Rumo S.A.

The stable outlook on Rumo reflects that its intrinsic credit quality (or stand-alone credit quality [SACP]), which we assess as 'bb-', will remain fairly healthy despite the considerable investment plan, with debt to EBITDA and funds from operations (FFO) to debt of about 2.5x and above 25%, respectively, in 2020. A downgrade of Rumo is unlikely, because even if the SACP were to deteriorate, we're very likely to keep ratings unchanged, due to the group support coming from Cosan Ltd. (BB-/Stable/--). The two scenarios that could trigger a downgrade of Rumo are a sovereign downgrade, which would prompt us to lower rating on Cosan and Rumo, or a weakening of Rumo's SACP by more than three notches, assuming no changes

...'Norte-Sul' railroad network's expansion. In March 2019, Rumo S.A. won the bid the concession to construct and operate Norte-Sul network. The network will consist of railroads between Porto Nacional (TO) - Anßpolis (GO) and Ouro Verde (GO) - Estrela D'Oeste (SP), both in the midwestern region of Brazil, an area that produces mostly grains and other agricultural products. Such an expansion of Rumo's railways network would demand R$15 billion between 2019 and 2023, and we expect revenue tonne kilometer (RTK) to grow 5 million - 6 million in 2021 (roughly 10% of current volumes), in line with our projections. Operating efficiency marginally improving in 2019 and 2020. We expect Rumo's operations and EBITDA margins to continue expanding in the next two years. Capacity additions and the integration of the acquired operations of AmTrica Latina Logfstica S.A. (ALL) in 2016 would more than offset the pre-operational expenses for the Norte-Sul railroad. Substantial capex would impair cash generation,...

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