Brazil's Fibria eyes consolidation after capital markets flurry

Brazil's Fibria eyes consolidation after capital markets flurry

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Fibria has prioritized consolidation in 2018 after an active year in the capital markets, company executives told journalists at an event in New York on Tuesday.

"Expansion is a possibility for all our peers in the region," company CEO Marcelo Castelli said at the 7th annual Fibria Day at the NYSE. "We prefer consolidation... We have a lot of demand that will appear and have synergies to keep growing."

The pulp and paper exporter has completed two cross-border bond transactions this year and is close to wrapping up a $700m club loan with seven banks (See separate story here).

After completing the Horizonte 2 expansion project in August, Fibria has increased capacity at its Tres Lagoas pulp production facility and as a result, expects a 60% increase in spending next year.

Fibria forecasts spending BRL3.43bn ($1bn) in 2018, more than BRL2.18bn recorded this year. Roughly BRL440m will be invested into Horizonte 2.

Increased pulp prices has also lowered the company's cost of funding this year, while strong demand from Chinese buyers has buoyed Brazil's pulp and paper sector overall.

While Fibria passed on acquiring local peer Eldorado, Castelli said the company "had the balance sheet" to pick up the paper asset from conglomerate J&F Investimentos.

"We could have bought Eldorado because of the synergies," he said. "But it was a high premium." J&F in September, agreed to sell Eldorado to Paper Excellence for BRL15bn.

In terms of M&A, Castelli said no single entity had enough capacity to acquire another one, suggesting the "consolidation game" lived with opportunities to merge.

"Consolidation brings value... But it is unpredictable," he added. However, an expansion to Tres Lagoas, dubbed Horizonte 3, is a possibility.

"We are analyzing it... We started to talk to authorities in the regional government," Castelli said. "It is a real option, seriously, but we did not decide it."

He said it would be at least six months minimum to analyze the environmental impacts of an expansion to Tres Lagoas.

"In general, all up, 37 months would be needed," he said of Horizonte 3 possibilities. "I do not see any other chance at shortening this project." Fibria notched a series of project loans to fund Horizonte 2 over two years ago.

Following its bond sale and liability management last month, Fibria expects to maintain a net debt-to-EBITDA of 2.5x by the end of this year. According to CFO Guilherme Cavalcanti, the company can increase this figure to 3.5x if Fibria studies expansion or M&A opportunities.

"The pace of deleveraging will be much faster than our peers and cash flow from Horizonte 2 make our deleveraging much faster than other projects," Cavalcanti said.

Executives said Fibria would end 2017 with a higher cash position because the Horizonte 2 expansion project cost less than expected. Its cash position and higher pulp prices leave the company with little need to access capital markets in 2018.

"We do not need access to capital markets, but we are always monitoring but it is difficult without a specific use of proceeds," Cavalcanti said.