TEXT-Fitch rates Cosan's proposed senior notes 'BB+'

Thu Feb 28, 2013 11:47am EST

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Feb 28 - Fitch Ratings has assigned a 'BB+' rating to a proposed senior
unsecured notes issue of Cosan Luxembourg S.A. (Cosan Luxembourg), in the amount
of USD400 million due 2023. The notes will be unconditionally and irrevocably
guaranteed by Cosan S.A. Industria e Comercio (Cosan) and will rank
equally with all Cosan's unsecured indebtedness. Net proceeds will be used to
prepay a portion of Cosan's BRL3.3 billion debentures issued to finance Comgas'
acquisition. A complete list of Fitch's ratings of Cosan is provided at the end
of this release.

KEY RATING DRIVERS:
Cosan's ratings reflect the increasing contribution of a more diversified asset
portfolio and more predictable cash flow businesses on a consolidated basis,
which partially soften the impacts of the volatility of the sugar and ethanol
industry. Cosan's ratings fundamental has been positively enhanced by the
creation of a joint-venture with Shell Brazil Holdings BV (Raizen), under
conservative financial terms, and it is strongly linked to Raizen's credit
profile, given the relevance of this joint venture compared to Cosan's
consolidated performance (55% of 2013 EBITDA, as per Fitch estimates). Cosan's
pro forma credit ratios, considering the last 12 months (LTM) EBITDA of Comgas,
its robust liquidity position and its manageable debt profile further support
the ratings.

The high volatile sugar & ethanol industry fundamentals, exposure to climatic
conditions and challenges related to the ethanol's industry dynamics in Brazil,
currently strongly linked to gasoline regulated prices and governmental policies
related to this issue, are further incorporated into the ratings.

Increased Diversification & Lower Exposure to Sugar & Ethanol:
Comgas' acquisition was strategically positive for Cosan, as it contributes to
broader business diversification and should lessen its cash flow volatility.
This transaction also enhanced Cosan's presence in the energy segment, which,
together with logistics, are the main focus on the company's business plan going
forward. As per Fitch estimates, the contribution of more stable business for
Cosan's cash flow should range from 52% in the 2011/2012 harvest period to the
65%-75% range in the next three years, depending on the sugar and ethanol prices
behavior and speed of planned expansion projects. Fitch estimates Cosan 2013
EBITDA breakdown by segment as follows: 35% natural gas distribution, 32% sugar
and ethanol, 19% fuel distribution, 8% logistics and 6% others.

Leverage on a Declining Trend as Expected:
Cosan's pro forma net debt/EBITDA considering Comgas' LTM EBITDA is 3.2x,
despite lower than historical EBITDA margins of the acquired company in that
period, due to some cost mismatches to be passed through its tariffs.
Considering a normalized EBITDA for Comgas, Cosan's pro forma net leverage on a
consolidated basis would be around 3.1x. This ratio compares favorably with the
3.3x pro forma net leverage ratio as of March, 2012. Fitch's debt calculations
also consider rescheduled taxes net of credits to be received from ExxonMobil,
pension fund obligations (mostly migrated from Comgas) and intercompany loans.

Considering the mid-point of the sugar and ethanol price cycle, the agency
estimates that Cosan should maintain its net leverage around 3.0x while
preserving a robust liquidity position to reduce the risks related to the
inherent cyclicality of some of its businesses.

Robust Liquidity Essential to Support Ratings:
Cosan has maintained robust liquidity. As of Dec. 31, 2012, its consolidated
cash position amounted to BRL2.3 billion and covered its short-term debt of
BRL1.8 billion by 1.3x. Considering also cash flow from operations (CFFO), the
cash+CFFO/short-term debt ratio would be strong at 3.0x. Debt maturity profile
was adequately distributed, with concentration in the long term.

Fitch expects that Cosan will continue to adequately manage its short-term debt
maturities and to preserve a robust liquidity, in order to be prepared for
occasional market downturns. The favorable terms of the financing line obtained
to finance the Comgas acquisition, characterized by an eight-year tenor with a
two-year grace period, also positively contributed for the company's financial
profile.

Increased Cash Flow Generation:
Cosan presented a robust operational performance on a consolidated basis in the
LTM period ended December 2012. Net revenues, EBITDA and CFFO amounted to
BRL27.3 billion, BRL2.5 billion and BRL3.1 billion, respectively, which compare
positively to BRL24.1 billion, BRL2.1 billion and BRL2 billion reported in March
2012, excluding the non-recurring effects of the creation of Raizen (BRL3.2
billion).

Cosan's EBITDA expansion reflects, among other factors, the strong performance
of the fuel distribution activities, which benefited from advances in the gas
stations rebranding process and a favorable product mix and higher operational
margins in the sugar, ethanol and cogeneration business, driven mainly by a
greater crushing volume, adequate price hedging strategy and increased
cogeneration revenues in that period. The beginning of consolidation of the
agricultural land development business, conducted through the subsidiary Radar,
also contributed with an incremental EBITDA of BRL96 million.

Pending Negotiations on Acquisition of ALL Shares:
Cosan is also negotiating the purchase of a 5.7% stake on America Latina
Logistica (ALL), for BRL896.5 million, which was not incorporated in Fitch's
financial projections. 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, Fitch estimates that Cosan's consolidated
net debt/EBITDA ratio on a pro forma basis would range between 3.0x and 3.3x
depending on the funding strategy for this transaction.

RATING SENSITIVITIES:
A positive rating action could be driven in the medium term by lower than
expected leverage, coupled with the maintenance of more stable and predictable
cash flows.

Any action related to Raizen's ratings could have an impact on Cosan's ratings.
Factors that could lead to a negative rating action include further acquisitions
or investments not contemplated in the current business plan that could result
in leverage levels beyond expectations and/or material refinancing needs. Should
net leverage exceed Fitch expectations and be above 3.5x on a recurring basis,
it would trigger a negative rating action.

Fitch currently rates Cosan as follows:

Cosan:
--Foreign and local currency Issuer Default Ratings (IDRs) 'BB+';
--National scale rating 'AA-(bra)'.

Cosan Overseas:
--Foreign currency IDR 'BB+';
--Perpetual notes 'BB+'.

The Rating Outlook of the corporate ratings is Stable.

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. 8, 2012);
--'National Ratings - Methodology Update' (Jan. 19, 2011).

Applicable Criteria and Related Research
Corporate Rating Methodology
National Ratings Criteria
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