Fitch Ratings has placed the ratings of Cosan S/A Industria e Comercio (Cosan) and its subsidiaries Cosan Overseas Limited (Cosan Overseas) and Cosan Lubrificantes e Especialidades Ltda (CLE) on Rating Watch Negative.
These rating actions follow the announcement by Cosan that it has signed a Memorandum of Understanding with BG Group for the acquisition of shares in Companhia de Gas de Sao Paulo (Comgas) for BRL3.4 billion. This transaction will give Cosan shares equivalent to 60.1% of the company's total capital. The transaction is still dependent upon the approval from the Sanitation and Energy Regulatory Agency of the state of Sao Paulo (ARSESP).
As per Fitch's estimates, Cosan's net leverage, on pro forma basis, would increase to around 3.7 times (x) from 2.1x, considering a normalized EBITDA of Comgas and Cosan and debt adjusted by actuarial obligations and intercompany loans. This calculation excludes the proportional EBITDA that migrated to Raizen from June 2011 onwards. This level of leverage pressures the current rating category, given the fact that about 40% of Cosan's consolidated EBITDA would still come from the more volatile sugar and ethanol businesses.
From a strategic standpoint this acquisition would be positive for Cosan, as it contributes to broader business diversification and should lessen its cash flow volatility. This transaction would also enhance Cosan's presence in the energy segment, which, together with logistics, are the main focus of the company's business plan going forward.
After the conclusion of this acquisition, Cosan will be part of a shareholder agreement with Shell, which holds a 18.2% participation in the company, being the remaining shares traded in the free float (21.7%). Currently, Cosan already has a shareholder agreement with Shell in Raizen S.A.
Cosan is also negotiating the acquisition of a 5.7% share in America Latina Logistica S.A. (ALL), for the amount of BRL896.5 million. The transaction is still dependent upon the approval of other signatories of ALL's shareholders agreement and also from the Brazilian Transport Regulatory Agency (ANTT) and the Brazilian Antitrust Council (CADE). In case the acquisition is concluded, as per Fitch estimates Cosan's consolidated net debt/ EBITDA ratio on a pro forma basis would reach around 3.8x.
Comgas is the largest piped natural gas distributor in Brazil, supplying 177 cities in the state of Sao Paulo. In 2011, Comgas reported a Fitch calculated EBITDA of BRL718 million, total adjusted debt of BRL2 billion, cash and equivalents of BR41 million and a net debt/EBITDA ratio of 2.8x. Last year's cash flow generation was affected by the huge increase in the natural gas prices, especially in the second half of the year, which were not immediately re-passed to the tariffs and therefore pressured EBITDA margin (17.5% versus an historical average between 2007 and 2010 of 29.2%). The regulatory agency, ARSESP, approved an extraordinary tariff adjustment in December 2011 to allow the pass through of these cost increases, which should benefit Comgas' operational performance in 2012.
Fitch currently rates Cosan and its subsidiaries as follows:
Cosan |
--Local and foreign currency Issuer Default Ratings (IDRs) 'BB+'; |
--National scale rating 'AA-(bra)'. |
Cosan Overseas |
--Foreign currency IDRs 'BB+'; |
--USD500 million Perpetual notes 'BB+'. |
CLE |
--Local and foreign currency IDRs 'BB+'; |
--National scale rating 'AA-(bra)'. |
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research: |
--'Corporate Rating Methodology'(Aug. 19, 2011). |
Applicable Criteria and Related Research:
Corporate Rating
Methodology
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