Ottawa Lends Vale a Billion

So, Export Development Canada (EDC) has agreed to lend Vale up to $1 billion US. This announcement comes on the heels of a bitter labour dispute at Vale’s Sudbury mines and in the midst of an ongoing strike at its Voisey’s Bay operations.

The financial rationale is unclear. Although $1 billion is very large for an EDC loan, it is a relatively modest amount for Vale. The company collected after-tax profits of $3.7 billion in the second quarter alone and had $6.2 billion of “cash and cash equivalents” on hand.

If Vale wanted to borrow another $1 billion, it could easily have done so on private debt markets. Both EDC and Vale stress that “The transaction was underwritten at market rates.” If so, Vale will pay as much interest to EDC as it would have paid to private lenders.

Without this loan, EDC would presumably have been able to lend the $1 billion to smaller companies at similar or higher interest rates. Such loans could have served EDC’s policy mandate of financing Canadian exporters that would otherwise have difficulty arranging private financing.

One is left to conclude that the Government of Canada provided the loan to make a political statement, amplified by dueling press releases from EDC and Vale. The message seems to be that foreign investors can beat up Canadian workers and the Canadian government will be cool with it.

3 comments

  • Maybe the Feds offered the 1 billion in exchange for breaking the Sudbury miners. I wonder what they will get from the Feds for Voisey’s Bay.

    More seriously, can you think of a reason why Vale would want to raise financing from the CDN state if was not on some concessional basis?

  • The first thing that sprang to my mind was that the “market rates” part was one of those things that corporate and government people always do when their lips move, and particularly when they get together: A lie, fib, fabrication, distortion, whopper, untruth. The market rates will turn out to be mythical and chimerical, like the legendary “cost-effective public-private partnership” so diligently hunted but never found.

  • The Stars have been aligning up for major global corporate mining companies lately. Harper government loans a huge stash to Vale.

    The Chilean President is delerious over the rescue of 33 miners in a operation that began on 10/13/10 from a ordeal that lasted 69 days. Chile is now proposing stringent regulations and their enforcement which will mainly effect family owned smal mining operations. Chilean President has sacked the National Regulator of Mining over this accident.

    Bear in mind Chile is one of the few places with reserves of rare minerals. And it is in proximity to the melting Antarctica a vast resource of rich and rare mineral reserves. Chilean President is professing his religiosity and can do no wrong in the eyes of his faithful Chileans. It is heartening to know President Sebastain Pinera had kind words for Canada, US and Australia. He is due to visit UK next week. And a Calgary drilling operation was also a part of rescue mission.

    Chileans are celebrating for now. In reality things in this world are transitory and full of illusions

Leave a Reply

Your email address will not be published.