Fitch Publishes Brazilian Sugar and Ethanol Peer Study

SAO PAULO--(BUSINESS WIRE)-- Fitch Ratings has published its Brazilian Sugar and Ethanol (S&E) Peer Study. The report explores the various factors used to determine the relative credit quality of companies in the sector and explains the reasons for differences in the ratings of key players.

Most Brazilian companies have above-average exposure to systemic risk, due to their dependence on working capital credit lines and limited financial flexibility. With a few exceptions, most issuers are rated in the 'B' category.

A comfortable cash position and access to financing are key, as systemic risk in Brazil's S&E sector has increased following the default and financial struggles of important players in the industry. Fitch expects the Brazilian S&E industry to remain under pressure in 2015. Most companies are likely to face a stressed scenario for sugar and ethanol prices, even with the improvements in the ethanol industry in 2015 compared to 2014 and the benefits of the weaker BRL for the competitiveness of Brazilian sugar abroad. The increase in crushed volumes and generation of more robust operational cash flow in the new season ending March 2016 will depend largely on the maintenance of favorable weather conditions and international sugar prices trends as seen in early 2015.

While liquidity is the key determining factor for the companies' ratings, the report discusses other financial and operational factors that help to differentiate companies. Good agricultural yields, high industrial efficiency and economies of scale correlate positively to CFFO generation, and largely depend on asset quality, geographical location of plants, ability to switch production across products, product diversification, and sugar cane origination mix. The companies' capacity to keep cash costs tightly controlled is equally important, as producers are price-takers in this market.

This report is available at www.fitchratings.com or by clicking the link above.

Additional information is available on www.fitchratings.com.

Applicable Criteria and Related Research: Brazilian Sugar and Ethanol Peer Study (Consistent CFFO and Liquidity Matter Most)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863295

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Fitch Ratings
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]
or
Primary Analyst
Claudio Miori, +55-11-4504-2207
Associate Director
Fitch Ratings Brasil Ltda
Alameda Santos, 700 - 7 andar, Sao Paulo, sp CEP 01418-100
or
Secondary Analyst
Alexandre Garcia, +55-11-4504-2616
Associate Director

Source: Fitch Ratings

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