Minerva Seeks to Cut Debt After Major Acquisition Amidst…

Minerva, South America’s largest beef exporter, aims to reduce debt after a significant acquisition despite facing operational challenges. Analysts express concerns regarding debt levels, management efficiency, and market conditions. The company reported a notable loss in Q4 amid increased borrowings and potential regulatory challenges, although shares saw a rise.

On Thursday, executives from Minerva, South America’s leading beef exporter, announced their commitment to generating sufficient cash flow to reduce debt following a significant acquisition. The company recently agreed to purchase certain assets from competitor Marfrig for approximately 7.5 billion reais, equaling $1.33 billion.

Concerns have arisen among analysts regarding Minerva’s increased debt levels due to this acquisition. They question the management’s capability to operate the newly acquired plants efficiently and the company’s ability to generate adequate free cash flow to cover rising debt expenses.

Moreover, delays in regulatory approvals for the acquisition and an unfavorable Brazilian cattle cycle have created potential challenges for Minerva in the short term, according to analysts. Additionally, the company reported a substantial loss of 1.57 billion reais ($277.32 million) in the fourth quarter—the first quarter of operation of the new plants.

Despite these difficulties, Minerva’s shares rose 7.3% in early trading. By the end of the fourth quarter, the company’s net debt reached 15.6 billion reais, marking a 75.9% increase from the prior year due to borrowings for the Marfrig assets. Analysts Igor Guedes and Luca Vello from Genial Investimentos indicated that a negative foreign exchange effect added nearly 2 billion reais to the gross debt, raising concerns about potential breaches of debt covenants that could limit Minerva’s ability to pay dividends or incur additional debt.

Before the report of fourth-quarter results, XP analyst Lucas Alencar suggested that investors should await a capital structure optimization plan from the company before making any stock decisions.

Minerva is poised to address its substantial debt levels through focused cash generation following a major acquisition, despite facing operational and regulatory challenges. The company’s recent financial struggles and increasing debt raise significant questions about its future ability to navigate market conditions and meet debt obligations. Stakeholders remain cautious while awaiting clarity on the company’s strategic optimization plan.

Original Source: www.marketscreener.com