Vale woos HK investors with depositary receipts

PUBLISHED : Monday, 06 December, 2010, 12:00am
UPDATED : Monday, 06 December, 2010, 12:00am

Brazil's mining giant Vale, which will be the first company to list Hong Kong depositary receipts on the stock exchange, said its secondary listing in the city could help it tap retail investors to enlarge its global shareholder base of 500,000.

'Hong Kong has a huge retail market,' the company's chief financial officer, Guilherme Cavalcanti, said yesterday. 'It will improve our investor base.'

Vale's shares already trade in Sao Paulo, New York and on Paris' Euronext, and the addition of the HDRs in the city means it will be possible to trade its shares virtually around the clock.

No proceeds will be raised by the listing for Vale, which counts China as its biggest customer.

Sales of iron ore and other metals to the mainland made up 37.6 per cent of the mining company's revenue of US$23.31 billion last year.

In a bid to boost its revenues from providing listings, the Hong Kong stock exchange has been aggressively marketing itself to foreign companies as the gateway to the mainland. Since 2008 it has allowed the listing of HDRs.

Brokers said many retail investors traded United States stocks but until more Brazilian blue chips listed in the city, it could be a while before they considered regularly trading Vale's HDRs.

'Hong Kong investors have shown a strong interest in BRIC equity funds,' Ricky Tam Siu-hing, the chairman of the Hong Kong Institute of Investors, said, referring to the economies of Brazil, Russia, India and China.

'While they have an interest in holding Brazilian stocks, they might not be familiar with this company.

'Information about Brazilian companies is not as readily available to investors here compared with those that are listed in the United States.'

HDRs offer an alternative listing route for firms from jurisdictions that prohibit share issues or prohibit the maintenance of a share register overseas.

Vale started its life as state-owned enterprise in 1942 until its privatisation in 1997.

Its controlling shareholder is Valepar, a shareholder group that includes the Brazilian government, and which owns 52.7 per cent of Vale's voting shares and 32.4 per cent of its share capital.

The Sao Paulo mining company is to invest US$24 billion to expand its core businesses, iron ore and nickel, and it will also allocate capital in its other businesses - fertiliser nutrients, copper and coal.

Cavalcanti said the company had no plan to issue new shares.

Vale said it had 18 projects that would generate cash flow in the next two years to fund its expansion without stretching its balance sheet.

It reported a net profit US$5.35 billion for last year, a drop of almost 60 per cent from the previous year's earnings of US$13.22 billion.

But the company said it had just experienced its 'best-ever' third quarter financial performance.

Cavalcanti said the company booked an operating revenue of US$14.5 billion, representing a rise of 46 per cent compared with the second quarter's US$9.9 billion.

Operating revenue for the nine months to September was US$30.37 billion and operating income was US$11.35 billion.

The company could list up to 652 million common and class A preferred depositary receipts on Wednesday.