Fixed Income Analysis /
Brazil

Marfrig: Share offering intended to lower debt; reiterate Buy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

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    Tellimer Research
    18 December 2019
    Published byTellimer Research

    On 17 December, Brazil’s Marfrig Global Foods (MRFGBZ) offered 90.1mn of its own shares and the country’s main development bank, BNDES, offered its entire ownership of 209.6mn Marfrig shares.

    The offering raised cBRL3.0bn (US$739.30mn) in total – Marfrig’s shares cBRL900.9mn (US$221.98mn) and BNDES’s shares cBRL2.1bn (US$517.41mn). Marfrig management intends to use the proceeds to pre-pay debt “in accordance with the company’s strategy and in the company’s best interest”.

    The transaction has resulted in Marfrig’s equity falling by c4%, but we see it as very positive for the company’s bonds, given Marfrig’s total debt at end-Q3 was a huge US$4.591bn. This, with a last 12 months to end-Q3 adjusted EBITDA of cUS$1.036bn, resulted in a leverage ratio of c4.4x – a number that has been stubbornly stable over the past two years.

    In addition to the liability management exercise, we continue to like Marfrig’s fundamentals, especially because the whole Brazilian animal protein sector is reaping the benefits of additional demand from Asia (particularly China), given the impact of African swine fever on local products. Moreover, Marfrig’s bonds are among the cheapest among its sector peers.

    We reiterate our Buy recommendation on MRFGBZ’s family of bonds.