Fitch Ratings has affirmed
Fitch has also affirmed Amaggi Luxembourg International S.a r.l.'s senior debt at 'BB'. The Rating Outlook is Stable.
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
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
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
Additionally, capex is expected to surge to approximately
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
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
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 (
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,
Fitch also considers the risks related to the agribusiness industry in
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
Key Assumptions
Soybeans prices of
Corn prices of
Cotton prices of
Total investments of
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
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 '
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
Issuer Profile
Amaggi is among the largest soft commodities traders and agricultural producers in
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
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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