Credit rating agency Moody’s said a Companhia Siderurgica Nacional (CSN) deal to provide 22 million mt of iron ore to Glencore for five years is credit positive. CSN said Glencore will make an advanced payment of $500 million.
Moody’s said the deal is credit positive “because proceeds will strengthen the company's cash position and reduce liquidity risks without increasing leverage metrics, and proceeds could be used to reduce debt,” the agency said.
Moody’s noted the upfront payment is “roughly an advance of $23 per ton of iron ore.”
“At the delivery date, Glencore will pay to CSN the difference between the advance and the market price per ton of iron ore. CSN is obligated to supply the pre-established volumes on a monthly basis, but is not required to refund Glencore in case of production shortfalls or steep price declines,” Moody’s noted.
The credit rating agency said in such scenarios, CSN would “make-up for the economic difference by acquiring iron ore in the open market or delivering additional iron ore volume.”
“The iron ore prepayment is part of CSN's strategy to adjust its liquidity profile and capital structure after deteriorating operating performance during Brazil's economic recession and amid lower iron ore prices,” Moody’s said.
CSN has been trying to reduce debt, managing to arrange several deals, including refinancing short-term debt with Banco do Brasil and Caixa Economica Federal.