Foreign Investors Have Now Acquired 55% of Vale S.A. Company Shares

RIO DE JANEIRO, BRAZIL – Close to completing 24 years of privatization, Vale is on its way to closing 2021 with less public sector participation in its equity. The trend is driven by the National Bank for Economic and Social Development (BNDES), which sold more than R$10 (US$1.8) billion worth of the mining company’s shares in 2020 and may soon say goodbye to the company.

The market expects that Previ, a pension fund for Banco do Brasil employees, will also sell part of its equity holdings. The shift in Vale’s shareholder profile occurs after the end of the company’s stockholders agreement and makes room for foreign investment funds to step into the mining company, which currently holds the highest market value on the Brazilian stock market: R$471 billion.

International appetite has been high, particularly after the company succeeded in mitigating risks related to the Brumadinho (MG) tragedy. The American Capital Group fund, with US$2,1 trillion under management, is the main example. The group has moved on Vale’s capital and is now nearing a 15% share. Bruno Rodrigues, a Brazilian who has already worked for the company, is one of the fund’s analysts.

With Capital Group’s rapid growth in Vale, the fund is expected to appoint two advisors as early as the next meeting, according to a source close to the matter. Another giant, BlackRock, now holds 5.2% of the mining company, while Mitsui detains 5%. After adding in all minor stakes, 55% of the company’s share capital is held by foreigners.

Capital Group has room to grow and reach up to 25% of capital. From that point on, Vale’s bylaws, reformed in 2017, require a public offering for the acquisition of all shares – a common practice in companies with dispersed capital to prevent the concentration of power.

Outgoing

Little by little, more of Vale’s shares will be offered in the market. BNDES is preparing the sale of an additional R$10 billion in shares this year to zero its position in the mining company. The bank has an additional R$6 billion in debentures in the company’s mineral rights, a sale that is about to be completed.

These bonds, which came from the company’s privatization years ago, may be sold in the first half of 2021. In this offering, the federal government may seize the opportunity and also make its sale, pocketing a few billion reais in a moment of hardship, according to sources.

Pension funds are also expected to sell some of their shares in the mining company. Through Litela, a holding company with the participation of Previ, Funcef (Caixa employees) and Petros (Petrobrás), according to Vale’s website data, Brazilian pension funds hold 9.8% of the company’s shares.

If the choice is to sell Vale shares, the timing seems right, with the company’s stock at its historical high. In 2020, the mining company’s share price closed up 74%, in the wake of the price of iron ore, its flagship product, rising to over US$160 a ton in China.

Eleven Financial steel and mining analyst Tasso Vasconcellos says that Vale tends to benefit from its new governance structure and that, as government agencies leave the business, the risks of political interference in the company decrease.

Vale’s current board of directors is still a reflection of state power in the mining company. The board should be changed in April, at the next shareholders’ meeting. The federal government still holds the so-called “golden share”, a stake created in the privatization, which grants veto power to the government over some issues, such as the sale of certain assets.

Questioned, Vale, Capital Group, and Previ would not comment. The Ministry of Economy stated that Vale’s debentures were included in the National Privatization Plan. BNDES is in charge of executing and monitoring the required steps for the sale of these debentures.

Source: Estado de S.Paulo