ALL Heads to Weekly Drop in Sao Paulo on Rumo Contract Dispute

ALL America Latina Logistica SA (ALLL3), Latin America’s largest railroad operator, headed for its biggest weekly decline since July as a dispute with a joint-venture partner spurred concern about the company’s growth.

The shares fell 6.6 percent this week to 8.44 reais as of 12:49 p.m. in Sao Paulo. The stock sank 6 percent in the past two days. The Ibovespa (IBOV) was little changed today and is up 0.3 percent this week.

ALL started legal action that may terminate its contractual relationships with Rumo Logistica SA, according to a regulatory filing yesterday. Rumo, which is owned by Cosan SA Industria & Comercio, agreed in 2009 to spend 1.2 billion reais ($549 million) to increase ALL’s railroad capacity from Sao Paulo state’s interior to the Port of Santos, in return for preferential transport rights.

The conflict with Rumo is creating “uncertainty regarding the conclusion of the parallel rail line along the Campinas-Santos railway, which plays a key role in ALL’s transportation volume growth,” Itau BBA analysts Giovana Araujo and Antonio Barreto wrote in a research note. Termination of the contract could compromise ALL’s cash flow generation, the analysts wrote.

ALL’s dispute with its joint-venture partner “is negative for sentiment on the stock,” Citigroup Inc. analysts led by Stephen Trent wrote in a research note. “It increases uncertainty at a time when the market is already concerned about Brazil’s regulations.”

Rumo has taken action to uphold the contractual rights and require ALL to comply with the 2009 accord, according to a regulatory filing today.

Cosan fell 1.4 percent to 42.93 reais today and is down 1 percent this week.

To contact the reporter on this story: Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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