Vale Sells $1.8 Billion Stake in Norway’s Norsk Hydro – by Juan Pablo Spinetto & Firat Kayakiran (Bloomberg News – November 12, 2013)

Vale SA (VALE5), the world’s biggest iron ore exporter, sold its stake in aluminum-maker Norsk Hydro ASA (NHY) for $1.8 billion, about half the holding’s value when the Brazilian company acquired it in 2011.

Vale sold 407.1 million shares in Oslo-based Hydro for 25 kroner each, the Rio de Janeiro-based company said today in a statement. If an over-allotment option of 40.7 million shares is exercised in full, Vale will have disposed of its entire 22 percent stake for 11.2 billion kroner ($1.82 billion).

The miner is selling assets, putting projects on hold and focusing on its more profitable iron-ore business in a bid to recover profit margins after commodity prices fell. In September, it sold stakes in a cargo unit for about 2.7 billion reais ($1.2 billion) to Japan’s Mitsui & Co. and a Brazilian government fund after $1.47 billion of asset sales last year, including a coal mine in Colombia and 10 large vessels.

At 25 kroner a share, the deal prices the stake slightly above its value on Vale’s books, said Alan Glezer, an equity analyst at Banco Bradesco SA. “We view the likely transaction as positive as it strengthens Vale’s balance sheet, helping to alleviate part of the leverage pressure during an intense period of investment,” he said yesterday in a note.

Vale fell 2.5 percent at the close in Sao Paulo to 32.43 reais, the lowest since Oct. 25. Hydro declined 5.5 percent to close at 25.49 kroner in Oslo.

Boosting Cash

With the sale, Vale may be seeking to boost its cash position before a possible settlement in a 30.5 billion-real Brazil tax dispute, where the company may be asked to make a 20 percent downpayment, according to Grupo BTG Pactual.

“There are lingering concerns on a potential settlement with the government for payment of the foreign subsidiary profit tax dispute, which could be announced towards month-end,” BTG analysts led by Edmo Chagas said in a note to clients today. “A disbursement of 6 billion reais could require the help of asset sales in order to avoid depleting the company’s cash base.”

Vale has enough time to make a decision on the possible tax settlement before a Nov. 29 deadline, Chief Executive Officer Murilo Ferreira told reporters on Nov. 7. The company today didn’t immediately reply to an e-mail seeking comment on the use of the stake sale proceeds.

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