Fixed Income Analysis /

CSN: Result of cash tender offers for 2019 and 2020 notes; reiterate Buy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    29 April 2019
    Published by

    Companhía Siderúrgica Nacional (CSN, CSNABZ) continues to successfully strengthen its balance sheet, announcing on 26 April the results of the cash tender offers for CSN Resources S.A.’s 2019 and 2020 bonds.

    The tender offers further lift to a debt burden that, just over a year ago, seemed unsurmountable. The company, through aggressive balance sheet management policy, extensions of key maturities of loans with Caixa Económica Federal and Banco do Brasil, the issuance of longer-term bonds and some asset sales, has radically improved its debt profile, liquidity and ability to take advantage of the positive business environment in Brazil and abroad.

    CSNABZ remains the top pick in our LatAm coverage universe. We continue to see value on the company’s bonds curve as we believe it will continue to improve its operations, reduce its leverage and see its spreads converge to the levels of some of its closest peers, such as Gerdau (GGBRBZ).

    CSNABZ’s most liquid bonds – its US$600mn, 7.625% senior unsecured bonds due 2026 issued by CSN Resources S.A., rated B3/NR/B- – trade at cUS$99.839 (TRACE) to yield c7.65% (g-spread 527bps, z-spread 528bps. For comparison, Gerdau’s GGBRBZ US$650mn 4.875% senior unsecured bonds due 2027 (BBB-/BBB-) trade at cUS$102.332 (TRACE) to yield c4.54% (g-spread 210bps; z-spread 211bps).

    Similarly, CSN Resources S.A.’s US$350mn, 7.625% senior unsecured bonds due 2023 (B3/NR/B-) are trading at cUS$102.109 (TRACE) to yield c6.99% (g-spread 473bps; z-spread 468bps). The Gerdau comparable, the GGBRBZ’s US$517.9mn (from an original issued US$750mn) Ba1/BBB-/BBB-, 4.75% senior unsecured bonds, trade at cUS$103.376 (TRACE) to yield c3.82% (g-spread 156bps; z-spread 151bps).

    Also, CSN Resources S.A.’s US$1.052bn (from an original issue of US$1.2bn) 6.50% bonds due 2020 (B3/B-/B-) are trading at cUS$102.206 (TRACE) to yield c4.61% (g-spread 224bps; z-spread 213bps). Gerdau’s GGBRBZ US$504.5mn (from an original issue of US$1.25bn) 5.75% senior unsecured bonds (BBB-/BBB-) trade at cUS$104.437 (TRACE) to yield c3.12% (g-spread 81bps; z-spread 70bps).

    Acknowledging the ratings difference and the operational and financial strengths that Gerdau enjoys over CSN, we still believe that the spread differential makes CSNABZ a much more attractive investment proposition; one that is repeated throughout the bond curves of both companies.

    We base this opinion on our belief that CSN’s business will continue to improve, its financial metrics will continue to strengthen and that this credit has more upside potential than that of its peers.