How Would The Sale Of Vale’s Fertilizer Division Impact Its Indebtedness?
Vale, a diversified mining giant and the world’s largest iron ore producer, might sell off its fertilizer division to Mosaic, a Minnesota-based fertilizer company. [1] Though Vale has not yet decided on the sale, if it does go through, the company is likely to use the proceeds of the transaction to reduce its outstanding debt. [2] The company’s credit rating has suffered as a result of the downturn in commodity prices over the past few years. [3] As a result, debt reduction is a priority for the company, particularly amid the prevailing weakness in the prices of the major metals mined by the company. According to Reuters, a combination of the sale of the company’s fertilizer and phosphate assets to Mosaic and the sale of the remaining 25% of the Fertilizer division in a separate deal could generate proceeds totaling $4 billion. [1] If the company deploys the proceeds of these transactions solely towards debt reduction, it could improve Vale’s Net Debt/EBITDA by around 11%, as illustrated below.
Note 1: Net Debt for 2016 refers to the figure at the end of Q2 2016, and consists of $44.44 billion worth of long term and short term debt, the underfunded portion of Vale’s pension obligations, dues under an income taxes settlement program, environmental obligations, and minority interest offset by cash totaling $4.31 billion. The calculation assumes that the transactions are completed towards the end of 2016 and no other changes are made to the company’s net debt position (that is, it meets its business expenditure from its operating cash flows).
Note 2: EBITDA for 2017 assumes the sale of the Fertilizer division at the end of 2016, and thus excludes the Fertilizer division’s EBITDA.
Have more questions about Vale? See the links below.
- Vale’s Full Year 2015 Pre-Earnings Report
- Vale’s Q4 2015 Earnings Report: Decline In Iron Ore Prices Negatively Impacts Results
- How Important Is China To Vale’s Iron Ore Sales?
- What Is China’s Share Of Vale’s Overall Revenue?
- What Is Vale’s Revenue & EBITDA Breakdown?
- What Is Vale’s Fundamental Value Based On 2015 Results?
- By What Percentage Has Vale’s Revenue & EBITDA Declined Over The Last 5 Years?
- By What Percentage Can Vale’s Revenue & EBITDA Increase Over The Next 3 Years?
- How Has Vale’s Revenue Composition Changed Over The Last 5 Years?
Notes:
- Brazil’s Vale shares jump on talk of fertilizer unit sale, Reuters [↩] [↩]
- Brazil’s Vale has not decided on sale of fertilizer unit – filing, Reuters [↩]
- Moody’s downgrades Vale to Ba3; negative outlook, Moody’s Investor Services [↩]