With more cash on hand, Marfrig aims to reduce debt

After boosting its cash reserves on Monday with the R$5.68 billion it received from selling its bovine and ovine assets in South America to Minerva, food processing company Marfrig took a significant step on Wednesday in its efforts to improve its debt profile and reduce leverage.

The company announced an early partial repayment of $500 million on the senior notes (bonds) it issued in May 2019. These notes carried a 7% annual yield and were due in 2026. Originally valued at $1 billion, the debt had been partially repurchased in the open market over recent years, leaving an outstanding balance of $711 million. With this latest repayment, the remaining balance will be reduced to $211 million.

In a statement, Marfrig said the early bond repurchase is part of its strategy to optimize capital allocation, extend its debt profile, and reduce both indebtedness and financing costs. Marfrig, which owns BRF, has expressed this objective since last year when it announced its asset sale agreement with Minerva.

Including BRF in its financial results, Marfrig ended the second quarter of this year with a leverage ratio (measured as net debt to earnings before interest, taxes, depreciation, and amortization) of 3.38 times. Valor has learned that the company’s goal is to reduce this ratio to around 2.5 times in the near term.

Valor also found that Marfrig is considering the early repayment of additional debts and that efforts to improve its debt profile are expected to intensify with the recent cash inflow. The company’s priority will be its higher-cost debts, including bank loans.

In its second-quarter earnings release in August, Marfrig’s chief financial and investor relations officer, Tang David, said that reducing indebtedness would enable the company to advance its goal of expanding in the higher-margin branded and processed products segments.

The amount Marfrig received on Monday pertains to the sale of 13 bovine and ovine assets and a distribution center in Brazil, Argentina, and Chile. The transaction, announced in August 2023, also involved three plants in Uruguay, but the competition authority in the neighboring country once again rejected the deal. Uruguay’s first rejection occurred on May 21. The companies appealed, but the antitrust watchdog upheld its denial.

As of Monday, Marfrig had already received R$7.18 billion from Minerva for the asset sale. Initially, the transaction was valued at R$7.5 billion. When the contract was signed in August 2023, Minerva made an upfront payment of R$1.5 billion.

Of the amount Marfrig received from Minerva, R$5.325 billion pertains to the sale of 13 industrial plants and the distribution center in Brazil, Argentina, and Chile, while R$264.92 million accounts for adjustments tied to the CDI (Brazil’s interbank deposit rate). Minerva also paid R$90.68 million for additional contractual adjustments, which are still subject to confirmation and are expected to be finalized within the next 90 days, starting from last Monday.

Por Alda do Amaral Rocha, Globo Rural

Source: Valor International

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