Gerdau's US assets sale gets thumbs up from Moody's

Wednesday, January 3, 2018

Brazilian steelmaker Gerdau's decision to sell some of its assets in the US further supports the company's strategy of deleveraging its balance sheet and adjusting operations to the challenging conditions of its key steel markets, according to Moody's.

The latest asset sale is positive for Gerdau's credit standing, said the ratings agency in a research report.

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On Tuesday, Gerdau announced it sold some of its rebar steel mill and fabrication assets in the US to Texas-based Commercial Metals Company (CMC) in a deal worth US$600mn.

The combined assets have a 2.5Mt/y rolling capacity and include mills in the states of Florida (Jacksonville), Tennessee (Knoxville), California (Rancho Cucamonga) and New Jersey (Sayreville).

Moody's said the sale will enhance the company's ability to further reduce its debt with limited impact on future Ebitda generation, since the operations being sold have very low returns.

"On a pro-forma basis, the US$600mn in proceeds, if used to pay down debt levels, could reduce Gerdau's total debt/Ebitda ratio, including our standard adjustments and liability management efforts during 4Q17, to 4.2x, down from 5.4x at the end of September 2017," Moody's said.

Gerdau's sale of assets in the last few years brought in at least US$1.19bn. In 2Q15, Gerdau implemented a broad reorganization program as a way to mitigate the impact of Brazil's worsening economic climate and the flood of cheap steel imports from Chinese steelmakers, which made the company's profits nosedive that year.

The program included a strategy of acquiring meaningful businesses or disposing loss-making ones to improve profitability.

Porto Alegre-based Gerdau is the largest long steel producer in the Americas.