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Rating Action:

Moody's places Vale's ratings under review for downgrade

29 Jan 2019

New York, January 29, 2019 -- Moody's Investors Service ("Moody's") has placed under review for downgrade Vale S.A. ("Vale")'s Baa3 senior unsecured ratings and the ratings on the debt issues of Vale Overseas Limited fully and unconditionally guaranteed by Vale. Moody's also placed under review for downgrade the Ba1 senior unsecured ratings of Vale Canada Ltd.

At the same time, Moody's América Latina Ltda placed under review for downgrade Vale's Baa3 / Aaa.br issuer rating and the Baa3 / Aaa.br rating on its senior unsecured local notes (Debentures de Infraestrutura).

Ratings placed under review for downgrade:

Issuer: Vale S.A.

....Senior Unsecured Notes due 2023, currently Baa3

....Senior Unsecured Notes due 2042, currently Baa3

..Issuer: Vale Overseas Limited

....Gtd Senior Unsecured Notes due 2021, currently Baa3

....Gtd Senior Unsecured Notes due 2022, currently Baa3

....Gtd Senior Unsecured Notes due 2026, currently Baa3

....Gtd Senior Unsecured Notes due 2034, currently Baa3

....Gtd Senior Unsecured Notes due 2036, currently Baa3

....Gtd Senior Unsecured Notes due 2039, currently Baa3

..Issuer: Vale Canada Ltd.

....Senior Unsecured Bonds due 2032, currently Ba1

Outlook Actions:

..Issuer: Vale Overseas Limited

.Outlook, Changed to Rating Under Review from Stable

..Issuer: Vale Canada Ltd.

.Outlook, Changed to Rating Under Review from Stable

RATINGS RATIONALE

Vale's ratings were placed under review for downgrade following the major accident on January 25 with its tailings dam at the Corrego do Feijão mine in Brumadinho, state of Minas Gerais. The dam collapsing paralyzed Vale's mine operations in the area while leading to a large number of fatalities and environmental damage.

The disaster's direct economic impact is limited since the Feijão mine site accounts for less than 2% of Vale's total 390 million annual iron ore output. The company estimates that the environmental disruption will be smaller than that observed in Samarco's accident, given the much lower volume of tailings leaked. However, the social damage is far more serious; the number of fatalities has already surpassed 60, well above the 19 fatalities observed in Samarco's case, and may reach a much larger number.

While the extent of the damage is still unpredictable, it will have a profound impact on Vale in all aspects. It is difficult to measure the potential environmental, administrative, criminal and civil liabilities that the company could face, as well as how its reputation could be affected. Still, we believe financial penalties may be larger than those applied to Samarco given the large number of fatalities and that it occurs just over three years after Samarco's dam collapse. Up to now, courts have blocked BRL 11.8 billion (about $3.1 billion) of Vale's cash position and the company has been sued in about BRL 350 million ($ 90 million) by IBAMA (Brazilian Institute of the Environment and Renewable Natural Resources) and by the Minas Gerais Environmental Agency.

At the end of September 2018, Vale had $6.1 billion in cash and $5 billion in committed credit facilities fully available. The company has announced the suspension of dividend payments, share buybacks and payment of bonus to its executives, which will free up more financial resources to repair and remediation of the affected areas and assistance to the victims.

Moody's review will consider, but will not be limited to, potential liabilities and sanctions for the company and its executives, the costs that will be incurred and potential liquidity pressures that could arise as a consequence of the disaster. Accordingly, the review will also analyze Vale´s ability to meet all associated financial requirements without jeopardizing its credit profile and its ability to continue operating without restrictions.

Vale's Baa3 ratings continue to be supported by the company's diversified product base and low cost position, and substantive portfolio of long lived assets of iron ore, nickel, copper and coal. The enhanced production profile with S11D and significant reduction in debt levels are also important factors for the Baa3 ratings, which better position Vale to withstand volatility in the prices for its major products.

Vale remains exposed to iron ore and base metals market fundamentals. More robust economic growth rates in 2017 and earlier in 2018 contributed to greater base metal and iron ore consumption and a price rally, but there could be a moderate correction in iron ore prices in the medium term, supported by slower global economic growth, in particular in China, and lower price premiums. Besides, The accident involving Samarco's tailing dam still raises uncertainties related to the level of support that Vale may need to provide.

The principal methodology used in these ratings was Mining published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Rio de Janeiro, Brazil, Vale S.A. (Vale) is one of the largest mining enterprises globally. The company has (1) substantive positions in iron ore and nickel, (2) relevant operations in copper and coal, and (3) supplemental positions in energy and steel production. Vale is the largest global supplier of iron ore, with around 375 million tons of production as of the 12 months ended September 2018, and the largest global producer of nickel, with 258,700 tons produced during the same period. The company's principal mining operations are in Brazil, Canada, Indonesia, New Caledonia and Mozambique. For the 12 months ended September 2018, Vale had net operating revenue of $35.9 billion.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Barbara Mattos, CFA
Senior Vice President
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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