Fitch upgrades Suzano national scale rating
Brazilian pulp and paper producer Suzano had it is long-term foreign and local-currency Issuer Default Ratings (IDR) at ‘BB+' and its national scale long-term rating at ‘AA+, due the company’s leading position in printing and writing paper and paperboard in Brazil, and for its position as the fourth largest producer of market pulp in the world, said Fitch. The ratings also incorporate Suzano’s strong liquidity and accelerated deleveraging level.
The rating perspective is now positive, Fitch said in a press release, as there is the expectation that Suzano’s free cash flow will remain strong in 2017 and 2018, and net adjusted leverage will decline to below 2x by 2018. According to Fitch, a new upgrade could occur if the company uses its FCF to continue reducing gross debt. The positive outlook also reflects the expectation that the company’s strategy to decrease leverage and improve its capital structure will remain unchanged, according to the rating agency.
Fitch noted that Suzano’s leverage will continue to decline due to its stronger operating cash flow and lower investments. “Suzano’s net adjusted leverage will decrease to about 2.6x in 2017, falling to below 2x during 2018.”
Suzano’s net adjusted leverage remained relatively stable during 2016 and it did not reduce to below 3.0x as previously projected due to the strong Brazilian Real and weak pulp prices. Suzano’s adjusted net debt /adjusted EBITDA ratio ended March 31, 2017, was 3.3x, comparing unfavorably with 3.1x at year-end 2016 and 2015. Fitch projects that Suzano will generate about Real 4.1 billion of adjusted EBITDA in 2017 and Real 4.9 billion in 2018.
Fitch also pointed out that the 534,000 ha of eucalyptus planted in a total area of 1.2 million ha of land are a major competitive advantage for Suzano. “The nearly ideal conditions for growing trees in the region make these plantations extremely efficient by global standards and give the company a sustainable advantage in terms of cost of fiber and transportation costs between forest and mills”, said Fitch in a statement.