Opposing Itau BBA bank, CSN says debt is hedge protected

Friday, 25 September 2015 01:57:00 (GMT+3)   |   Sao Paulo

As Brazil steelmaker Companhia Siderurgica Nacional (CSN) struggles to handle a BRL 20.7 billion ($5.1 billion) net debt, analysts question the company’s ability to solve its obligations while improving its financial metrics.

Following a recent report by credit ratings agency Fitch, which said CSN would need to sell at least BRL 4 billion–nearly $1 billion—in two years to lower its debt and improve its financial metrics, Brazil investment bank Itau BBA said the steelmaker failed to hedge its obligations, causing investors to sell-off their stocks at the company. Shares at CSN fell about 20 percent as a result of the doubts surrounding the company’s ability to manage its debts.

Itau BBA said later on Wednesday its report was "inaccurate" and added CSN, in fact, protects its exchange exposure by keeping a large portion of its cash position in dollars and buying derivatives.

In response to Itau’s claims, CSN said its debts in USD are “totally protected” against currency fluctuations. CSN said that it adopts measures such as having cash in USD at both CSN and Namisa, as well as hedge accounting.

Despite CSN’s explanations and Itau’s apologies for what it defined as an “inaccuracy”, analyst remain concerned about CSN’s ability to manage its debt.

Earlier this week, credit ratings agency Fitch downgraded CSN’s ratings in local currency to B+ from BB over concerns about iron ore prices in the long term and the company’s high leverage levels. Generally speaking, a company with significantly more debt than equity is considered to be highly leveraged. Fitch added that even selling its non-core assets, which were considered by the agency as having a significant value, CSN will have a challenging time when selling them, given the macroeconomic scenario.

CSN has about $4.7 billion debts in USD.

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