EM LATAM CREDIT: Minerva: 50% U.S. Tariff Impact - Negative

(BEEFBZ; NR/BB/BB)

"Minerva S.A., the South American leader in beef
exports, hereby informs its shareholders and the market in general about the potential effects of the new U.S. tariff policy on exports of Brazilian products" - Minerva Notice to the Market

The company declared that consolidated exposure to the U.S. market accounted for approximately 16% of revenue based on the past 12 months results.

Potentially under-appreciated by investors is the company's exposure to the U.S. since in addition to exporting from Brazil (30% of U.S. exports) it also exports indirectly to the country through Argentina, Paraguay, Uruguay and Australia.

Bloomberg does not list the U.S. as a geographic segment and the results presentations do not show the US directly but as a footnote that it is part of "NAFTA" sales.

Minerva said that the reason it exports this way is to maintain flexibility in cases like this situation which implies to us that the company will be able to re-direct some supply elsewhere if it becomes economically necessary.

We don't think this news is significant as it is less likely that Brazil tariffs remain at 50% and the company can adapt, but still this may have a small negative impact overall.

A few weeks ago Minerva completed a BRL2bn capital increase and existing large shareholder (about 30%) SALIC (Saudi Agriculture and Livestock Investment Company) participated.

We expect that capital increase when applied to debt reduction would take leverage down from 3.7x to 3.2x that will bring it closer to the 2.8x from 1Q 2024 with planned free cash flow over time supporting the de-leveraging trend. Please see our 1Q 2025 earnings post for more information:
https://mni.marketnews.com/4nKpgtb

Another event to watch for is how regulators will deal with a potential conflict of interest in the Marfrig-BRF merger as SALIC is a major shareholder in both companies so Minerva has filed an appeal.

BEEFBZ 33s were last quoted T+302bp, 62bp tighter since March 31st and 49bp tighter YTD. Bonds widened after the tariff announcement 9bp but then were quoted 6bp tighter today.