Vale: matter of time

By | January 13, 2016

Why am I fighting to live, if I’m just living to fight?
Why am I trying to see, when there ain’t nothing in sight?
Why am I dying to live, if I’m just living to die?

[Tupac Shakur — Runnin’]

Earlier today, Vale–which was discussed on this blog and on Eden Alpha‘s letters many times–made a very interesting release to the stock exchange:

Rio de Janeiro, January 12, 2016 — Vale S.A. (Vale) informs a disbursement of US$ 3 billion from its US$ 5 billion revolving credit lines to increase liquidity and bridge potential cash flow needs until the conclusion of its divestment program, particularly the conclusion of the Coal transaction comprising Moatize and the Nacala Logistics Corridor. Some of the amount raised will cover the funds used to amortize bonds due in January 2016.

Seriously Vale, increasing the debt? now? things must be very bad over there.

The stock is down by more than 7% on the news and I think that Tupac’s lines must be echoing in the minds of Vale’s executives these days. After all, they are facing an ugly situation: a decreasing iron-ore price, increased iron-ore production by both Vale and its competitors, the distance from China, and now, an even-higher debt load. It will be very difficult for Vale to service its debt and the day of reckoning better come soon for those who run it. Using a revolving credit facility to pay your existing debt in the face of falling revenues and losses on the bottom line is not a game plan. Wake up, and as Tupac song’s name suggests, just be Runnin’ to get some equity, if you can find it, of course.

2 thoughts on “Vale: matter of time

  1. Miki

    Reading this release I am curious which financial institute has set up the credit line to Vale.
    For your sake I hope it’s not GS 🙂


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