Moody's ups outlook on Vale's rating to 'positive' on cost controls
By Guillermo Parra-Bernal and Jeb Blount
SAO PAULO/RIO DE JANEIRO, April 11 (Reuters) - Moody's Investors Service on Friday raised the outlook on Vale SA's debt rating to "positive," citing the success of the world's largest iron ore producer to rein in costs in the face of falling prices and uncertain sales volume trends.
The change in the Brazilian company's outlook from "stable" acknowledges the company's "more focused and disciplined approach to project development, capital allocation," and efforts to trim costs, a team of analysts led by Carol Cowan said in a statement. Moody's has a "Baa2" rating on Vale, the second-lowest investment-grade ranking.
The decision signals how Chief Executive Officer Murilo Ferreira's efforts to discipline capital spending is boosting Vale's ability to cope with potential price declines for iron ore and other minerals over the next twelve to eighteen months. According to Cowen, further efforts to lower debt and avert cost overruns in major new or ongoing projects could increase the likelihood of a rating upgrade.
In addition, the outlook change also considers a settlement with Brazil's tax authority over disputed tax issues between 2003 and 2012. While the deal represented a huge payment for the company, "it can be accommodated within the company's liquidity profile, and resolves a material event risk for the company," the statement said.
Usually, companies get their ratings upgraded between one and 1-1/2 years after their outlook is raised. In stark contrast to Vale's rising star, Standard and Poor's last month trimmed the sovereign debt ratings of Brazil's government, citing the impact of a deteriorating budget balance and a slowing economy.
Preferred shares of Vale gained 0.4 percent to 29.81 reais on Friday. The stock is down 4.4 percent in the past 12 months.