Vale Seeking to Trim Debt Exits Thyssenkrupp Steel Venture

  • German maker falls 5.5% on gaining full control of Brazil mill
  • Brazilian iron ore miner free from plant's debt obligations

Vale SA, the world’s largest iron ore producer, is selling its share in Brazilian steel mill venture CSA to German partner Thyssenkrupp AG for a “symbolic price,” the company said, part of a strategy to dispose of non-core assets to help bolster its balance sheet.

The miner based in Rio de Janeiro will exit the venture by unloading its 27 percent stake, according to a statement. Once the transaction is complete, Vale won’t be responsible for any of the mill’s outstanding debt, it said.

The mill, known formally as Companhia Siderurgica do Atlântico, is an integrated steel slab plant, with a nominal capacity of 5 million metric tons a year.

Although Thyssenkrupp, Germany’s largest steelmaker, will fully own CSA upon completion, Vale will be entitled to compensation “for a certain period of time” if CSA is sold to a third party, according to the Brazilian miner. The deal would “not have a significant impact on its financial results” and was “part of its initiative to simplify its asset portfolio,” it said.

Thyssenkrupp shares fell 5.5 percent, most since Feb. 2, to 18 euros a share at 12:12 p.m. in Frankfurt, the biggest loss in the German benchmark DAX index.

‘Far-off’ Deal

The agreement with Vale “may be the starting point for Thyssenkrupp’s complete exit from CSA,” Bjoern Voss, an analyst at Warburg Research GmbH in Hamburg, said Tuesday in a note. He cut his rating on the company to hold from buy and increased the share-price target to 21 euros a share from 18 euros. A final deal is “far off,” he said.

Vale will continue to be the sole supplier of iron ore to the plant at “fair prices”, Thyssenkrupp spokesman Robin Zimmermann said Tuesday by phone. Thyssenkrupp won’t report any impairments related to the deal, according to a statement from the company.

Vale flagged in February that it planned more action to cut $10 billion of debt, including the possible sale of some key assets. It had been focusing on cost-cutting, moving to higher-quality deposits and selling less-important assets. Global iron ore and steel prices have slumped amid supply gluts as growth in China, the biggest consumer, slowed to the weakest in a generation.

The world’s largest mining companies including Anglo American Plc and Glencore Plc are seeking to sell assets to reduce debt. In February, Vale had its credit rating lowered to junk by Moody’s Investors Service on prospects iron ore and base metal prices won’t recover meaningfully before 2017.

Shares of Vale declined 27 percent in the past year in Sao Paulo, while Thyssenkrupp fell 25 percent in Frankfurt. European steelmakers are struggling with prices that have fallen by more than 50 percent since 2008.

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