October 12, 2021 8:00 AM

Inkia Energy - Beneficiary of Domestic Political Change

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We believe that the political reshuffle in the government of Peru will have a positive impact on the investment attractiveness of the country. In particular, the resignation of Prime Minister Bellido in favor of Vasquez should help the political environment, given the periodic clashes between Bellido and Congress, as well as the risks of nationalization that have exacerbated domestic uncertainty. The new President Castillo also replaced six ministers, including the Labor Secretary, who was on bad terms with Congress, and the Mines Secretary, who lobbied for an unpopular new royalty order in the sector.

YTM

5%

RISK

BB- / Ba3 / BB

DURATION

5

Klabin maintains a significant share of the local Brazilian market, which generates almost 55% of total revenues. The company has sufficient funds to finance the PUMA II project in full and maintains a significant balance of free funds to service obligations, which minimizes both credit risks. We would like to point out that the recent management decision to move its second PUMA II plant to a coated board production site, where it was previously planned to produce kraftliners, will result in additional capital expenditures. However, we expect the additional costs to have a minimal impact on the debt burden. At current pulp prices, Klabin can generate high free cash flow. Among the issuer's Eurobonds, we note an issue with maturity in April 2029 (USA35155AA77), which offers a dollar yield of 3.5% with a duration of 6.3 years.

Brazil's Klabin is the country's #1 paper producer, exporter, and recycler. Its activities span manufacturing paper, packaging, industrial sacks, as well as forestry. Klabin owns and leases a million plus acres of timberland and operates 18 plants. Core products are eucalyptus and small logs for sawmill industries, packaging paper (Kraftliner, Klabin Boards), corrugated boxes, and multi-wall sacks. Klabin sells to markets from construction materials to food and beverage, chemicals, and agribusiness. Unilever is among its largest customers. It is held by industrial family group Klabin Irmãos & Cia.