Credit rating agency Moody’s has downgraded Vale’s outlook to negative from stable, the agency said.
According to Moody’s, which also affirmed the Brazilian iron ore senior unsecured rating at Baa2, the actions reflect the agency’s view that Vale’s credit profile and operations “remain solid, but incorporate the deterioration in market fundamentals for iron ore and base metals.”
Such a scenario pressures commodity prices in a period when the Brazilian miner is undergoing “a large expansion phase with substantial capital expenditures.”
“Iron ore prices are expected to remain under pressure at least through 2016 and, as a consequence, Vale's credit metrics, particularly margins, leverage and interest coverage, will continue to be challenged, with Ebitda margins declining to around 20 percent and leverage (total debt to Ebitda) likely trending towards 5x-6x,” the agency commented.
On the positive side, the increase in volumes and ore grades resulting from ongoing investments “will partially offset low commodity prices, but will not be fully reflected in the company's credit metrics until 2017-2018.”