Stake sale, streaming deals set to help CSN slash debt

Brazilian steelmaker and iron ore producer CSN needs to normalize its heavily indebted capital structure and has outlined some measures to that end, according to an analyst.

"Selling its stake in rival steelmaker Usiminas is on CSN's agenda and was even a topic in the company's latest conference call. The problem is truly related to the stake's tag price," Pedro Galdi, an equity analyst at Mirae Asset Management, told BNamericas.

"In addition, CSN has successfully closed a US$500mn iron ore streaming operation with Glencore and has now engaged Citi to seek demand for a similar US$1bn operation, but not necessarily with a single customer," Galdi said.

According to the analyst, CSN's current share price is positively biased due to the Glencore contract and the possible sale of the Usiminas stake.

"Furthermore, [fellow miner] Vale's decision to reduce supply by approximately 70Mt is pushing the price of iron ore in the seaborne market, with some analysts already revising iron ore price projections to US$80/t for this year," he said.

"If CSN manages to really hit these goals, it will achieve a marked improvement in its net debt/Ebitda ratio, but the steelmaker needs to be successful in its actions."

CSN confirmed in a December 7 statement that its mining arm CSN Mineração tapped Citi as financial adviser responsible to evaluate "several alternatives, which includes the anticipated sale of iron ore through a streaming structure."

INDEBTEDNESS

CSN has been plagued in the last few years by fears that the company would not be able to honor its debts.

Despite ongoing efforts to get a handle on its liabilities, CSN's gross debt as of December 31 was higher, at 29.9bn reais (US$7.85bn), than one year earlier when it totaled 26.3bn reais, though its net debt-to-Ebitda ratio stood at 4.55x, 1.11x less than in 2017.

CSN has over 3bn reais, from a total of 5bn reais to raise this year, in a strategy to reduce its indebtedness.

"Our deleveraging commitment will be achieved," CEO Benjamin Steinbruch (pictured) said in a Q4 call on February 27 to present the company's latest results.

"These 3bn reais will be made viable in some way, either through financial operations, or sales of assets, or both," Steinbruch told the call.

CSN is Brazil's third largest steelmaker and also operates in the cement, energy and logistics sectors.