By Ana Mano
SAO PAULO (Reuters) – Executives at Minerva, South America’s largest beef exporter, said on Thursday the company will be able to generate enough cash to reduce debt this year and in the next after paying for a large acquisition.
Analysts have worried about the company’s debt levels after Minerva announced an agreement to pay around 7.5 billion reais ($1.33 billion) for certain assets of competitor Marfrig.
On the operational side, analysts have also expressed concern about management’s ability to use the new acquired plants efficiently, and whether Minerva can generate enough free cash to pay for higher debt expenses going forward.
Given regulatory approvals for the acquisition took longer than the company had expected, and considering the Brazilian cattle cycle is not as favorable as when the acquisition was announced in August 2023, Minerva may face headwinds in the short term, analysts said.
Minerva lost 1.57 billion reais ($277.32 million) in the fourth quarter, the first in which it was able to operate the new plants.
Shares rose 7.3% in early trading in spite of the challenging environment.
Minerva’s net debt ended the fourth quarter at 15.6 billion reais, up 75.9% from the same year-ago quarter as it to had increase borrowings to pay for Marfrig’s assets, Igor Guedes and Luca Vello, analysts at Genial Investimentos, wrote in a note to clients.
An unfavorable forex effect added almost 2 billion reais to the company’s gross debt in that quarter, they wrote, adding higher borrowings could translate into a potential breach of debt covenants. This would technically prevent Minerva from paying dividends, issuing new debt and would require it to do “a capital call”.
Before fourth-quarter results, XP analyst Lucas Alencar had said investors “should wait for the company’s capital structure optimization plan before any stock positioning.”
($1 = 5.6552 reais)
(Reporting by Ana Mano, Editing by Louise Heavens and David Evans)
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