Credit rating agency Moody’s has upgraded the corporate family rating and the ratings of the debt issues of Brazilian steelmaker Gerdau to Ba1 from Ba2. The steelmaker’s outlook was changed from stable to positive, Moody’s added.
Moody’s said the upgrade was due to Gerdau’s “better than anticipated” operating performance in 2018, adding that the company’s improved performance thus far, combined with assets sales and liability management initiatives, helped it to increase debt reduction efforts, while also improving credit metrics in a “very short” timeframe.
“We estimate the company will continue to generate positive free cash flow and strong operating margins in the medium term as a result of its focus on higher-margin products and markets after asset sales carried out in the last four years, cost reduction efforts and financial discipline,” Moody’s said.
Moody’s noted Gerdau’s ability to sell about BRL 7.4 billion in assets, along with a “material” debt reduction, allowed it to build a “significant amount of additional financial flexibility” to withstand the cyclicality of the steel industry.
“The positive outlook reflects our expectations that Gerdau’s credit metrics will remain strong in the next 12-18 months, and that the company will continue to strengthen its balance sheet, liquidity profile and financial policies to enhance its credit quality even further,” Moody’s said.