Brazilian mining giant Vale SA on Tuesday said it would borrow $3 billion in emergency financing, a sign of distress from the world’s largest iron-ore producer.Vale said the revolving credit line would “increase liquidity and bridge potential cash flow needs.” It didn’t disclose the interest rate it received and said another $2 billion was available.
The miner, which needs capital to pay for expansion projects, is tapping the line of credit partly because it hasn’t been able to garner as much as expected through the sale of assets. Banks have gotten cold feet about financing commodities deals amid a deep rout in prices, throwing a wrench into the plans of mining companies to shore up their balance sheets as they struggle to pay for mine expansions undertaken during the boom.
Vale has been unable to obtain project financing to complete a 2014 deal to sell a stake in its Mozambique coal operations to Japan’s Mitsui & Co. That transaction, originally scheduled for completion in the second half of 2015, would have boosted Vale’s cash flows by $3 billion.
“It doesn’t bode well for [Vale] to be using this line,” said Klaus Spielkamp, a bond analyst in Miami at Latin America-focused brokerage Bulltick Capital Markets.
In addition, Vale faces the stigma of being Brazilian at a time when international capital markets have largely shunned the South American country’s companies amid a sweeping corruption scandal and economic crisis. A major accident on Nov. 5 at Samarco, Vale’s local joint venture with BHP Billiton Ltd., further rattled investors.