Klabin's ratings reflect the company's leading position in the Brazilian packaging sector, its large forestry base that provides it with a low production cost structure, as well as its high degree of vertical integration, which enhances its product flexibility in the competitive but fragmented packaging industry. Klabin's consistently strong liquidity position is also a positive factor in the company's ratings.
The Negative Outlook for Klabin's international IDRs reflects the expectation that leverage will increase as a result of the company's high investments over the next three years, highlighted by the construction of a
KEY RATING DRIVERS
Leading Position in the Brazilian Packaging Segment
Klabin is the leader in the Brazilian corrugated boxes and coated board sectors with market shares of 15% and 50%, respectively. In the Brazilian market, the company is the sole producer of liquid packaging board and is the largest producer of kraftliner and multiwall and industrial bags. Tetra Pak is the sole consumer of the company's liquid packaging board, accounting for 22% of sales. Klabin sources much of its fiber requirements from hardwood and softwood trees grown on 243,000 hectares of plantations it has developed on 494,000 hectares of land it owns. The company's size, access to inexpensive fiber and high level of integration relative to many of its competitors give it competitive advantages that are viewed to be sustainable.
Leverage to Increase Due to Heavy Investment Cycle
Klabin plans to invest about
The new pulp mill should generate about
Klabin has been able to generate strong operational cash flow with funds from operations (FFO) above
Solid Liquidity Position & Manageable Debt Amortization
Klabin's solid liquidity position remains a key credit consideration. As of
Operational Performance to Remain Strong
Fitch projects that Klabin will generate about
Forestry Assets Are Key Credit Consideration
Further factored into Klabin's credit ratings is its large forestry base, which assures it of a competitive production cost structure in the future. As of
Klabin's ratings could be downgraded during 2015 if it does not appear that the company's net leverage will be below 3.0x following the completion of its new mill at current prices. In a stronger price environment, Fitch would expect Klabin's net leverage to be closer to 2.5. A factor that could lead to downgrade would be a strengthening of the currency versus the U.S. dollar, which would likely weaken Klabin's operating cash flow and make the company more reliant upon debt. Additional factors that could make it harder to achieve the aforementioned leverage metrics would include a more unstable macroeconomic environment that would weaken demand for the company's products as well as prices, as well as any debt financed acquisitions.
Klabin's ratings are not likely to be upgraded until the company completes its aggressive capital expenditure program. An upgrade would be considered if the new mill results in consistently higher free cash flow generation capacity. Another substantial equity increase would also be viewed favorably and could result in a return of the Rating Outlook to Stable.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - Sala 401 B - Centro -
Source: Fitch Ratings
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