Fitch: No Impact to Suzano's Ratings Following Forestry Asset Acquisition

RIO DE JANEIRO--()--The acquisition of forestry assets by Suzano Papel e Celulose S.A. (Suzano) is neutral to the company's ratings, according to Fitch Ratings.

On Oct. 26, 2016, Suzano announced the acquisition of 75 thousand hectares of land in the states of Maranhao and Tocantins, of which about 40 thousand hectares consists of planted forests, from Companhia Siderurgica Vale do Pindare and COSIMA - Siderurgica do Maranhao Ltda, subsidiaries of Queiroz Galvao Group. The transaction should amount to USD245 million, and is expected to be financed with the company's cash. Additionally, Suzano signed with Queiroz Galvao Energia S.A. the aquisition of Mucuri Energetica S.A., a small hydropower plant with generation capacity of 19 MW, for USD14 million.

Fitch expects a low impact on Suzano's net leverage from the acquisition. On a pro-forma basis, the company's net debt/EBITDA ratio would increase to 2.9x, from 2.7x as of the latest 12 months (LTM) to Sept. 30, 2016. Suzano generated BRL4.0 billion of EBITDA, cash flow from operations of BRL2.8 billion and free cash flow of BRL899 million during the LTM ended September 2016. Suzano had a robust cash position of BRL4.2 billion for the same period. The company has manageable debt maturities of BRL2.3 billion due up to December 2017 and BRL2.5 billion in 2018.

In Fitch's view, the acquisition of forestry assets is strategic and reinforces Suzano's low cost production structure. The benefits from the transaction include reduction in costs of acquisition of wood from third parties to supply the pulp mill in Imperatriz; reduction in the average distance between the forests and the mill; and potential reduction of costs from leased land. The annual cost reduction could reach BRL110 million (operational expenses and capex) and the supply of own wood should increase to about 85% in the next few years, from about 70% currently.

Fitch's analysis incorporates forestry assets as key credit consideration that enhance Suzano's credit profile. In September 2016, the company had about 1.1 million hectares of land, where about 540,000 hectares of eucalyptus plantations are developed. The forestry assets are valued at BRL4.3 billion. Importantly, 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.

Fitch currently rates Suzano as follows:

Suzano

--Long-Term Foreign Currency IDR 'BB+';

--Long-Term Local Currency IDR 'BB+';

--National Long-Term Rating 'AA+(bra)'.

Suzano Trading Ltd.

--USD650 million senior notes, due January 2021 and guaranteed by Suzano 'BB+'.

Bahia Sul Holdings GmbH

--USD500 million senior notes, due July 2026 and guaranteed by Suzano 'BB+'.

The Rating Outlook for the corporate ratings is Positive.

Additional information is available at 'www.fitchratings.com.'

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Contacts

Fitch Ratings
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Fernanda Rezende
Director, +55-21-4503-2619
Fitch Ratings Brasil Ltda.
Praca XV de Novembro
20 - Sala 401 B - Centro
Rio de Janeiro - RJ - CEP: 20010-010
or
Secondary Analyst:
Claudio Miori, +55-11-4504-2207
Associate Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Fernanda Rezende
Director, +55-21-4503-2619
Fitch Ratings Brasil Ltda.
Praca XV de Novembro
20 - Sala 401 B - Centro
Rio de Janeiro - RJ - CEP: 20010-010
or
Secondary Analyst:
Claudio Miori, +55-11-4504-2207
Associate Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com