Vale Surpasses Banco Bradesco With $1.75 Billion Bond Sale: Brazil Credit

Vale SA surpassed Banco Bradesco SA as the biggest Brazilian issuer of overseas bonds as speculation the world’s largest iron ore exporter will finance acquisitions pushed yields to a one-month high.

Vale sold $1.75 billion of bonds yesterday, bringing its total issuance this year to $2.75 billion, according to data compiled by Bloomberg. The offering was the company’s biggest since November 2006, when it sold $3.75 billion.

The yield on Vale bonds that mature in 2039 surged 51 basis points, or 0.51 percentage point, since Aug. 19 on speculation it may buy a fertilizer company and fund the purchase with more debt. Vale, which plans to invest $12 billion by 2014 to bolster its fertilizer business, sold debt in an “opportunistic” bid to take advantage of demand for higher-yielding assets, said RBS Securities Inc., citing a company official who spoke on a conference call with analysts yesterday.

“I half believe them,” said Bevan Rosenbloom, an emerging-market debt strategist with RBS in Stamford, Connecticut, who was on the call. “They always have something up their sleeve. In the fertilizer business, which they want to get into, there’s still some consolidation to go and they want to be part of that. Bonds have widened out because people were anticipating a debt-financed acquisition or just new supply.”

Vale will use proceeds of the sale for general corporate purposes, a company press official who declined to be named said yesterday. The official wouldn’t comment on whether the company is pursuing acquisitions.

Potash Speculation

Speculation Vale may bid for Canadian fertilizer producer Potash Corp. of Saskatchewan Inc. hurt the company’s bonds, Rosenbloom said. Potash rejected a $39 billion bid from BHP Billiton Ltd., the world’s largest mining company, on Aug. 17, sparking speculation Vale may make a bid.

Vale, based in Rio de Janeiro, made initial inquiries with Potash’s board about the possibility of holding talks during the week ended Aug. 20, according to a person with knowledge of the matter who declined to be identified because the information isn’t public.

Potash Chief Executive Officer Bill Doyle said yesterday that BHP Billiton is unlikely to be the only bidder for the world’s biggest fertilizer producer as others are interested.

The Vale press official yesterday referred to the company’s Aug. 23 regulatory filing, which said speculation Vale has made an offer or is in talks to buy a fertilizer producer are “totally unfounded.”

Bond Sales

Vale, whose BBB+ rating from Standard & Poor’s is the third-lowest investment grade, increased the size of its bond sale by 17 percent, said people familiar with the transaction. The company sold $1 billion of 10-year bonds to yield 210 basis points above Treasuries and issued $750 million more of its 6.875 percent notes due in 2039 at a spread of 235.

Total issuance for Vale this year topped the $2.1 billion raised by Osasco-based Banco Bradesco, Brazil’s second-largest bank by market value.

The yield on Vale’s 2039 bonds climbed six basis points yesterday to 5.96 percent, or 223 more than Treasuries, according to data compiled by Bloomberg.

Brazilian fixed-line phone company Telemar Norte Leste SA, which is rated BBB- by S&P, sold $1 billion of bonds due in 2020 yesterday after increasing the size of the transaction, according to people familiar with the offering. Yesterday’s sales brought the total amount of debt sold by Brazilian companies overseas this year to a record $24.1 billion, according to data compiled by Bloomberg.

‘High Quality’ Names

“The high quality names aren’t really paying new issue premiums, or they’re just being very aggressive in how they’re pricing things,” said Andrew Feltus, who manages about $3 billion including about $1 billion in the Pioneer Global High Yield Fund in Boston. “All the demand is in BBB.”

The yield difference on Brazilian government bonds over Treasuries shrank 11 basis points to 213 today at 10:42 a.m. New York time.

The cost of protecting the nation’s debt against non- payment for five years with credit-default swaps rose four basis points to 127 yesterday, according to data compiled by CMA DataVision. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

The real rose 0.1 percent to 1.7241 per dollar today. The yield on Brazil’s interest-rate futures contract due January 2011 fell two basis points to 10.65 percent.

Vale had $24 billion of debt as of June 30. Its cash position fell to $6.24 billion from $11.14 billion after it purchased stakes in Uberaba, Brazil-based Fertilizantes Fosfatados SA from Bunge Ltd. of White Plains, New York, and iron ore mine Simandou.

CEO Roger Agnelli said in January he aims to make Vale “a new global leader in the fertilizer industry.”

To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net; Gabrielle Coppola in New York at gcoppola@bloomberg.net

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