Companhia Siderurgica Nacional (CSN) announced today that its subsidiary SPV CSN Resources, S.A., is tapping US$750mn, senior unsecured notes due 2023, that carry a 7.625% coupon, rated B2/NR/B. The initial price talk (IPT) is a yield-to-maturity in the 5.875% area, implying a price of US$105.60, lower than where we currently see the outstanding bonds trading ie, at cUS$106.486 (ALLQ) to yield c5.61% (g-spread 387bps; z-spread 384bps).
We believe that this tap discount will help the company place new bonds successfully and will continue to reduce its cost of capital, as has been the case for CSN over the past two years.
CSN has been our top pick in LatAm since 2018. Even at current levels, we believe the bonds still have some upside left, particularly if CSN continues to sell more assets and pay down debt – factors that will be rewarded by the market in the form of higher bond prices, lower yields, and possible ratings upgrades. The company has been improving consistently from just a year ago when the focus was on CSN’s survival, given its sizable debt burden.
We reiterate our Buy recommendation on the CSN bonds and expect the latest transaction to price favourably.