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Indebtedness and Financial Investiments

Indebtedness and Financial Investments

Gross debt as of September 30, 2020 was R$ 28,893 million, a reduction of R$ 1,780 million in relation to the end of 2Q20. This largely reflects the voluntary pre-payment of a tranche of a syndicated loan in the amount of US$ 450 million, partly attenuated by the increase in the exchange translation effect on the Company’s currency denominated debt and the marking-to-market of interest rate swap instruments, both without a cash effect. Out of the Company’s total debt, including financial operations with associated Real x US$ swaps, R$ 23,169 million, or 80% (US$ 4,108 million), are US$ denominated.

Due to the aforesaid prepayment where maturity was less than the average term for the Company’s current debt, there was a slight increase in average maturities of loans and financing. These stood at the end of 2Q20 at 114 months but at the end of 3Q20, closing with an average term of 117 months – 68 months for loans and financing in domestic currency and 128 months in currency operations. Klabin’s average cost of financing in currency denominated transactions, the Company’s main source of credit, remained stable during the quarter, being 4.6% p.y. at the end of the previous quarter and ending 3Q20 at 4.7% p.y. plus exchange variation in the period. In respect of local currency debt, there was an increase in financial cost from 3.6% p.y. in 2Q20 to 4.1% p.y. in the current quarter, this largely reflecting the hike in the IPCA price index for the period.

The Company’s cash and cash equivalents position at the end of the quarter amounted to R$ 7,840 million, a reduction of R$ 2,028 million in relation to the end of 2Q20. The explanation for this reduction largely reflects the prepayment of debt in the quarter, partially compensated by strong cash generation in the period. Cash in hand is enough to support the amortization of 65 months of debt. Additionally, Klabin has a US$500 million Revolving Credit Facility (equivalent to R$2,820 million), maturing in December 2023 and with a financial cost of 0.4% p.y.. In the event of drawings against this facility, the cost of financing would be Libor + 1.35% p.y..

Klabin has also contracted and partially drawn, financing linked to the execution of the Puma II Project with the  following amounts in balances still available: (i) IBD Invest, IFC and JICA, US$ 700 million; (ii) Finnvera, US$ 178 million; and (iii) BNDES with R$ 2 billion. Financing is to be drawn down according to the construction schedule of the Puma II Project and/or as and when the Company requires cash injections.

Consolidated net debt as of September 30, 2020 amounted to R$ 21,053 million, R$ 248 million more compared with the end of 2Q20, largely reflecting the effect of the negative variation in FX rates on US$ currency denominated loans. While having no cash effect, this impact was partially offset by cash generation in the period. With the increase in net debt, the Company’s financial leverage – best measured by the Net Debt to Adjusted ratio in US$s – increased from 3.6 to 4.0 times. This increase is explained largely by the non-recurring positive impact of R$ 620 million on EBITDA in 3Q19 and included in the EBITDA calculation in the 12 months to 2Q20, but no longer a consideration from 3Q20 thereafter.

Worthy of mention is that leverage continues within the parameters enshrined in the Company’s Financial Debt Policy and that its approval was one more step taken in the fine tuning of Klabin’s corporate governance, establishing the metrics and parameters to be adopted in the Company’s financial management. Both policies are in the public domain and can be accessed from Klabin’s IR website as well as the websites of B3 and CVM.

Rating

AGENCY RATING OUTLOOK LATEST UPDATE
Standard & Poor’s BB+ Stable Dec-19
Fitch Ratings BB+ Stable Jun-20
Last updated on November 25, 2020.
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