March 31, 2009

Brazil's Sadia sees no problems rolling over debt

Brazilian food company Sadia SA (SDA) will have no problems extending over a billion reals in debt coming due around September, the company's chief executive said Monday (March 30).


"We already managed to extend the life on the loans due in the first quarter and we will have no difficulties doing the same with the loans that mature in the third quarter," Gilberto Tomazoni, Sadia's CEO, said in an interview after a meeting with equity analysts in Sao Paulo.


The company renewed 1.42 billion Brazilian reals (US$612 million) in debt due this quarter with local banks. It has a massive BRL1.95 billion in loans maturing in the third quarter ending in September. Ninety percent of that debt is with local banks that have been working with Sadia for decades, Tomazoni said.


The company has a total net debt of BRL6.7 billion, of which BRL2.61 billion is short term, under new accounting rules.


Sadia's troubles began in September 2008, when two officials in the financial department made risky, leveraged bets against the dollar. Sadia was essentially shorting the US dollar since mid-2007 and was benefiting from its positions in the futures market until the dollar abruptly changed course with the failures of Bear Stearns Cos. and Lehman Brothers Holdings Inc. (LEHMQ). In July, the dollar was trading as low as BRL1.56. In October, it strengthened to BRL2.45 and is currently trading at BRL2.33 to the real.


The company's net debt over earnings before interest, taxes, depreciation and amortization is 5.8 times, its worst level ever.


As a result, Sadia reported a year-ending loss in 2008, a first in the company's 65 years in business. The company reported a net loss of BRL2.48 billion last year, reversing a net profit of BRL768 million in 2007.


Late Friday, Sadia also reported a fourth-quarter loss of BRL2.04 billion, reversing a net profit of BRL374 million in the year-ago period.


Sadia Chairman Luiz Fernando Furlan said the toxic dollar positions have been nearly 100% liquidated and added that the resulting BRL770 million in losses have not stripped the company of its market leader status in some segments.


According to A.C. Nielsen surveys, Sadia was the market leader in frozen foods in December and January, and a market leader in processed meats in November and December.


Interest in Sadia's shares, listed on both the Bovespa Stock Exchange and as American depositary receipts in New York, doubled since January 2008, Furlan said, from around 17,100 shareholders to 32,500 shareholders in February 2009.


Sadia is one of Brazil's biggest household brands and the sixth largest exporter in Brazil.


News of a possible merger with rival Perdigao SA (PDA) has managed to help Sadia shares outperform the Ibovespa stock index on the Bovespa.


Sadia shares are up over 8 percent since the start of the month, while Ibovespa is up 6.7 percent. Sadia shares were up 3.32 percent on Monday at BRL3.11, while the Ibovespa was down nearly 3 percent in the mid-afternoon trading session.


Sadia's shares in New York have lost over 77 percent of their value since Sept. 12, 2008, when it became apparent the company had over-extended itself on dollar futures contracts.