Dam collapse will have profound impact on Vale – Moody’s
The deadly dam disaster involving Vale will have a profound impact on the world’s largest iron-ore producer, not only in terms of serious reputational risk, but it could strain the company’s liquidity and its ability to meet financial requirements, Moody’s Investors Service said this week.
The Brazilian major has a “good” liquidity profile with $6.1-billion in cash and $5-billion committed in credit facilities fully available, but Moody’s warned that the potential liabilities and sanctions against Vale and its executives could have a negative impact on liquidity.
The ratings agency placed Vale’s Baa3 rating on review for possible downgrade. It also placed the ratings on the debt issues of Vale Overseas and the Ba1 senior unsecured ratings of Vale Canada on review for downgrade.
Moody’s stated that the financial penalties related to the dam collapse were likely to be larger than those of the 2015 accident involving the Vale and BHP joint venture Samarco, in which 19 people died. Last week’s accident at Corrego do Feijão left at least 99 people dead and another 250 people missing.
“The social damage from Feijão is far more serious,” the organisation said.
It also added that the financial penalties would be Vale’s sole responsibility. So far, courts have entered with preliminary injunctions to block 11.8-billion real of Vale’s cash for possible penalties relating to the Feijão disaster. The company has also been sued for another 350-million real.
Vale has suspended dividend payments, share buybacks and bonus payments to executives, which will free up financial resources to repair and remediate the affected areas and assist the victims.
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