The corporate Rating Outlook is Stable.
Cosan's ratings reflect its sound business platform and the continuing contribution from a diversified asset portfolio and predictable cash flow businesses on a consolidated basis, which softens the inherent volatilities of the sugar and ethanol industry. Such cash flow predictability partially mitigates the relatively moderate leverage on a consolidated basis of net adjusted debt to EBITDAR at 3.5x.
Cosan's high leverage at the holding level (
KEY RATING DRIVERS
Lower Exposure to Sugar and Ethanol and Robust Cash Flows
Cosan's ratings are strongly supported by the increasing contribution of a more diversified asset portfolio and more predictable cash flow. Currently, under the new accounting practices the majority of Cosan's consolidated EBITDA comes from relatively steady operations such as distribution of natural gas, lubricants and logistics. The sugar and ethanol business as well as downstream activities are accounted for through the equity method and therefore they affect Cosan's performance through the dividends flow. Given this accounting change and the change of fiscal year-end to
During the last 12 months (LTM) ended March, 31 2014, the majority of Cosan's businesses have reported increasing operating performance with Raizen Energia being the only exception. Raizen Combustiveis and Comgas have reported increased revenues and volumes as well as higher EBITDA margins, which have had a positive effect on operating cash flow generation. Rumo Logistica has been reporting revenue growth and stable EBITDA margins. The performance of Raizen Energia reflects the pricing challenges faced in the sugar and ethanol industry, and has resulted in a 20% drop in the company's cash flow from operations (CFFO).
For the LTM through
Leverage is a Concern
Leverage is moderate on a consolidated basis and high on a standalone basis. Consolidated figures reported net adjusted debt to EBITDAR at 3.5x for the LTM ended
Corporate Reorganization is Moderately Positive
Cosan's leverage should not change, as the preferred shares should be treated as a liability on the balance sheets of Cosan Investimentos and Participacoes given certain put/call provisions on the preferred shares. Nevertheless, the transaction will allow Cosan to lengthen its debt profile. There will also be gains in terms of financial costs as the preferred shares will be remunerated at a lower interest rate compared to the existing debt.
Liquidity at Holding Level is Weak
Cosan reports comfortable liquidity ratios on a consolidated basis. As of
Ongoing Acquisition of ALL; Higher Expected Capex May Pressure Credit
Cosan is proceeding with the acquisition of America Latina Logistica S.A.S., which is still pending approval by regulators. Assuming the full consolidation of ALL into Cosan (Cosan will have the majority of the Board's seats), Cosan's consolidated net debt-to-adjusted EBITDA would increase to an average of 3.2x from the 2.4x that would be achieved without the acquisition. A high expected capex plan to be implemented by ALL may lead Cosan to consistently report negative free cash flow in the next three years and thus avoid a deleveraging process. This impact can, however, be avoided at the consolidated level depending on the final configuration of the group.
Fitch will be monitoring the conclusion of the ALL acquisition and a negative rating action could arise depending on the final configuration of the group and under a potential sizeable capex program at ALL. A downgrade could be triggered if Cosan fails to deleverage to below 3.0x in the medium term.
An upgrade is unlikely in the short- to medium-term as Cosan's growth strategy should continue to avoid a relevant deleveraging process, primarily at the holding level.
Fitch affirms the following ratings:
--Foreign and local currency IDRs at 'BB+';
--National scale rating at 'AA(bra)'.
--Perpetual notes at 'BB+'.
Cosan Luxembourg S.A:
--Senior Unsecured Notes due in 2018 and 2023 at 'BB+'.
In addition, Fitch has withdrawn the following rating:
--Foreign currency IDR at 'BB+'.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
--'National Scale Ratings Criteria' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
National Scale Ratings Criteria
Fitch Ratings Brasil Ltda
Source: Fitch Ratings
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