Brazil's CSN Cut by S&P as Weak Steel Demand Clouds Debt Outlook

  • Rating company lowers steelmaker for third time in 12 months
  • Weaker Brazilian currency to boost debt by 5.8 billion reais

Cia. Siderurgica Nacional SA, Latin America’s most-indebted steelmaker, had its credit rating cut by Standard & Poor’s for the third time in a year as demand for the metal fizzles.

S&P lowered its rating on Sao Paulo-based CSN one step to BB-, three levels below investment grade. The ratings company said that the steelmaker may find it difficult to sell assets at attractive prices given the current outlook for economic growth in Brazil.

“The downgrade reflects the challenging domestic steel market that acts as a drag on CSN because demand continues to weaken," S&P said in the statement Tuesday. “Although we expect some asset sales to lower the company’s debt and interest burden, Brazil’s weak economy increases uncertainties about when will these happen."

CSN’s $1.2 billion of notes due 2020 sank to a record low last month. The steelmaker is also trying to renegotiate loans with banks. The depreciation of the Brazilian currency toward 4 reais per U.S. dollar will probably boost the company’s total debt by about 5.8 billion reais ($1.5 billion) in local currency terms by the end of the year, S&P said.

The company’s situation has gotten so dire that Chief Executive Officer Benjamin Steinbruch went on his first investor call in at least five years in August to offer reassurance. He promised to cut debt and preserve cash after the steelmaker had its biggest loss in three years and its leverage soared to the highest in more than a decade.
Along with other companies that get most of their revenue from Brazil, CSN has struggled as Latin America’s largest economy heads toward its longest recession since the 1930s.

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