S&P downgrades Vale

Standard & Poor's said it lowered its corporate credit rating on PT Vale Indonesia Tbk. to BB from BB+.

At the same time, the agency affirmed its A- issue-level rating on the company's senior unsecured debt, which Vale SA (global scale: A-/negative/--; national scale: brAAA/stable/--) guarantees.

The outlook remains stable.

The Indonesian government and Vale reached an agreement to amend its Contract of Work (CoW) providing for the extension of its mining concession up to 2045.

As part of the agreement, Vale SA (A-/negative/-) and Sumitomo Corp. (A/stable/A-1) will have to sell 15% and 5%, respectively, of PT Vale's shares within the next five years, thus resulting in Vale SA losing its control over the company.

Even though this change in ownership might not occur immediately, the downgrade reflects S&P’s belief that incentives for Vale SA to provide financial support are less evident, despite PT Vale's continuing status as a strategic asset.

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