Marfrig Balks at U.K. Unit IPO in London Offering Glut

Marfrig Global Foods SA, the Brazilian supplier of meat to McDonald’s Corp. and Burger King Worldwide Inc., is delaying plans for one of its units to go public in London amid a surge in initial public offerings.

While Northern Ireland-based Moy Park Ltd “is ready for an IPO,” pricing prospects are being weighed down by U.K. investors having to digest $25 billion of offerings this year, Marfrig Chief Executive Officer Sergio Rial said.

“Moy Park’s IPO window isn’t related to Brazil’s market but mostly to the number of IPOs being held and how they are priced,” Rial said in an interview at the company’s Sao Paulo headquarters yesterday. Next year is “more probable,” he said.

London’s busiest IPO year since 2007, according to data compiled by Bloomberg, means Marfrig is reviewing the timing of the sale after saying in March it was considering taking its two offshore units public to boost growth and reduce leverage.

Marfrig would lower net debt to 2.7 times earnings before interest, taxes, depreciation and amortization by the end of 2015 by selling 25 percent to 30 percent stakes in Moy Park and U.S. unit Keystone Foods Ltd., Rial said in March. The ratio was 4.5 in the second quarter, data compiled by Bloomberg show.

In August, Rial said a sale of shares in Moy Park is more credible in the short term than Keystone because the U.K. company was better valued.

Marfrig rose 2.2 percent to 5.56 reais at 5:07 p.m. in Sao Paulo.

Debt Reduction

Marfrig had 9.5 billion reais in debt as of June 30, down from 12.5 billion at the end of 2012, according to data compiled by Bloomberg. Standard & Poor’s lifted Marfrig’s rating to B+ from B this month, saying the company has improved its capital structure, liquidity and cash generation amid rising exports and high beef prices.

Rial, a former chief financial officer of Cargill Inc., has focused on cutting debt and expanding international sales since taking over as CEO from company founder Marcos Molina in January. The market has rewarded his effort, with Marfrig climbing 39 percent this year compared with a 0.3 percent gain in Brazil’s benchmark Ibovespa index.

For Marfrig, rising export demand for beef from South America and a stronger dollar have been offsetting an increase in production costs and a slowdown in Brazil, Rial said. The company’s cattle slaughtering rose 3.2 percent from a year ago to a record 685,400 head in the third quarter, he said.

Cattle Surge

Brazilian cattle are trading at record highs as a downturn in exports from the U.S, Australia and Argentina coincides with rising consumption in China, Rial said. Benchmark cattle prices in Sao Paulo rose to 136.97 reais ($56) an arroba (32 pounds) yesterday, up 26 percent from a year ago.

“Beef margins remain at healthy levels,” Rial said.

Marfrig’s beef sales to China as a share of total exports rose to 25 percent in the third quarter from 15 percent a year ago, he said. The value of Brazil’s beef sales to Hong Kong, now the main destination of the country’s exports, has risen 15 percent, according to data from Abiec, a beef producer’s industry group.

“China is starting to make the difference,” Rial said. “It could have a similar effect on Brazil’s meat production that it had on soybean over the coming 15 years.”

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