Gerdau Raises $1.25B Internationally – Analyst Blog

Brazilian steel producer Gerdau S.A. (GGB) through its wholly-owned subsidiary, Gerdau Trade Inc., issued around 5.75% 10-year bonds in international capital markets for a principal amount of US$1.25 billion. The bonds will mature on January 30, 2021.

 

Interest will be paid semi-annually on January 30 and July 30, starting 2011. The bonds are guaranteed by Gerdau S.A., Gerdau Açominas S.A., Gerdau Aços Longos S.A., Gerdau Aços Especiais S.A., and Gerdau Comercial de Aços S.A.

 

The company intends to use the funds raised to improve its debt profile and for general purposes. Geographically, roughly 50% of the issuance was done in North America, 30% in Europe, 15% in Latin America, and 5% in Asia. Buyers were essentially fund managers, private banks, insurance companies and pension funds.

 

Earlier in August 2010, the company redeemed all of its 8.875% perpetual bonds totaling US$600 million plus interests. Exiting its second quarter of 2010, the company’s long-term debt escalated to R$12,794.7 million (US$7,108.2 million) from R$12,653.7 million (US$6,952.6 million) in the first quarter of 2010.

 

Gerdau S.A. is the second largest steel producer in the world and the largest in the Americas. We believe the company is in an advantageous position to leverage from the growing world steel market, with the Brazilian market strengthening from strong demand from the manufacturing and construction industry. Moreover, the company’s continuous investment in mineral resources is an encouraging attribute.

 

However, the after-effects of the international economic slowdown along with the competitive environment create a challenging business environment for steel producing companies. Further, competition in the steel industry also poses a serious threat. Gerdau faces stiff competition from its peers like Companhia Siderurgica Nacional (SID) and the privately-held ArcelorMittal Brasil S.A.