Fitch: Forestry Sales by Fibria to Have No Impact Upon Ratings
CHICAGO -- November 22, 2013
According to Fitch Ratings, Fibria Celulose S.A.'s (Fibria) 'BB+' foreign and
local currency Issuer Default Ratings (IDRs) and Positive Outlook will not be
impacted following the announcement by the company that it had reached a
binding agreement to sell approximately 210,000 hectares of land to Parkia
Participacoes for BRL1.650 billion, of which BRL1.4 billion would be received
at the closing of the transaction.
In Fitch's view, the transaction created by Fibria essentially monetizes
assets that Fitch had already built into the company's existing ratings as
being readily monetizeable. In Fitch's February press release, in which the
company's Rating Outlook was revised to Positive from Stable, Fitch stated,
Fibria had USD1.6 billion of cash and marketable securities and USD562 million
of short-term debt (as of Dec. 31, 2012). The company enjoys strong access to
both the debt and equities market. Fibria's liquidity is enhanced with USD500
million unused revolving credit facility. The company also has land with an
accounting value of USD900 million and forestry plantations on this land with
an accounting value of USD1.650 billion. Fibria has monetized portions of
these holdings in the past to lower leverage and enhance liquidity.
Fitch also noted that the company's credit profile was considered strong for
the 'BB+' and 'AA-(bra)' rating categories and that net debt reduction by
about USD300 million would be viewed positively and could lead to ratings
upgrades. The driver of this debt reduction was viewed to be cash flow from
operations rather than asset sales. Simultaneously, Fitch pointed out that the
company's credit ratios were allowed to be higher than the median ratios for a
given rating category due to its large land and forestry holdings, its
position as the world's largest pulp producer with a cost structure that is in
the lowest quartile for the industry, and its stable client base.
While a structure was created that does not result in lease accounting, Fitch
views Fibria's reliance upon the forest on these lands to be high in the
near-to-medium term. The company maintains first-offer and matching rights
during the 24 year contract period. Fibria is also the manager of the forest
plantations throughout the contract.
Positively, the transaction should result in a lowering of the company's
absolute debt levels as well as its cost of debt. The company should also be
able to invest in new projects that over time could have higher returns than
the capital gains associated with the land holdings. These projects could
include the construction of a new pulp mill at Tres Lagoas.
Fibria's free cash flow has been strong through the first nine months of 2013
despite relatively weak pulp prices. During the first three quarters, Fibria
has generated BRL2 billion of EBITDA and BRL524 million of free cash flow from
operations. As of Sept. 30, 2013, Fibria had BRL9.5 billion of total debt and
BRL1.6 billion of cash and marketable securities. For the latest 12 months,
Fibria's net leverage ratio was 3.0x.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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Joe Bormann, CFA, Managing Director, +1-312-368-3349
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Fernanda Rezende, Director, +55-21-4503-2619
Daniel Kastholm, CFA, Managing Director, +1-312-368-2070
Elizabeth Fogerty, +1-212-908-0526
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