Credit rating agency Fitch has downgraded the global rating of Brazil steelmaker Companhia Siderurgica Nacional (CSN) to B- from B+, as the company’s capital structure has become unsustainable under current market conditions.
In addition to reducing the company’s global ratings to B-, Fitch also downgraded CSN’s national scale rating to BBB-(bra), from A-(bra). The company outlook remains Negative, it said.
“CSN's capital structure is unsustainable under current market conditions,” the credit rating agency said.
“Asset sales will prove challenging and likely to plug the cash flow gap in 2016 and 2017. With approximately 35 percent of its total debt attributed to capital market liabilities, CSN could struggle to refinance this debt before it comes due in 2019 and 2020,” it said.
Fitch forecast fundamentals for the iron ore industry to deteriorate further with additional supply coming online from major low cost producers, “coupled with a slowdown in economic activity in China, and further depreciation in the Chinese yuan.”
Despite benefiting from a depreciated BRL over the USD, the weakening of the global iron ore markets will pressure CSN's mining operations.
Fitch added it expects CSN to face a “further decline in domestic steel volumes during 2016.”
The credit rating agency explained global oversupply of steel should continue weighing heavily on the steel sector, resulting in “limited domestic price recovery and poor profitability from exports” for the steelmaker.
Fitch said the company’s decision to temporarily halt primary steelmaking activities at its Presidente Vargas blast furnace should provide “some relief” to the company's working capital drain in 2016.