By Paul Kilby
NEW YORK, Dec 7 (IFR) - Retiring short-term debt is a priority for Vale, but more liability management and longer-term bond deals are also in the cards as the miner's credit standing improves, CFO Luciano Siani said this week.
Management under the helm of the new CEO Fabio Schvartsman are working to turn the world's largest iron ore producer into a more profitable and predictable company.
Cost cutting, a reduction in capital expenditures and deleveraging are part of this strategy after several rocky years for the world's largest iron ore producer.
"The next goal is to reduce indebtedness from the existing US$21bn to US$10bn in the shortest period of time, taking advantage of the very large cash generation (Vale) has today," Schvartsman said at the same event.
Vale expects financial expenses to drop to US$550m-US$660m by 2020 from US$1.6bn-US$1.7bn this year, while it forecasts Ebitda to hit anywhere between US$13bn-US$19bn over the period.
Fitch upgraded the company to BBB+ from BBB in October, noting that the completion of its large capex program will allow it to deleverage.
This followed a Moody's upgrade to Ba1 from Ba2 in September when the rating agency also cited strong cash flow generation to reduce debt levels.
The company retired close to US$500m of its 4.625% 2020 notes in September and in February it amassed a US$5bn order book on a US$1bn tap of its 6.25% 2026 as it sought refinance 4.375% euro-denominated 2018 notes.
Moody's forecasted in September that debt reduction measures would result in total debt to Ebitda of 1.6x from 2.2x.
The company's improving credit metrics have in turn led to a rally in its bonds this year. The yield on the 2026 has dropped from 5.6% in early January to about 3.95% on Wednesday, according to Thomson Reuters data.
With a lot bonds maturing in 2021 and 2022, but fewer longer-term bonds outstanding, Vale will at some point fill the gap further up the curve, said Siani.
But that is unlikely to happen until after the improving credit cycle runs its course.
"If Vale were to issue a 30-year today, it would probably raise money at five something percent," said Siani. "[But] it is better to wait for the ratings to go up and the cost of funding to go down before considering any those [options]."