Vale Relegated to Junk by Moody's in Three-Step Downgrade

  • Iron ore miner's debt rose to $25 billion at end 2015
  • Moody's cut Vale ratings to Ba3 from Baa3; outlook is negative

Vale SA had its credit rating lowered three levels to junk status by Moody’s on prospects that iron ore and base metal prices won’t recover meaningfully before 2017.

Moody’s cut Vale ratings to Ba3 from Baa3, while withdrawing its issuer rating and assigning a Ba3 corporate family rating. The outlook is negative.

The action comes a day after the Rio de Janeiro-based company vowed to step up efforts to cut net debt, which rose to $25 billion at the end of last year, as a slowdown in Chinese growth collides with rising supply to push down commodity prices.

“Supply imbalances, particularly in iron ore, the major earnings and cash flow driver for Vale, will maintain pressure on prices for several years,” Moody’s said. “While lower oil prices, lower freight costs, and currency depreciation contribute to reduced costs, the drop in prices has and will continue to significantly impact performance.”

Vale said Thursday that fourth-quarter net losses swelled to a record of about $8.6 billion on impairments from lower nickel, coal and iron ore prices and a dam rupture at a joint venture. Vale capped its first annual loss since a 1997 privatization.

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