Vale SA is buying back its perpetual bonds, unusual securities that date back to its privatization in the late 1990s and which have become increasingly costly for the Brazilian miner.
The company, a major producer of iron ore and nickel, approved an offer to repurchase the entirety of the so-called participating debentures for 42 reais ($7.89) each, according to a filing.
The notes last traded around 36 reais, with roughly 388.6 million notes outstanding, data from Brazil’s capital markets association show. If all holders choose to sell, the transaction could reach $3.1 billion.
The buyback could help Vale save on debt costs. The notes were issued with a face value of 0.01 real each just before the miner was privatized in 1997, and currently yield around 13% in dollars, according to money managers. That compares with 6.1% for Vale’s dollar bonds due in 2054.
The securities don’t have a fixed coupon and instead pay holders a dividend equal to 1.8% of net revenue from some iron ore sales and 2.5% of net revenue from copper and gold after certain production thresholds are met, some of which are tied to where the ore is being mined. The revenue is calculated in dollars, then converted to reais for the distributions to investors.
The output threshold in southeastern Brazil was reached earlier this year, the company said in a filing last month, meaning the notes have become more expensive for Vale.
Four years ago, the Brazilian government unloaded notes in a sale that was part of former President Jair Bolsonaro’s agenda to downsize the state. That boosted liquidity and provided an opportunity for new investors to step in.
The deadline for holders to join is Oct. 31.
(By Vinícius Andrade, Mariana Durao and Rachel Gamarski)
