Klabin SA, Brazil’s biggest papermaker by market value, slumped the most in five years after the company approved a plan to sell 1.7 billion reais ($794 million) in stock to help pay for a new plant.
The shares plunged 9.6 percent to 11.25 reais at the close of trading in Sao Paulo, the steepest one-day drop since October 2008. Trading volume was 5.2 times the three-month daily average, according to data compiled by Bloomberg. The Ibovespa stock benchmark fell 1.2 percent.
Klabin’s board authorized management to raise 1.7 billion reais, mainly through a public offering of units, the company said in a regulatory filing yesterday after the market closed. Each unit is comprised of one voting share and four preferred shares, according to the filing. Proceeds from the sale will help pay for a 5.3 billion-real pulp plant.
“As positive as it is that the company is increasing its production capacity, Klabin’s decision to finance that through a share sale creates a negative sentiment, especially in a bad market,” Joao Pedro Brugger, who helps manage 330 million reais at Leme Investimentos, said by phone from Florianopolis, Brazil. “It dilutes investors. It’s natural that the market gets defensive about it at first sight.”
The new plant in Brazil’s southern state of Parana will have a production capacity of 1.5 million tons of pulp, including water-absorbent fluff pulp, used in diapers, according to Klabin.
The additional capacity will allow for future expansions in machinery for packaging paper and bring “operational gains and positive impacts” to Klabin’s financial results, according to the filing.
“It was a bit of a surprise,” Victor Penna, a Sao Paulo-based equity analyst at Banco do Brasil SA, said by phone. “Everyone knew about the project, but the structure they announced was new. The 1.7 billion real figure is a considerable number, and the scenario is very volatile. We should continue to see the stock be volatile for the next few months as the proposal goes through the approval process.”
The Sao Paulo-based company’s shares have lost 12 percent this year while the Ibovespa slumped 19 percent.