CSN bonds jump on news of IPO for mining unit

CSN's bond prices surged last week following news that the Brazilian steelmaker had mandated banks for an initial public offering for its mining unit.

The company's 6.75% 2028, which was issued in January, rallied about 4.75 points on the news to a high last week of 97.50, only to slip back to 95.75 on Thursday, according to MarketAxess data.

The company has hired Bank of America, XP Investimentos, BTG Pactual and Morgan Stanley to help its mining division go public and raise R$10bn (US$1.8bn), according to newspaper Valor Economico.

CSN, a steel producer that also sources iron ore, has seen its bonds buoyed in recent weeks as the price of the commodity has reached new heights this month.

"If the IPO is concluded and a portion of the proceeds is used for deleveraging, we would see it as credit positive, as it may aid the company in reaching its stated net leverage target of below 4x by financial year end 2020," wrote Sebastian Hofmeister, an analyst at research firm Lucror Analytics.

The company has carried out liability management transactions to address short-term maturities and improve liquidity, including the issuance of the 2028, whose proceeds were used for a debt tender.

However, strain on the company's steel business in Brazil and depreciation of the Real had been expected to slow the deleveraging process, keeping adjusted leverage near 5.5x, according to a Moody's report which was released in June.