Fitch Ratings has revised the Rating Watch on the ratings of Cosan S.A. Industria e Comercio (Cosan) to Positive from Evolving as highlighted below.
Cosan:
--Foreign Currency Long-term Issuer Default Rating (IDR) 'BB-';
--Local Currency IDR 'BB-';
--National Scale Rating 'A-(bra)'.
Cosan Combustiveis e Lubrificantes (CCL) remains on Rating Watch Positive as follows:
CCL:
--Foreign Currency IDR 'BB-';
--Local Currency IDR 'BB-';
--National Scale 'A-(bra)';
--USD 350 million Senior Unsecured Notes due August 2014 'BB-'.
The rating action follows Cosan's announcement on Aug.25, 2010 that it has concluded negotiations with Shell International Petroleum Company Limited (Shell) and has entered into definitive agreements providing for the creation of a joint venture (JVs) involving certain of their respective assets.
Cosan's Positive Rating Watch reflects the expectation that the company will likely benefit from the contribution of Shell's assets on a consolidated basis due to an expected allocation of $2.5 billion of net debt plus additional BRL 500 million from BNDES into the JVs and additional EBITDA coming from Shell's contributed assets. Additionally, the combination of the two companies' assets will strength the business and financial profile of Cosan's businesses. The recent developments on the adequate funding strategy for Cosan's logistics business (Rumo Logistica), which will not be contributed for the JVs, is also being incorporated into the analysis.
CCL's Positive Watch status reflects a strengthening operating and financial profile of the company after the association. The Downstream JV will benefit from Shell's contribution of unleveraged assets that will generate a steady and relatively predictable cash flow, and from the stronger business profile associated with the larger combined size and market share. Fitch expects that Shell and Cosan will operate this JV with low leverage given the narrow margins characteristic of the fuel distribution business, and will be able to capture some synergies with the sugar and ethanol business.
Cosan has not disclosed yet the financial information on a proforma basis of the JVs or of its consolidated business and also of Shell's operations in Brazil. Fitch expects to solve the RWPs once the detailed financial plan becomes available.
The association with Shell will generate two operating JVs, one focused on the sugar and ethanol and co-generation businesses (S&E JV) and other on the fuel distribution business (Downstream JV). Cosan will hold 51% of the voting shares of the S&E JV while Shell will hold 51% of the voting shares of the Downstream JV. The management of both JVs will be shared. Cosan will have equity participations in both JVs and in other businesses that will not be part of the merger, such as the logistics and lubrificants businesses. Cosan will contribute with USD 2.5 billion in net debt plus additional BRL 500 million from BNDES and Shell will contribute with USD 1.6 billion in cash to both JVs, although it is still not clear how much debt and cash will be allocated in each JV.
Additional information is available at 'www.fitchratings.com'.
Related Research:
--'Corporate Rating Methodology' (Aug.16, 2010).
Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.
Contacts:
Fitch Ratings
Primary Analyst
Ricardo Carvalho, +55-21 4503
2600
Senior Director
Praca XV de Novembro, 20
Centro -
Rio de Janeiro
or
Secondary Analyst
Debora Jalles, +55-21
4503 2600
Associate Director
or
Committee Chairperson
Daniel
Kastholm, CFA, +1-312-368-2070, Chicago
Managing Director
or
Media
Relations:
Brian Bertsch, +1-212-908-0549, New York
Email: brian.bertsch@fitchratings.com