Shareholders to vore Suzano-Fibria deal this week

By Latin Finance

The merger creates a company with combined exports of $4.4b

Fibria and Suzano shareholders meet this week to vote on the merger of the pulp companies, set to create a global giant.

Many international jurisdictions have already given the green light to the deal, including China.

The shareholder meetings almost had to be postponed due to complaints sent to the securities commission, CVM, but the authorities found no issue to stop the vote.

Last Thursday the company opted not to issue cross-border bonds despite gaining significant investor interest throughout a roadshow that concluded on Wednesday.

The pulp and paper exporter told investors it would review market conditions again next week ahead of a potential $2bn, two-part transaction, sources told LatinFinance.

“[Suzano] did not like the last two trading sessions and since going on the road their existing bonds have widened a touch,” one syndicate banker in New York said.

On Monday morning, two DCM bankers said the company may even hold off from a new issue this week.

Investors remain selective with their commitments given the wider market volatility, and have since upped their asking price for new issue concessions, a bond buyer from New York said last week.

“Emerging market volatility is still all over the place,” he said in reference to Argentina and Turkey’s currency woes. “I do not think today would have worked for [Suzano] to issue.”

Suzano is understood to have sought 20bp to 25bp less for a potential two-part trade, according to the investor, but some on the buyside deemed this generous.

“It is tough right now to bite on a new issue concession, there are some opportunities, but not likely until the market calms a bit more,” he added.

Ba1/BBB-/BBB- rated Suzano is exactly the type of credit that both the buy- and sell-side are looking for to reopen the LatAm new issue space, which has not seen a cross-border bond since the Dominican Republic and Brazilian power company Cemig issued debt in July.

“If anyone can get a deal done, it is these guys,” a DCM banker familiar with the transaction said of Suzano’s chances to issue debt. “But even though they can get it done, it will be expensive, especially for the 30-year paper.”

The exporter, with dollar-denominated revenues, is one of few in Brazil that benefits from a weaker real, while its leverage is predicted to drop to 2.3x by 2020 because of cash flow from operations, according to Fitch Ratings.

Contagion effect

The company’s 2026s have fluctuated alongside the overall volatility throughout emerging markets. Bankers spotted the bond at 280bp over Treasuries in June, before tightening to 225bp at the end of July.

This same bond was as tight as 180bp back in January while earlier last week the paper was spotted at 294bp in secondary trading.

Suzano’s 7% 2047s were around 102 points in secondaries, up a point throughout last Thursday trading.

“No question, they will have to pay up to get this done,” the DCM banker added. “Question now is do you wait for more positive conditions or just bite the bullet and issue? Then you have the elections around the corner.”

Two weeks ago, Suzano mandated BNP Paribas, JPMorgan, Mizuho and Rabo Securities as global coordinators, while Bank of America Merrill Lynch was named an active bookrunner for a 2030 and/or 2049 bond, DCM sources confirmed.

The following investment banks were named passive bookrunners;
– BB Securities
– Bradesco
– BTG Pactual
– Itaú BBA
– MUFG
– Natixis
– Scotiabank and
– SMBC Nikko

Proceeds will aid the company’s acquisition of peer Fibria, an agreement that was endorsed by Brazil’s securities exchange commission CVM on Wednesday.

In March, Suzano agreed to a roughly $10.7bn cash and stock offer for Fibria, and the company has been expected to tap bond investors for a portion of that funding.

Since the announcement with Fibria, Suzano has obtained a two-tranche syndicated loan, been upgraded, tapped the local currency bond market and lowered acquisition financing needs with an export credit note.