Exclusive: Brazil's Vale mulls sale of Thyssenkrupp steel venture stake

Fri Apr 1, 2016 3:11pm EDT
 
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By Tatiana Bautzer and Guillermo Parra-Bernal

NEW YORK/SAO PAULO (Reuters) - Brazilian iron ore miner Vale SA is finalizing a proposal to sell its 26.87 percent stake in a steel slab plant that cost nearly $10 billion to build to Germany’s Thyssenkrupp for $1 plus the assumption of some debt, a source close to the deal said.

Under the draft plan, which has yet to be approved by Vale's (VALE5.SA: Quote) board, the company would also assume 10 percent of the contingent liabilities of the money-losing venture, CSA Siderúrgica do Atlántico.

The plant, Brazil's most costly foreign investment project ever, reported 2.6 billion euros in total liabilities at the end of the 2015 fiscal year.

Thyssenkrupp (TKAG.DE: Quote) is aware that a proposal is underway, and negotiations with Vale are in "their final stages," a second source said. Both companies declined to comment.

The sources said that Vale's exclusive rights to supply iron ore and pellets to the mill would be maintained. Vale also wants a so-called tail period, a time during which a partner is entitled to payment in the event of a sale or the disposal of assets in a company, for 10 years, the first source noted.

Vale's planned exit is the latest sign the steel mill has become a liability for both Vale and Thyssenkrupp, which has tried unsuccessfully in recent years to sell the venture.

Once considered a showpiece for Brazil's steel industry, the CSA mill has seen production costs soar amid high inflation, currency volatility and political instability that have pushed Brazil's economy into a deep recession.

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Thyssenkrupp AG's new company logo adorns it's headquarters in Essen, Germany in this November 19, 2015 file photo. REUTERS/Ina Fassbender/Files