December 03, 2008

Brazilian steel firms in good shape for fundraising – Analyst

With bulky investments planned for the coming years, Brazilian firms in the mining and steelmaking businesses will have to go fundraising to finance expansion and purchases at a moment of significant volatility in global financial markets. Analysts however believe that strong cash generation and low indebtedness will protect domestic miners and steelmakers from the credit crunch caused by financial turmoil.

Evidence of that is that Vale, the world's second largest mining group and biggest iron ore producer, has secured a USD 50 billion loan from a group of foreign banks led by HSBC, Banco Santander Central Hispano, BNP Paribas, Lehman Brothers, Credit Suisse and Citigroup for the acquisition of Anglo Swiss miner Xstrata.

Steel producer Usiminas has also circumvented scarce liquidity by taking out a USD 1.3 billion loan from overseas banks to pay for the purchase of the miner J Mendes. Usiminas has recently completed a BRR 500 million (USD 286 million), five year debenture issue, which was mostly subscribed to by investment funds and private pension funds.

Mr Carlos Kochenborger an analyst with local brokerage firm Corretora Geração Futuro believes that the slowdown in the US economy will not have much of an impact on the mining and steelmaking sectors because emerging countries like China and India have shown very strong demand for steel for domestic urbanization and infrastructure projects. He added that "Growth is expected to slow but not stop altogether.”