November 18, 2013 / 4:30 PM / in 4 years

UPDATE 1-Brazil's Fibria sells land in push for investment grade

By Alberto Alerigi

SAO PAULO, Nov 18 (Reuters) - Brazil’s Fibria Celulose SA , the world’s largest producer of eucalyptus pulp, agreed to sell about $600 million of land in a bid to win back its investment-grade debt rating.

Shares of Fibria rallied to a three-year high on Monday as executives forecast a return to investment grade for its foreign debts by June 2014 - the capstone in a two-year push to cut a hefty debt load.

Fibria is one of many Brazilian companies selling assets to pay down debts as rising interest rates, disappointing growth and a weaker currency put businesses on the defensive.

The pulp producer signed a deal to sell 210,000 hectares (520,000 acres) of land to Parkia Participações for 1.4 billion reais ($600 million), according to a securities filing. Fibria could receive another 250 million reais over the next 21 years if the value of the land continues to appreciate.

Fibria’s stock jumped over 5 percent in Sao Paulo trading, touching its highest levels since November 2010 before paring gains to 3 percent.

Fibria plans to continue operating on the land, stretching across four states from Brazil’s center-west to its northeast regions, under a 24-year contract yet to be signed with Parkia.

The move echoes deals struck by Brazilian airlines and phone companies in recent months to sell and lease back jets and cell towers, underscoring how moves to quickly pay down debts may pinch companies’ cash flow in the long run.

Fibria could strike more deals like the arrangement with Parkia, which involved about a third of its land holdings, Chief Executive Marcelo Castelli told journalists on Monday.

“There could be a second tranche, but not at this moment,” Castelli said on a conference call. “Not in the short term.”

Chief Financial Officer Guilherme Cavalcanti said the company expected Wall Street rating agencies to upgrade Fibria’s debts to investment grade by the middle of next year, pushing back an earlier forecast of getting that upgrade by the start of 2014.

In March, Standard & Poor’s raised the rating on Fibria’s dollar-denominated bonds - which account for nearly 95 percent of gross debt - from BB to BB+, putting the company just one notch below investment grade with a stable outlook.

Fitch Ratings, which also rates Fibria’s foreign debts BB+, raised its outlook for the rating to “positive” in February. Moody‘s, which rates Fibria’s dollar debt just below investment grade at Ba1, raised its outlook to “positive” in September.

Fibria cut its net debt, or total debt minus cash, to 8.24 billion reais in September, equal to 3 times its annual operating profit, measured by earnings before interest, taxes, depreciation and amortization. Net debt could fall to 2.5 times operating profit by the end of the year, Cavalcanti said.

Fibria has been struggling since the end of 2011 to cut its debt, which battered results as a volatile exchange rate drove up foreign debt-servicing costs.

The company’s quarterly profit missed estimates last month as it incurred financial expenses by buying back bonds.

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