S&P Lifts Outlook on Vale S.A. (VALE) to Stable; Ratings Affirmed

August 29, 2016 2:09 PM EDT

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S&P Global revised its outlook on our global and national scale ratings on Vale S.A. (NYSE: VALE) to stable from negative. We also affirmed our 'BBB-' global scale corporate credit ratings and issue-level ratings on bonds issued through Vale Canada Ltd., Vale Overseas Ltd., and PT Vale Indonesia Tbk. At the same time, we affirmed our 'brAAA' Brazilian national scale ratings on Vale.

We have just revised upwards our price curve assumptions for iron ore, nickel, and gold (please see "S&P Global Ratings Revises Its Price Assumptions For Iron Ore, Gold, Zinc, And Aluminum", published Aug. 26, 2016).

The higher prices are yielding incremental cash flows for Vale, which help alleviate the pressure on its cash flows and leverage ratios stemming from its aggressive investment plan. In this scenario, the need for Vale to divest its assets to avoid debt from rising, in our opinion, is less necessary than before, at least from a ratings perspective. We still believe market conditions may weaken in the next year or so, because we assume prices to soften. However, our revised estimates suggest that Vale will increase its operating cash generation by around $2 billion in 2016, higher than our previous estimates, while maintaining cash levels close to $3 billion by year-end, which would make the company more resilient to downturn scenarios.



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