Brazil Steel Bonds’ 48% Windfall Stoked by Gerdau Asset Sales

  • Gerdau is looking to focus operations in Brazil and the U.S.
  • The company’s notes traded at distressed levels in February

Bond investors who stuck with Gerdau SA after the steelmaker plunged into distress are now getting rewarded in a big way.

Its $500 million of notes due in 2044 have soared 48 percent in 2016, more than four times the average gain in emerging markets, as Gerdau ramps up asset sales and steel prices rebound.

The country’s biggest steelmaker is concentrating operations in Brazil and the U.S., fueling optimism that Gerdau can cut its 23.7 billion reais ($7.3 billion) of debt. The Porto Alegre-based company is “selectively” picking assets to dispose of in India, Central America and parts of South America, newspaper O Estado de S. Paulo said this week. Gerdau is also benefiting from bets that Brazil’s economy will pick up next year as Acting President Michel Temer restores investor confidence.

“Gerdau was definitely mis-priced and the rise in metal prices as well as the improved perception of the Brazilian economy are helping bonds recover,” said Carlos Gribel, the head of fixed income at Andbanc Brokerage in Miami. “The company still has room to appreciate further as it disposes of its less profitable assets and focuses on its core markets.”

The surge in Gerdau’s bond prices was influenced by several factors, including the affirmation of the company’s investment grade by two rating companies and by positive cash flow, which allowed it to decrease its leverage, its press office said in a statement. Gerdau’s 2044 notes rose 0.14 cent to 90.4 cents at 9:45 a.m. in New York.

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