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Vale said to have put $240m down payment to keep Rongsheng VLOC orders

Shanghai: Brazil's Vale, the biggest iron-ore supplier, paid an initial $240m to China's Jiangsu Rongsheng Heavy Industry Group for 12 bulk carriers, allaying concern the orders would be canned, Bloomberg writes, quoting two executives.

Vale will pay another $240m to Rugao, Jiangsu province-based Rongsheng by the middle of next year as part of a $1.6bn contract, said one of the executives, who declined to be identified because the agreement is private.

The purchase signals that Rio de Janeiro-based Vale has enough cash to meet investment plans even as rivals Rio Tinto Group and Anglo American Plc slashed spending to conserve capital in the deepening financial crisis. As many as 50 percent of Chinese shipyards may be shuttered in the next year as cargo demand drops and orders get canceled or delayed, according to the Shanghai Securities News.

"There had been speculation in recent months that the order could be canceled because of the decline in iron ore demand and difficulties in getting loans secured," said Cho In Karp, an analyst at Good Morning Shinhan Securities Co. in Seoul. "It still makes business sense for Vale to keep the order because China will continue to be a major buyer of raw material."

Rongsheng Chairman Chen Qiang confirmed Vale had made a payment, which was reported by the Shanghai Securities News today. He declined to provide details in a telephone interview. Zhu Kai, Vale's China manager, wasn't immediately available for comment.

Privately-held Rongsheng, which counts Goldman Sachs Group Inc. as a shareholder, plans to increase capacity more than fivefold to eight million deadweight tons in three years.

The shipyard received a credit line of 7bn yuan ($1bn) from the Bank of China recently, bringing the total facility it has to 9 bn yuan this year, said Chen.

Vale ordered 12 vessels, each with the capacity to carry 400,000 metric tons of minerals, in August. The ships are scheduled to be delivered from early 2011 through the end of 2012 and will serve the China trade route. China is the world's largest iron ore consumer

Of the $240m payment to be made by the middle of next year, $80m will be paid by the end of next week, one of the executives said. The executives didn't say when the rest of the contract payment would be made.  [23/12/08]

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