Gerdau Beating Steel Peers as Divestment Bolsters Debt Fighting

  • Shares jump after Brazilian steelmaker agrees to sell assets
  • BofAML reiterates buy rating, forecasts positive FCF this year

Gerdau SA rose the most among steel-making peers after the company sold Spanish operations in a deal that Bank of America Merrill Lynch said foreshadows more disposals and an accelerated reduction of leverage.

Shares in the Brazilian steelmaker advanced 3 percent to 5.84 reais at 2:04 p.m. in Sao Paulo and rose as much as 5.8 percent. That was the steepest advance among global competitors tracked by Bloomberg.

The Porto Alegre-based company agreed to sell its specialty steel operations in Spain to investment group Clerbil for 155 million euros ($174 million), according to regulatory filing Friday. While the deal won’t put much of a dent in Gerdau’s $4.9 billion in net debt, it signals the company is moving forward with its disposal strategy and comes as steel prices recover and Brazil emerges from months of political upheaval, 

“The proceeds should be used to speed up the company’s de-leveraging,” BofAML analysts including Felipe Hirai wrote in a note to clients, reiterating a buy recommendation. “We expect Gerdau to generate positive free cash flow this year.”

Today’s gain erases some of the losses Gerdau endured this week after it was implicated in a sweeping tax evasion scandal in Brazil. Federal police announced on May 16 they are indicting more than a dozen people including Gerdau Chief Executive Officer Andre Gerdau.

The company said in an e-mailed statement that none of its employees have ever offered to bribe civil servants in order to influence tax rulings.

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