Fitch Ratings has affirmed Andre Maggi Participacoes S.A.'s (Amaggi) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB' and National Long-Term rating at 'AA+(bra)'.

Fitch has also affirmed Amaggi Luxembourg International S.a r.l.'s senior debt at 'BB'. The Rating Outlook is Stable.

Andre Maggi Participacoes S.A.'s ratings reflect its strong position and footprint in the Brazilian agribusiness. The classification incorporates the inherent risks of agribusiness characterized by the volatility of grains and oilseeds prices and exchange rates, farmers default, and climatic events, and the company's low operating margins of the trading business, which is the main business in terms of revenues. Amaggi's conservative risk management, large scale and business diversification partially mitigates margin volatility.

The Stable Outlook incorporates the company's manageable liquidity and the expected reduction of RMI net leverage below 3x in 2025 and going forward, after a temporary increase at around 4x in fiscal 2024 due to higher investments in logistics and lower EBITDA generation in the current harvest season.

Neutral Outlook for Agribusiness: The outlook for Brazilian agribusiness is neutral, despite the robust growth of the sector over the past years, with emphasis on grain production. Fitch expects a gradual decrease in international commodity prices in 2024, despite a resilient global demand for food for human and animal consumption, as well as a structural increase in demand for biofuels.

However, market volatility and short-term uncertainties continue to be risk factors, influenced by geopolitical tensions and by the decrease in grain production in certain areas of Brazil, caused by climatic adversities, harvest delays, and reduction of cultivated areas. Fitch assumes the price of soybeans at USD 12.50 per bushel in 2024 and USD 13.50 per bushel in 2025, and the price of corn at USD 4.30 per bushel in 2024 and USD 4.60 per bushel in 2025.

Higher Capex Limits FCF in 2024: Fitch forecasts that FCF will be constrained in 2024 due to a combination of decreased EBITDA and increased capex. The base case scenario indicates a FCF of approximately USD21 million in 2024, which is a decrease from 2023, primarily driven by an expanded capex program scheduled for 2024.

Fitch anticipates a decline in EBITDA margins to about 5% in 2024, as a result of more difficult conditions in the trading business. Nevertheless, a robust Cash Flow from Operating Activities (CFFO) of around USD400 million is expected, largely owing to reduced working capital requirements that are projected in light of an anticipated drop in commodity prices in 2024.

Additionally, capex is expected to surge to approximately USD330 million in 2024, up from USD139 million in 2023. This increase is part of strategic investments aimed at enhancing the group's logistics channels and sustaining their capacity for business growth.

Net Leverage Around 3.0x in 2025: Fitch projects that Amaggi's RMI net-adjusted leverage should reduce to around 3.0x in 2025 and going forward, after a projected increase to about 4.0x in 2024 (2.9x in 2023) due to lower profitability of the commodities division after a strong performance in 2023. For credit purposes, Fitch considers RMI-adjusted leverage when evaluating agricultural processors.

Fitch calculates RMI-adjusted leverage by first subtracting the structural inventory required to operate a downstream processing facility on a steady state basis. This inventory is generally not readily available for liquidation purposes with a going-concern entity. A 10% discount is taken for the remaining merchandisable inventory (25% of cotton) to account for potential basis risk loss. Fitch factors in an RMI of USD507 million at YE 2023 (USD498 million in 2022).

Business Diversification: The group's business diversification provides stability in cash flow generation and mitigates volatility inherent to the agribusiness industry. Amaggi has a regionally-integrated agribusiness footprint in the production, origination, and commercialization of grains from Mato Grosso state in Brazil, and approximately 81% of revenues are from exports.

The company also owns 314,000 hectares of agricultural land, of which 185,000 hectares are farmable, and leases another 53 thousand hectares of farmable land from third parties, for a total of 238 thousand hectares of land available for production. The company is self-sufficient in terms of energy and benefits from its logistic segment, which includes the management of its hydro transportation system (Hermasa) and access to other navigation routes, warehouses, and terminals through joint ventures or companies where the group has a minority interest.

