December 4, 2012 / 7:21 PM / 5 years ago

TEXT - Fitch raises Minerva SA rating

(The following statement was released by the rating agency)
    Dec 4 - Fitch Ratings has upgraded Minerva's National Scale
Ratings to 'BBB+(bra)' from 'BBB(bra)'. At the same time, Fitch has affirmed at
'B' the Foreign and Local Currency Issuer Default Ratings (IDR) of Minerva S.A.
(Minerva) and Minerva Luxembourg S.A. (Minerva Luxembourg), a wholly owned
subsidiary of Minerva incorporated in Luxembourg. A full list of the rating
actions follows at the end of this release.

The rating actions were prompted by the company's announcement that it 
successfully raised BRL470 million in equity. The proceeds will be used to repay
short-term debt and to increase cash balances, allowing the company to expand 
its operations more rapidly during the current favorable operating environment. 
The company's position domestically will improve, with Minerva's scale and 
financial profile comparing more favorably to its peers and warrants the upgrade
of the national scale ratings to BBB+(bra). The equity issuance also strengthens
Minerva's credit profile within the 'B+' category for the IDRs. 

Minerva's ratings continue to be supported by the company's business position as
the third-largest Brazilian exporter of fresh beef and its strong liquidity. 
Fitch acknowledges the credit-friendly measures taken by the company through its
decision to issue equity to support its operations during the challenging 
operating environment in the past, and the current issuance to support growth.  

Pro-forma the equity issuance net leverage will decrease by about one turn, to 
2.7x for the last twelve months (LTM) ended Sept. 30 2012. Minerva's ability to 
further deleverage will be constrained by its increased investment program and 
its sensitivity to the BRL/USD exchange rate, as about 81% of the company's debt
as of Sept. 31, 2012 is denominated in USD. Per Minerva's estimation, the total 
exposure to USD is slightly lower at 74%, due to existing currency swaps.  

The larger scale investing during a positive cycle for the Brazilian beef sector
is both well timed and will improve the company's business profile. Processed 
food will increase to about 10% of revenue in 2015, while revenue outside of 
Brazil will account for 20% - 25% of total revenue by 2015. 

Despite the recent positive developments, the company's profile remains risky, 
with high product and production concentration in Brazil, which limit the 
company's flexibility to respond to regional bans on exports. Similar to other 
Brazilian protein processors, Minerva is exposed to the risks of unfavorable 
currency fluctuations and potential disease outbreaks. The company is more 
susceptible to these risks than other leading competitors in the Brazilian 
industry; however, exports account for a higher percentage of its revenue. 

Leverage to Remain Stable Through 2013

Fitch expects Minerva's free cash flow generation to be negative to neutral as a
result of the company's recently announced plans to increase expansion capex and
to pursue acquisitions in the Brazilian states of Mato Grosso, Uruguay, Paraguay
and Colombia. As a result, Fitch estimates that leverage will not change 
materially by the end of 2013. The current equity issuance helps the company to 
support further investments without deteriorating its credit metrics.

Further weakening of the Brazilian real may lead to a temporary increase in 
Minerva's leverage ratios, due to its large unhedged exposure to USD through its
debt. The scenario of a depreciating Brazilian real results in an instantaneous 
increase of total debt when expressed in Brazilian reais, while EBITDA benefits 
would accumulate over a longer period. 

Positive Recent Performance

During the LTM ended Sept. 30, 2012, the company delivered strong operational 
results. EBITDA, profit margins and cash flow generation were above 
expectations, mostly because of a strong export market, helped by the weaker 
Brazilian real. However, debt also increased as a result of the weak real, 
resulting in a net debt to EBITDA ratio of 3.8x, which was higher than Fitch's 
expectation. Previously, Fitch expected Minerva's net leverage to decrease to 
around 3.0x by the end of 2012, a level appropriate for the rating category 
during a positive cycle. 

For the LTM ending Sept. 30, 2012, Minerva's EBITDA increased by 36% to BRL446 
million from BRL328 million during 2011. During the same period, EBITDA margins 
increased to 10.5% from 8.2% in 2011. These improvements fed through to the 
company's cash flows. Minerva's cash flow from operations (CFFO) was BRL373 
million, a significant improvement from negative BRL10 million in 2011. Free 
cash flow (FCF) was BRL244 million, reversing seven straight years of negative 
FCF.

Key Rating Drivers

The ratings are likely to remain stable unless cash flow generation and leverage
ratios trend different than Fitch's expectations. A positive rating action could
be triggered  additional decreases in leverage to about 2.0x in mid cycle. This 
level of debt reduction is unlikely to be achieved in the short-to-medium term. 

A negative rating action could occur if net leverage increases to 4.0x on a 
normalized basis. This could be as a result of either a large debt financed 
acquisition or asset purchases, or as a result of operational deterioration due 
to disruptions in exports. 

Fitch rates the following as indicated:

Minerva:
--Local currency Issuer Default Rating (IDR) affirmed at 'B+';
--Foreign currency IDR affirmed at 'B+';
--National scale rating upgraded to 'BBB(bra)+' from 'BBB(bra)';
--BRL200 million outstanding debentures due 2015 upgraded to 'BBB+(bra)' from 
'BBB(bra)'. 

Minerva Luxembourg:
--Local currency IDR affirmed at 'B+';
--Foreign currency IDR affirmed at 'B+';
--Senior unsecured notes due in 2017, 2019 and 2022 affirmed at 'B+/RR4'. 
The corporate Rating Outlook is Stable.

 (Caryn Trokie, New York Ratings Unit)

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