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Indebtedness and Financial Investiments

Indebtedness and Financial Investments

Gross debt as at June 30 was R$ 30,673 million, a R$ 3,077 million increase in relation to the end of 1Q20, explained mainly by funding earmarked to the Puma II Project and drawn down during the quarter, by the FX translation effect on currency loans and also the marking to market of interest rate swaps, the latter two both with a non-cash effect. Of the Company’s total debt, R$ 24,920 million, or 81% (US$ 4,547 million) is US dollar denominated, considering company financing with Real x US Dollar swaps

During the period, there was stability in total average loan maturities at 113 months at the end of 1Q20 compared with 114 months at the end of 2Q20, 70 months for domestic loans and 123 for currency loans. A mix of liability management and macroeconomic conditions were responsible for marginally reducing average loan costs from 5.1% p.y. in 1Q20 to 4.6% p.y. in currency denominated loans. With regard to debts in Reais, financial cost fell from 5.3% p.y. in 1Q20 to 3.6% p.y. in the current quarter, mainly explained by the maturity and conversion of the 1st series of the 7th  debenture issue into shares, which had a financial cost of IPCA + 7.25%, and from now on excluded from the Company’s debt. Additionally, declines in interest rates and inflation in Brazil have contributed to the reduction of Klabin’s cost of debt in Reais.

The Company’s position in cash and cash equivalents at the end of the quarter amounted to R$ 9,868 million, R$ 2,653 million more than at the end of the 1Q20 – due largely to the drawdown of financing earmarked to the Puma II Project plus cash generation in the period. This cash position is sufficient to support 65 months of debt amortization. Additionally, Klabin has a US$500 million revolving credit facility (equivalent to R$2,738 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 also  has agreed financing linked to the execution of the Puma II Project, partially drawndown as follows: (i) IBD Invest, IFC and JICA, US$ 700 million; (ii) Finnvera, US$ 178 million; (iii) BNDES with R$ 2 billion. Financing is to be drawn down according to the construction schedule of the Puma II Project and/or in accordance with company cash requirements.

Consolidated net debt as at June 30, 2020 amounted to R$ 20,805 million, R$ 424 million more than compared with March 31, 2020, largely reflecting the effect of the negative variation in FX rates on currency loans. This non-cash impact was partially offset by cash generation. Despite the Company’s increase in net debt, financial leverage, measured by the Net Debt/Adjusted EBITDA in Brazilian Reais, decreased from 4.7x to 4.4x on the back of the increase in Adjusted EBITDA in comparison to the previous 12 months. . The Net Debt/EBITDA ratio in US dollars – which better reflects Klabin’s financial leverage, also saw a reduction ending the quarter at 3.6 x from 3.7x in the previous quarter.

Worthy of mention is the Board of Directors’ approval of the Financial Indebtedness policy. This is one more step towards fine tuning Klabin’s corporate governance, establishing metrics and parameters to be adopted by the Company’s management. The policy is available and can be consulted by accessing Klabin’s IR website, as well as those of B3 and the CVM.

Rating

AGENCY RATING OUTLOOK LATEST UPDATE
Standard & Poor’s BB+ Stable Dec-19
Fitch Ratings BB+ Stable Jun-20
Last updated on August 5, 2020.
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