Vale SA, the world’s biggest exporter of iron ore, plans to produce 311 million tons next year to meet expected demand in Asia for the raw material used to make steel.
Roberto Castello Branco, Vale’s director of investor relations, made the forecast today at a press conference in Hong Kong, where the Brazilian company will list depositary receipts on Dec. 8 to demonstrate its commitment to Asia.
Global demand for iron ore will outweigh supply in the next few years due to growth in Asia, Chief Financial Officer Guilherme Cavalcanti said at the conference. Vale may also seek to list in Shanghai when possible, he said, without giving any timetable.
“The main part of our production increase will be directed to Asia,” Cavalcanti said,
Vale’s listing, involving 259 million common depositary receipts and as many as 393 million Class A preferred depositary receipts, will be the first such by an overseas company in Hong Kong.
JPMorgan Chase & Co., sole sponsor of the listing, will arrange for a number of Vale shares to be transferred to Hong Kong. The common depositary receipts will trade with the ticker 6210 HK, while the preferred depositary receipts will go by the ticker 6230 HK.
‘Focus on Asia’
The main reasons for listing in Hong Kong include the need to raise Vale’s profile in Asia and demonstrate its “commitment to, and focus on, Asia,” according to a listing document handed out today. The prospect of benefiting from Hong Kong’s high liquidity levels is another reason for listing in the Chinese city, the document shows.
Hong Kong introduced depositary receipts in 2008 to include foreign companies that are prohibited from registering common shares overseas. Vale joins Russia’s United Co. Rusal and Luxembourg-based L’Occitane International SA in seeking access to Chinese investors.
Companies raised a record $45.4 billion through initial public offerings in Hong Kong this year, according to Bloomberg data that exclude overallotment shares. Vale is seeking closer access to China, the biggest consumer of iron ore, after third- quarter profit more than tripled from a year earlier on rising prices and demand from Asia.
Price to Earnings
Shares of the Brazilian company trade at 10.60 times estimated earnings, according to data compiled by Bloomberg. Stocks on Brazil’s Bovespa stock index trade at an average 13.31 times estimated earnings, while shares in the Hang Seng Index, Hong Kong’s benchmark, have an average price-to-earnings ratio of 14.68.
A successful listing may pave the way for other Brazilian companies to trade in Hong Kong. Petroleo Brasileiro SA, the state-run oil company, is considering selling depositary receipts in Hong Kong, the Ming Pao newspaper reported Nov. 16.
Vale plans to almost double investments to $24 billion next year as it expands iron ore production as well as boosting nickel, copper and fertilizer businesses, it said Oct. 28. The company aims to boost minerals and metals production by 16 percent annually between 2011 and 2015, compared with a rate of 9.8 percent from 2003 to 2008.
Demand growth for iron ore may resume at the end of this year after China tackles overcapacity in its steel industry, Executive Director Jose Carlos Martins said in September.