Reuters logo
Fitch Rates Cosan Limited's Proposed Global Notes Issuance 'BB(EXP)'
September 13, 2017 / 2:27 PM / a month ago

Fitch Rates Cosan Limited's Proposed Global Notes Issuance 'BB(EXP)'

(The following statement was released by the rating agency) SAO PAULO, September 13 (Fitch) Fitch Ratings has assigned a 'BB(EXP)' rating to Cosan Limited's (Cosan Limited) proposed senior unsecured global notes issuance of USD 500 million due 2024. The company will use the proceeds to repay existing indebtedness of USD230 million and to inject up to USD270 million into its subsidiary Cosan Logistica S.A's (Cosan Logistica) capital. Fitch's current Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) for Cosan Limited are 'BB' with a Stable Rating Outlook. KEY RATING DRIVERS Cosan Limited's ratings reflect its low leverage and robust liquidity position on a standalone basis, as well as the expected comfortable debt service coverage through the dividends coming from its main subsidiary, Cosan S.A Industria e Comercio (Cosan; Foreign and Local Currency IDRs BB+ and Long-Term National Scale Rating AA+(bra)). Cosan and its subsidiaries accounted for around 90% of Cosan Limited's consolidated pro forma revenues, 75% of pro forma EBITDA and 100% of dividends received in the latest-12-months (LTM) ended June 30 2017. The one-notch difference compared to Cosan's ratings continues to incorporate the holding company nature and inherent structural subordination of Cosan Limited's debt to dividends received from Cosan. Cosan Limited's credit profile is also supported by a diversified asset portfolio. The company's investments include operations in energy generation from biomass, distribution of natural gas, fuel and lubricants. These businesses enjoy predictable cash flow that partly softens the inherent volatilities of its sugar and ethanol business. The company also operates in the logistic industry, which is not expected to distribute dividends over the next four years though it presents strong growth potential. Robust Asset Portfolio Cosan Limited is a non-operating holding company that carries a robust and diversified asset portfolio that reduces sector concentration risks. The company holds a 62% interest in Cosan, the holding company that is engaged in sugar, ethanol and energy production, and distribution of natural gas, lubricants and fuel. Its three main assets and source of dividends are companies with robust credit quality. Raizen Combustiveis S.A. (Raizen Combustiveis; Foreign and Local Currency IDRs BBB, National Scale Rating AAA(bra)) is the second largest fuel distributor in Brazil, with predictable operational cash generation. Despite its more volatile results, Raizen Energia S.A. (Raizen Energia; rated the same as Raizen Combustiveis) is the largest sugar and ethanol company in Brazil and as such it benefits from business scale, which somewhat mitigates the frequent challenging scenario for the sector. Companhia de Gas de Sao Paulo (Comgas; Foreign Currency IDR BB+, Local Currency IDR BBB-, National Scale Rating AAA(bra)) is the largest natural gas distributor in Brazil, with high growth potential and robust financial profile. The other asset that Cosan invests in is Cosan Lubrificantes S.A., which adds to business diversification. All of Cosan's businesses managed to report strong credit profiles in LTM ended June 2017, despite the challenging macroeconomic scenario in Brazil. During the LTM ended June 2017, Comgas's normalized EBITDA was BRL1.6 billion, which positively compares with BRL1.4 billion reported in 2015. In the same period, Raizen Combustiveis and Raizen Energia reported consolidated revenues and EBITDAR of BRL80 billion and BRL6.3 billion, respectively, 7% and 9% higher than previous year. Cosan Limited also holds 72% interest in Cosan Logistica, which owns 28% of Rumo (Foreign and Local Currency IDRs BB-, National Scale Rating A(bra)). While still highly levered, Fitch expects Rumo to embark on a fast deleverage trend following the company's ongoing gains of scale, improving operating profitability and the planned capital injection. Fitch does not expect Rumo to pay dividends over the next four years due to the massive capex necessary to improve operations. The presence of Rumo contributes to broader business diversification and helps the group to further lessen the cash flow volatility derived from the sugar and ethanol business. Still Low Leverage at Holding Level Fitch forecasts a pro forma leverage ratio of net debt-to-dividends received at 2x for Cosan Limited assuming the bonds issuance will amount to USD500 million. As of June 30 2017, this ratio was 0.6x