Smart Money Analysis-Soros shuns Vale amid political meddling

* Large hedge funds sold Vale shares in third quarter

* Many see political meddling as reason

* Worries that interference may skew its strategy

By Guillermo Parra-Bernal

SAO PAULO, Dec 4 (Reuters) - Political interference appears
to have damaged investor confidence in Brazilian mining company
Vale (VALE.N), prompting some of the world's largest hedge
funds to cut their positions in the previous quarter.

Ken Griffin's Citadel Investment and George Soros'
eponymous fund were among investors that reduced or sold all
their Vale holdings in the third quarter, according to data
compiled by Thomson Reuters. Both Citadel and Soros Fund
Management declined to comment.

The funds exited Vale as President Luiz Inacio Lula da
Silva and other government officials intensified attacks on the
company's management for firing local staff and trimming
domestic expansion plans in response to the global downturn.

Lula wants Vale, the world's largest iron ore producer, to
boost investment into steel ventures to stoke growth and create
more jobs. But some investors see the president's agenda for
Vale as erratic and fear it could hamper profits.

"All this bashing has been a source of concern," said Will
Landers, who oversees $8.5 billion in emerging market equities
for New York-based Blackrock.

"That the government wants Vale to put more value-added on
their products locally isn't bad, but you don't want to see
Vale controlling all these steel companies."

Vale's American Depositary receipts were down about 1
percent at $28.61 on Friday. They have more than doubled this
year.

Soros, Millennium Management, Renaissance Technologies,
Och-Ziff Capital and Blue Ridge Capital all appear to have sold
their Vale share holdings in the period, based on securities
filings, while Citadel and two other funds trimmed their
positions.

The funds declined to discuss their strategy with Reuters.

Since the intensification of the credit crisis in September
2008, Lula has sought to reshape Brazil's corporate sector and
align firms' profit-driven goals with those of the nation
through the use of massive state loans and tax breaks.

Vale Chief Executive Roger Agnelli announced in October a
$12.9 billion investment plan for 2010, up a third from this
year's outlays, in a move seen as easing tensions with the
government. Vale has started running TV ads calling itself "the
private company that invests the most in Brazil."

It has also announced plans to invest in steel mills,
although its policy has been to shy away from taking majority
stakes to avoid competing with its own clients. The company
will invest more than $20 billion through 2014 to help double
Brazil's steel capacity.

"The risk would be that Vale loses a bit of its focus on
diversified mining, but its recent moves have somehow allayed
that concern," said Peter Pingo Ho, an analyst with Sao
Paulo-based Brava Investimentos.

State-run pension fund Previ, Bradespar -- the investment
holding company of Banco Bradesco (BBDC4.SA) -- and Japan's
Mitsui are among Vale's controlling shareholders. The
government has a direct 7 percent stake through state
development lender BNDES plus a golden share that allows it to
veto or sponsor a change in control.

Some investors have taken advantage of the turmoil to hold
or add more Vale stock, saying the company is immune to
political pressure.

"So far I didn't any significant change in its strategic
focus," said Eduardo Favrin, who manages $2.7 billion in
equities for HSBC Asset Management in Sao Paulo.
(Additional reporting by John Rittue and Joe Giannone in New
York, editing by Matthew Lewis)
((guillermo.parra@thomsonreuters.com; + 55-11-5644-7714;
Reuters Messaging: guillermo.parra.reuters.com@reuters.net))