Origination and Counterparty Risks: Amaggi's capacity to process large volumes thanks to its logistics, enables the group to compete with large multinational grain companies (Archer Daniels Midland Company [ADM], Cargill Incorporated [Cargill], Bunge Global S.A. [Bunge]) in the acquisition of grains in Mato Grosso State, which is the largest producer region for soy and corn.

Advances in financing to farmers are provided under strict criteria with the use of CPRs (rural credit notes) for collateral. No single producer represents more than 1.4% of Amaggi's annual origination. As Amaggi is a large agricultural producer with farmlands spread in different locations, they follow up the development of the crop over the different locations of the state.

Derivation Summary

Fitch views Amaggi's business risk profile as weak relative to its peers, Bunge Limited Global S.A. (BBB/ RWP), Cargill Incorporated (A/Stable), and Archer Daniels Midland Company (ADM) (A/Stable), due to its smaller operational scale, lower diversification, and substantial concentration in one region.

Fitch also considers the risks related to the agribusiness industry in Brazil, which includes the exposure to great supply and demand imbalances, weather patterns, trade-related wars, government policies, agricultural crop breaks, deforestation and alternative usage of the land.

Although Amaggi's consolidated profitability is satisfactory, it remains exposed to the strong competition within the industry, with the presence of important international groups operating with strong credit profiles.

The company's operations are concentrated in Mato Grosso, Brazil, which subjects the company to the Brazilian country ceiling of 'BB+'. As most revenues are derived from export markets, Fitch believes that the rating could be maintained should the Brazilian country ceiling be downgraded by no more than two notches. When combined with higher average leverage, these factors result in lower ratings than its peers (Bunge, ADM, Cargill).

Key Assumptions

Soybeans prices of USD12.50 per bushel in 2024 and USD13.50 per bushel in 2025;

Corn prices of USD4.30 per bushel in 2024 and USD4.60 per bushel in 2025;

Cotton prices of USD82 cents per pound in 2024 and USD88 cents per pound in 2025;

Total investments of USD329 million in 2024 and USD213 million in 2025.

Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Improved scale and geographical diversification;

RMI-adjusted net leverage (RMI adjusted total net debt to operating EBITDA) below 2.5x range on a sustained basis;

Liquidity ratio (cash and marketable securities+RMI+account receivables/Total short-term liability) above 1x on a sustainable basis;

Secured debt/EBITDA below 1x.

Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Loss of business diversification;

RMI-adjusted net leverage (RMI adjusted total net debt to operating EBITDA) sustained above 3.5x range on a sustainable basis;

Liquidity ratio (cash and marketable securities+RMI+account receivables/Total short liabilities) below 0.8x at year-end;

Secured debt/Ebitda above 2.5x;

A multi-notch downgrade of Brazil country ceiling and inability to cover hard currency interest expenses by offshore cash and exports

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Liquidity and Debt Structure

Adequate Liquidity: The diversified sources of external liquidity used for short-term working capital financing - combined with cash, short-term marketable securities and high levels of liquid RMI - provide Amaggi with adequate financial flexibility. As of March 31, 2024, Amaggi reported consolidated cash and marketable securities of USD1.1 billion, covering 1.8x times (x) the USD633 million of short-term debt. The company also has access to several uncommitted bank lines and maintains a minimum cash policy of USD400million.The company's liquidity ratio based on total current liabilities was 0.9x as of March 31, 2024.

Issuer Profile

Amaggi is among the largest soft commodities traders and agricultural producers in Brazil originating around 17 million tons of grains and producing in around 372,000 hectares of farmland in 2023. The group operates in an integrated and synergistic way throughout the agribusiness chain: agricultural production, river and road transport, port operations, origination, processing and commercialization of grains and inputs, generation and commercialization of electricity.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4' for Waste & Hazardous Materials Management; Ecological Impacts related to land use, as a large part of the volume of grains coming from the commodities business come from Amazon and Cerrado Biomes that are exposed to deforestation, which has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors.

Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4' for Group Structure due to lack of board independence as the company is privately-controlled, which has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors.

Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4' for Governance Structure due to the existence of related parties transaction, which has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

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