Cosan S.A. (NYSE:CSAN) received a negative outlook from Fitch Ratings due to ongoing high leverage. On December 16, 2023, Fitch maintained the Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ‘BB’ but revised the outlook from stable to negative. The agency reaffirmed the company’s unsecured debentures at ‘AAA(bra)’ and the National Scale Rating at ‘AAA(bra).’
Fitch attributed the downgrade to Cosan’s significant financial leverage and its reliance on asset sales for liquidity. The agency highlighted the company’s recent BRL 10.5 billion follow-on offering as a step toward alleviating financial pressure. This move aligns with Cosan’s strategy to divest assets and reduce debt over the next three years.
Despite these challenges, there are positive indicators for Cosan’s future. Fitch expects the company’s cash flow to improve modestly as debt levels decline and interest rates decrease. The agency projects an average annual dividend of BRL 2.3 billion, primarily from subsidiaries such as Compass and Rumo.
In a contrasting view, HSBC raised its rating for Cosan to Hold from Reduce on December 5, 2023, maintaining a price target of $5. The upgrade reflects the favorable outcomes of the company’s recent equity offering, which has facilitated enhancements in its executive leadership and board structure. This change is anticipated to strengthen governance practices, attracting new partners to the company.
Cosan S.A., founded in 1936, is a Brazilian firm specializing in fuel distribution. The company operates through several segments, including Raízen, Compass, Moove, Rumo, and Radar. While Cosan exhibits potential for future growth, some investors believe that alternative stocks, particularly in artificial intelligence, may offer better returns with reduced risks.
As the financial landscape evolves, investors are advised to consider both the risks and opportunities associated with Cosan S.A. and similar stocks.
