Usiminas Posts Wider-Than-Estimated Loss in Brazil Recession

  • Company is attempting to sell assets amid deepening losses
  • Shares suffer largest one-day loss since September 2015

Usiminas, the Brazilian steelmaker battling to generate cash as debt payments loom, posted a wider loss than analysts estimated amid plunging prices and Brazil’s deepest two-year recession in more than a century.

Usinas Siderurgicas de Minas Gerais SA, as it’s formally named, had an adjusted loss before interest, taxes, depreciation and amortization of 250 million reais (62.7 million) in the fourth quarter, the Belo Horizonte-based company said in a filing Thursday. The average estimate of four analysts tracked by Bloomberg was for a loss before items of 119.3 million reais. The company’s shares fell 13 percent in Sao Paulo Thursday, the biggest drop since Sept. 23. The stock is down 77 percent in the past year.

Usiminas -- whose joint controlling shareholders Techint Group and Nippon Steel & Sumitomo Metal Corp. are engaged in a long-running battle over how to run the company -- is curtailing higher cost production and attempting to sell assets amid deepening losses and surging credit costs. In a separate statement Thursday, it announced a capital increase proposal and said it would seek to extend debt due in 2016.

“With negative Ebitda and a cash burn of about 350 million reais, leverage has skyrocketed, placing the company’s future at risk,” BTG Pactual analysts Leonardo Correa and Caio Ribeiro wrote in a client note. “Unfortunately, controlling shareholders have also reportedly not yet agreed on the best rescue plan, which could involve a capital increase, asset sales, management changes.”

Impairment Booked

The company booked a 1.6 billion-real impairment in the quarter, and said lower operational performance at steel and mining units impacted the results, according to regulatory filing. Brazil’s steel industry is reeling as customers in the automotive and construction sectors retrench while slowing economic growth in China, the world’s biggest metals user, fuels a selloff in everything from iron ore to copper.

Usiminas, which relies much more on the domestic market than its larger rival Gerdau SA, has become one of the most indebted members of Brazil’s benchmark stock index. The real’s 29 percent depreciation in the past year has made it harder for companies that make money in local currency to keep up with interest payments on foreign loans.

Earlier this week, the company said it hired a unit of Credit Suisse Group AG as an adviser to help explore the potential sale of all or part of its manufacturing subsidiary.

Concern over finances at Brazil’s largest steelmakers triggered a plunge in their stocks and bonds. Usiminas bonds due 2018 were trading at 35 cents on the dollar on Wednesday and reached a record low 27.5 cents earlier this month.

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