Initiating Coverage on CSN: Overweight on Risk-Reward

The spread over the LatAm BB Index presents a tactical opportunity across the curve, supported by CSN’s deleveraging efforts, diversified operations, strong liquidity, and an improving macro backdrop.

Key Insights and Recommendations

We are initiating coverage on CSN with an Overweight recommendation, highlighting the CSN 6.750% 2028 and 4.625% 2031 bonds as attractive across the curve, given their elevated yields of 8.8% and 9.2%, respectively, and their significant spread over the EM BB and LatAm BB curves.

CSN benefits from a vertically integrated and diversified business model across steel, mining, cement, energy, and logistics, which provides cost advantages, revenue stability, and operational synergies. Its strong domestic position in steel and cement is supported by scale, brand recognition, and efficient logistics. While exports contribute about 42% of revenue and offer FX diversification, CSN remains heavily exposed to Brazil’s macroeconomic, fiscal, and regulatory risks. The pending tax reform (Constitutional Amendment 132) could alter its cost structure, adding uncertainty to its domestic outlook. The credit story is constrained by high leverage and a significant interest burden. CSN is also exposed to commodity cycles, particularly fluctuations in iron ore and steel prices, a disruptive increase in Chinese exports, and a capital-intensive growth plan that limits financial flexibility. These pressures are somewhat mitigated by CSN’s strong liquidity position, which could be further supported by asset sales and, if necessary, a degree of flexibility to defer growth capital expenditures.