Marfrig Alimentos SA plans to raise up to 1.49 billion reais ($733 million) in a stock offering to bolster its capital base, as investors question the second-largest Brazilian food processor's ability to lower its debt.
Marfrig has struggled to cut debt after snapping up a dozen smaller rivals to better compete with BRF Brasil Foods SA , the world's largest poultry exporter, and other rivals in Brazil's fast-growing processed food market such as JBS SA and Minerva SA.
The São Paulo-based company announced a preliminary plan to sell new shares in a 1.1 billion reais primary offering in which MMS Participações, Marfrig's largest shareholder, and the investment arm of state development bank BNDES will be likely buyers, according to a regulatory filing on Wednesday. The BNDES already holds a 13.9 percent stake in Marfrig.
If additional and supplementary lots are fully subscribed, the company could raise an additional 390 million reais, according to the filing.
Shares of Marfrig fell as much as 6 percent earlier on Wednesday. Marfrig lost a combined 16 percent since Monday, the stock's steepest three-day decline since October, 2011, over the potential share sale, traders said.
The offering follows days after rival Minerva and its controlling shareholder agreed to offer stock in a similar transaction aimed at raising a minimum 442.1 million reais.
This month, the securities regulator CVM asked that Marfrig list 2.5 billion reais of convertible debt, which is held by the BNDES, as a liability on its balance sheet rather than equity.
The move would boost Marfrig's debt to roughly 10.5 billion reais, or the equivalent of 4.8 times earnings before interest, tax, depreciation and amortization over the past 12 months, from 3.7 percent at the end of June.
NOT AT JEOPARDY
"The switch will not put the company's debt covenant in jeopardy and the ratings agencies had already counted the debentures as debt," said a New York-based corporate credit analyst. He declined to be quoted because he is not allowed to speak to the press.
"This (offer) will keep lights on but investors still wonder what the company will do to get debt down," the analyst added.
Marfrig, like most of the animal proteins sector, is struggling with high feed prices in its pork and poultry divisions after the drought in the United States and South America sent prices for corn and soy sky-rocketing.
Earlier this year, the company sold some Europe- and U.S.-based assets to Martin-Brower Co. for about $400 million. But analysts said it was having trouble unloading other assets that were not performing well because of the lack of buyers.
Earlier on Wednesday, Marfrig posted net income of 10.4 million reais in the third quarter, reversing its 540 million reais loss from a year earlier, according to a separate filing...
Source: Argentine Beef Packers S.A.
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