Suzano’s rating outlook revised to positive by S&P after Kimberly-Clark deal

Investing.com -- S&P Global Ratings revised its outlook on Suzano S.A., a Brazilian pulp and paper producer, to positive from stable on June 6, 2025. This adjustment follows Suzano’s announcement of acquiring a majority stake in Kimberly-Clark Corp (NYSE:KMB).’s international tissue assets. The acquisition, valued at $1.7 billion, is expected to enhance Suzano’s business and geographic diversification, as well as its scale.

The deal involves the addition of 22 production assets in 14 countries, which will increase Suzano’s total tissue capacity by 1 million tons. This acquisition is expected to lower Suzano’s exposure to market pulp, thereby reducing the volatility of its cash flow.

S&P Global Ratings affirmed its ’BBB-’ global scale and ’brAAA’ national scale ratings for Suzano. The positive global scale rating outlook indicates a potential upgrade for Suzano within the next two years, assuming that the company’s leverage remains consistently around or below 3.0x after the transaction’s closure.

The acquired stake includes a 51% interest in a new joint venture (JV) that will manage Kimberly-Clark’s international tissue business. Kimberly-Clark will retain a 49% stake in this JV. The JV’s assets are distributed across 14 countries, with a total production capacity of 1 million tons of tissue. In 2024, the JV generated net revenue of $3.3 billion and EBITDA of $525 million.

Suzano’s acquisition is expected to reduce its exposure to market pulp, thanks to a diversified portfolio that increases its presence in the less volatile tissue market. Suzano, the world’s largest pulp producer, will become the eighth-largest tissue producer following the acquisition.

The deal also includes the transfer of Kimberly-Clark’s strong regional brands and royalty-free licensing of its global brands, such as Kleenex and Scott, for 30 years. Suzano is expected to achieve annual efficiency gains and synergies of about $175 million after three years, considering its operations of Kimberly-Clark’s Brazilian tissue assets that it acquired two years ago.

Suzano plans to disburse $1.2 billion by mid-2026, assuming the JV will raise $1 billion in debt prior to the closing, reducing the acquisition payment. Suzano is not expected to raise new debt for the acquisition due to its sound liquidity position and expected cash flow until the closing. The company will also have a call option to acquire Kimberly-Clark’s remaining 49% stake starting on the third anniversary of the closing, with no due date.

S&P Global Ratings’ positive outlook reflects a one-in-three chance of an upgrade in the next 24 months, given Suzano’s business and geographic diversification from the announced deal, which would reduce cash-flow volatility through business cycles.

The outlook could be revised to stable in the next 24 months if adjusted leverage remains at or above 3.5x for the next few years. This could occur amid consistently low pulp prices of about $550 per ton and/or higher capital expenditure. The company’s management has not indicated any new mergers and acquisitions going forward.

S&P Global Ratings could raise the ratings after the deal closes if the company maintains leverage at about or below 3x through business cycles. The upgrade would also require the maintenance of net debt to EBITDA below 3.5x across business cycles. The upgrade would further depend on the maintenance of a comfortable liquidity cushion, with the ability to pass a stress test related to potential restrictions on access to foreign exchange to cover its operating and financial needs.

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