Credit rating agency Fitch Ratings has upgraded Vale’s long-term foreign currency ratings to BBB+ from BBB, at the same time affirming the company’s local currency ratings at BBB+, and its national scale ratings at AAA(bra). Fitch said the outlook for the long-term foreign currency rating of Vale was also upgraded to stable from negative.
Fitch said the Vale's underlying credit fundamentals and investment-grade ratings are supported by the company's position as one of the leading producers of seaborne iron ore globally. Low-cost iron ore and base metal positions on each respective cost curve, strong liquidity and diverse access to funding, natural hedge position against local currency FX depreciation, and its long reserve life, as well as high-grade mineral deposits, also benefit the company.
“Vale's improving financial strength with lower projected net leverage also solidly positions the company at its current rating level when compared to its peers,” the agency noted.
According to Fitch, the stable outlook reflects Vale’s increasing volumes of lower cost iron ore coupled with the completion of its large capex program that will allow the company to continue to deleverage despite expectations of weaker commodity prices over the medium to long term.
Fitch also noted that Vale's BBB+ rating is underpinned by its flagship iron ore business, and the company's low cost position.
Positive free cash flow generation, high exposure to China and a positive iron ore outperformance has also benefited the company, Fitch said.
“The strong rally and support for iron ore prices during 2017 has boosted Vale's cash flow generation and allowed for a swift improvement in its credit profile. Iron ore prices have been sustained by strong demand and continued stock-building in China as its steel market has seen a boost from fixed-asset investments throughout the country,” the agency said.