Gerdau, Latin America’s largest steelmaker, has lost its investment grade from credit rating agency Moody’s, as perspectives for the Brazilian steel industry are not expected to improve this year.
Moody’s downgraded the ratings of the foreign currency debt issues of Gerdau from Baa3 to Ba3. The steelmaker’s outlook remains negative, it said.
“The downgrade reflects the severity of the global steel industry downturn, the continued weakness of the steel industry in Brazil, a key market for Gerdau, and our expectations that the company's credit metrics, particularly margins, leverage and interest coverage will remain pressured in the next 12-18 months,” the credit rating agency explained.
Moody’s said Gerdau’s credit metrics need to be “stronger” than in a more normal cycle.
As prospects doesn’t to improve in the short term, “at this point, we have little visibility as to how long it will take for the steel industry to improve in Gerdau's main markets (Brazil and the US) and for the company's credit metrics to recover,” it noted.
Gerdau largely relies in Brazil, as about 32 percent of its revenue comes from the Brazilian domestic market. The weakening of the country's macroeconomic fundamentals will continue to materially impact the company's operating and financial performance at least throughout 2016, the agency added.