Minerva, South America’s largest beef exporter, plans to reduce debt following a 7.5 billion reais acquisition of Marfrig’s assets. Despite reporting a significant quarterly loss, the company is focused on generating cash flow for debt management. Analysts express concerns over operational efficiency and external market factors that could impact its financial strategy.
Executives from Minerva, South America’s largest beef exporter, announced plans to reduce debt following a significant acquisition. The company has committed to generating sufficient cash flow to decrease its debt in 2023 and beyond, even after agreeing to pay approximately 7.5 billion reais ($1.33 billion) for assets from competitor Marfrig.
Concerns have arisen regarding Minerva’s elevated debt levels and its management’s ability to efficiently operate the newly acquired plants. Analysts are particularly worried about whether Minerva can produce enough free cash flow to handle increased debt expenses in the future. Additionally, the delayed regulatory approvals for the acquisition and unfavorable conditions in Brazil’s cattle market may pose challenges in the short term.
In the fourth quarter, Minerva reported a loss of 1.57 billion reais ($277.32 million), marking the first period in which it operated the new facilities. Despite these difficulties, the company’s shares increased by 7.3% during early trading. As of the fourth quarter, Minerva’s net debt stood at 15.6 billion reais, reflecting a 75.9% increase from the previous year, necessitating substantial borrowings for the Marfrig deal.
The company’s financial challenges were further complicated by an unfavorable foreign exchange effect, which added nearly 2 billion reais to their gross debt. Analysts warn that ongoing borrowings might breach debt covenants, affecting Minerva’s ability to pay dividends or take on new debt, while also possibly requiring a capital call. XP analyst Lucas Alencar advised investors to await clarity regarding the company’s capital structure optimization plan before making any investment decisions.
In summary, Minerva faces considerable financial challenges after acquiring Marfrig’s assets, with rising debt levels and operational concerns regarding efficiency. The company is committed to generating cash flow to alleviate its debt, but external factors such as market conditions and regulatory delays may hinder progress. Investors are advised to monitor the company’s plans for capital structure optimization.
Original Source: www.tradingview.com
