RIO DE JANEIRO & CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Cosan S.A. Industria e Comercio (Cosan)'s foreign and local currency Issuer Default Rating (IDR) at 'BB+'. Fitch has also upgraded Cosan's national long-term rating to 'AA(bra)' from 'AA-(bra)'. A full list of rating actions follows at the end of this release.
The corporate Ratings Outlook is Stable.
The upgrade of the Cosan's national scale rating reflects an improvement in the company's business profile due to its acquisition of Companhia de Gas de Sao Paulo - Comgas during 2012. This acquisition should reduce the volatility of the company's future cash flow generation and has strengthened the company's international rating of 'BB+' within the rating category. A key constrain upon the company's rating at the 'BB+' level is the high level of debt - BRL5.2 billion - at the holding company level.
KEY RATING DRIVERS
Stronger Credit Profile with Raizen
Cosan's rating fundamentals have been positively enhanced by the creation of joint ventures with Shell Brazil Holdings BV. These joint ventures, Raizen Energia S.A and Raizen Combustiveis S.A, are both rated 'BBB' by Fitch. Together, they account for 55% of Cosan's EBITDA.
Lower Exposure to the Volatile Sugar and Ethanol Industry
Cosan's credit quality has strengthened with the acquisition of the natural gas distributor, Comgas, which now accounts for 29% of the company's EBITDA. The relatively stable cash flow from this business is able to partially offset the inherent volatility of the sugar and ethanol industry. Depending upon sugar and ethanol prices, approximately 60% of the company's EBITDA should come from the following portfolio of relatively stable businesses: 29% natural gas distribution (Comgas), 23% fuel distribution (Raizen Combustiveis), and 8% logistics (Rumo Logistica).
Expanding Logistic Portfolio May Avoid Further Deleverage Trend
Cosan has successfully reduced its consolidated net leverage ratios since the acquisition of Comgas. As of March 31, 2013, net adjusted leverage, on pro-forma basis, is 2.9x, a decline from 3.7x as of March 31, 2012. Without any other acquisition or relevant investment, Fitch expects the net adjusted leverage ratios to move toward to 2.5x in the next years. In spite of the favorable trend, leverage may not decrease, as Cosan seeks to expand its logistics business.
Improving Operational Performance
Cosan's consolidated pro-forma EBITDA was BRL3.7 billion for the LTM ended March 31, 2013. The pro-forma analysis considers 12 months of Comgas. The EBITDA compares with a pro-forma EBITDA for the LTM ended March 31, 2012 of BRL2.8 billion. During the LTM, Cosan generated BRL2.4 billion of cash flow from operations (CFFO). With investments of BRL1.7 billion and dividends of BRL375 million, free cash flow was BRL271 million, an increase from BRL187 million in the prior year. Capex at Comgas will likely restrict the level of free cash flow going forward. Key drivers of the increase in Cosan's EBITDA and CFFO were synergies gained through operational improvements in the company's sugar and ethanol businesses, as well as its natural gas business.
Solid Liquidity Position and Manageable Debt Amortization Schedule
Cosan's solid liquidity position is a key credit consideration. On a consolidated basis, as of March 31, 2013, Cosan had BRL1.4 billion of cash and marketable securities and BRL13,1 billion as total debt, of which BRL1.3 billion is short term debt. At the holding level, Cosan shows manageable debt service coverage due to a debt maturity schedule that is evenly distributed, with debt amortizations of BRL400million in 2014 and BRL160 million from 2015 to 2017. As of March 31, 2013, cash position at the holding was BRL344 million. The company is expected to receive BRL1 billion of dividends from Raizen during the next three years.
Pending Negotiations On The Acquisition Of ALL Shares; No Cash Disbursement is Expected
Cosan is also negotiating the purchase of a 5.7% stake in America Latina Logistica - ALL, for BRL896.5 million. To fund this party, Cosan is seeking an equity partner so that it will not have to make a cash payment. The transaction is still dependent approval of some signatories to ALL's shareholders agreement, the Brazilian Transport Regulatory Agency (ANTT) and the Brazilian Antitrust Council (CADE).
RATING SENSITIVITIES
A positive rating action is likely in the medium term horizon if the company is able to manage the growth of its logistic and infrastructure business without increasing leverage.
A negative rating action on Raizen's ratings could have an impact on Cosan's ratings. Factors that could also lead to negative rating actions include further acquisitions or investments not contemplated in the current business plan that could result in leverage levels beyond expectations and/or material refinancing needs.
Fitch affirms the following ratings
Cosan:
--Foreign and local currency IDRs at 'BB+';
--National scale rating upgraded to 'AA(bra)from 'AA-(bra)'.
Cosan Overseas LTD:
--Foreign currency at IDR 'BB+';
--Perpetual notes at 'BB+'.
Cosan Luxembourg S.A:
--Senior Unsecured Notes due in 2018 and 2023 at 'BB+'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'National Ratings - Methodology Update' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=795345
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