Moody’s Chops Brazil Sugar Giant

Moody’s has downgraded Cosan’s global credit rating to Ba3 from Ba2 with a negative outlook. The Brazilian sugar and ethanol producer had been under review since an April announcement that it was to acquire ExxonMobil’s Esso Brazilian distribution assets. “The rating action reflects Cosan’s higher leverage, weaker operating margins and negative free cash flow, which resulted from a combination of adverse market conditions over the past quarters and the expected use of liquidity for the Esso acquisition, together with an ambitious capital expenditure program for the next few years,” the agency says. It sees poor cashflow during the next two years owed to high leverage and an ambitious growth strategy, on top of possible difficulties integrating the Esso assets. While Cosan’s capex plans and successful integration of the Esso purchase could improve the credit profile in the long-term, Moody’s finds it should be dependant on external debt or equity financing in the near to medium-term. Cosan announced Monday plans for a BRL880m share sale to existing investors and up to $800m in credit facilities to help fund expansion and the Esso transaction.