as per Fitch's calculations, in line with 0.8x as of Dec. 31, 2016. The one-notch difference from Cosan's incorporates the structural subordination of Cosan Limited's debt. Its main dividends provider, Cosan, receives dividends from Raizen Energia, Raizen Combustiveis and Comgas and must serve or manage its own debt before paying dividends to its shareholders. On a consolidated basis, Cosan Limited's leverage is also adequate for the rating category even with the consolidation of Rumo. The net adjusted debt-to-EBITDAR was at 2.8x when dividends received from non-consolidated subsidiaries are factored into EBITDAR figures. Fitch expects the logistics division to slow down the deleveraging process of the group, and for Cosan Limited's consolidated net debt-to-EBITDAR plus dividends received to stay at current levels in 2017 and 2018. DERIVATION SUMMARY Cosan Limited's business portfolio compares similarly with Votorantim S.A's (VSA, IDR BBB-/Negative) in terms of industry diversification, though VSA's subsidiaries hold a clearer competitive global position due to strong market positions and cost structures that are among the lowest in their respective industries. VSA's portfolio of assets includes subsidiaries operating in cement, zinc & by-products, orange juice and pulp (29.4% stake in Fibria S.A.). VSA's cement business remains a drag on credit quality for the Group due to a weak Brazilian economy, but its liquidity is stronger than Cosan Limited's and a key ratings consideration. VSA's cash on hand of BRL10.2 billion reported for Dec. 31, 2016 was sufficient to support debt amortization up to mid-2021. KEY ASSUMPTIONS --Increased flow of dividends coming from Comgas, Raizen Combustiveis and Raizen Energia to Cosan, over the next two years, reaching around BRL1.5 billion per year. --Cosan Logistica not to pay meaningful dividends over the next four years. --No additional investments coming from Cosan Limited. RATING SENSITIVITIES Future developments that may, individually or collectively, lead to a negative rating action include: --Expectation of debt service coverage ratio at Cosan Limited level below 0.5x when the debt matures in 2018, based on reduced dividends to be received and no success in the proposed Global Notes issuance; --Cosan Limited entrance in new investments financed by debt; and --Deterioration of the credit profile of either Cosan or Cosan Logistica. Future developments that may, individually or collectively, lead to a positive rating action include: --Improvement of the credit profile of either Cosan or Cosan Logistica; --Expectation of stronger than anticipated debt service coverage ratio at Cosan Limited based on more robust dividends received. LIQUIDITY Fitch expects Cosan Limited's liquidity profile to improve following the proposed issuance of USD500 million in Global Notes due 2024, as the company will use USD230 million to prepay existing indebtedness maturing in December 2018. Cosan Limited's total debt consists of only this bank debt taken on to finance the acquisition of Cosan Logistica's shares. Cosan Limited posted healthy debt service coverage ratios on a standalone basis as of June 30, 2017, with cash plus dividends received-to-short-term debt ratio at 103x. At the same date, the company reported a cash position of BRL336 million and total debt of BRL678 million, of which short-term debt was BRL9 million. Dividends received amounted to BRL598 million in the LTM ended June 30, 2017. The group's strong financial flexibility relative to its access to the debt and capital markets, in combination with dividends received from Comgas, Raizen Energia and Raizen Combustiveis, ensures strong refinancing capacity for Cosan Limited. Fitch believes Cosan Limited also has the flexibility to reduce the payouts to its shareholders if necessary. FULL LIST OF RATING ACTIONS Fitch has assigned the following rating to Cosan Limited: --USD500 million proposed senior unsecured Global Notes due 2024 at 'BB'. Fitch currently rates Cosan Limited as follows: --Long-Term Foreign and Local Currency IDRs 'BB'. The Rating Outlook is Stable. Contact: Primary Analyst Claudio Miori Associate Director +55-11-4504-2207 Fitch Ratings Brasil Ltda Alameda Santos, 700 - 7 andar, Sao Paulo, SP, CEP 01418-100 Secondary Analyst Gisele Paolino Director +55-21-4503-2624 Committee Chairperson Mauro Storino Senior Director +55-21-4503-2625 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Non-Financial Corporates Hybrids Treatment and Notching Criteria (pub. 27 Apr 2017) here Rating Investment Holding Companies (pub. 13 Jan 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below