which is normal considering how far the market has run and that Vale was in market just a few months ago."
The new trade fills an obvious gap in Vale's curve, where it lacks a 10-year benchmark, while also attending to US$1.25bn of bond maturities next year.
Proceeds will pay part of the redemption price on its 6.25% 2017s, also helping create a natural bid for the new bond, which was up at plus 1/4 to 3/8 in the grey market following launch.
This is part of a broader effort to deleverage as the company looks to shed assets and improve its capital structure.
Fitch Ratings said that Vale's projected net leverage of 3.5x for 2016 is still high for its BBB+ rating, but this could fall to 2.7x by next year if Vale can sell US$5bn of assets.
Vale bonds have rallied since early June bolstered by surprisingly strong iron ore prices, which are now hovering around US$60 per dry metric ton.
"A lot of people were completely short the name, and everyone thought iron ore prices would be lower than they are today," said the investor.
Mid-market yields on the company's 2022s bonds hit a recent low of around 4.88% on Monday, in from 6.62% on June 16, according to Thomson Reuters data.
That stands in contrast to the 12.38% yield seen earlier in the year at the height of the commodities.
Last year's dam burst at Samarco - a joint venture between Vale and BHP Billiton - has also been weighing on the company's bond prices as investors fret about the final cost of the environmental disaster.
Vale's net income fell 34% in the second quarter, in part due to provisions for potential losses from the Samarco catastrophe.
"When we finally get the Samarco problems solved, Vale will be back in business again," said Klaus Spielkamp, head of fixed-income sale at Bulltick, a brokerage and asset manager focusing on Latin America.
"I love that Vale has been under stress, as it only gives me a chance to step in and buy it cheap, which would otherwise be impossible."
Vale's bond was expected to price later on Wednesday through leads BB Securities, BNP Paribas, Bradesco BBI, Citigroup and Morgan Stanley. Ratings are expected to be Ba3/BBB-/BBB. (Reporting by Paul Kilby; Editing by Marc Carnegie)