Credit rating agency Moody’s has upgraded the ratings of Brazilian integrated steelmaker Gerdau to Ba2 from Ba3, it said on Friday.
The upgrade covers Gerdau’s corporate family rating, the debt issues of Gerdau Trade Inc and GTL Trade Finance Inc, as well as the steelmaker’s revenue bonds issued by Jacksonville Economic Development Commission in Florida. The steelmaker’s outlook is stable.
Moody’s said the upgrade reflects the company's debt reduction and liability-management efforts, which have “intensified” since October 2017 and will lead to a “much faster deleverage than previously anticipated.”
“The upgrade also incorporates our expectation that Gerdau´s operating performance will continue to gradually improve over the next several quarters, which will contribute to further improvement in credit metrics,” it noted.
The credit rating agency also said it doesn’t expect any material recovery in the local steel industry, “at least through the end of 2018, as the main steel consuming segments for long steel (construction, infrastructure) will likely remain weak until there is a more sustained resumption of investments in infrastructure.”
Moody’s comments diverge from Brazilian investment bank BTG, whose analysts said the local steel industry should improve significantly in 2018.
Moody’s also said Gerdau's strategy of focusing on higher-margin segments in the US, which is confirmed by the sale of its US rebar operations, will help enhance margins in the country.
The deal was anticipated by SteelOrbis in Sao Paulo on October 17 last year, however, the company declined the comment at the time. The deal was made public last week.
Gerdau said recently it will now seek more “profitable” markets in the US, but did not mention which markets it should be after.
“The deal (…) will allow our accelerated growth in attractive segments in North America, one of our core markets,” the company said recently a statement.
“Along with our specialty steel operations in the US, we will continue to be well positioned to serve and add value to clients in the markets of non-residential construction, industrial equipment, transport and energy,” said Peter Campo, CEO at Gerdau’s longs operations in the US.