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 Valeâ€™s Sudbury mines and in the midst of an ongoing strike at its Voiseyâ€™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 â€œcash and cash equivalentsâ€ 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 â€œThe transaction was underwritten at market rates.â€ 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 EDCâ€™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.