CLOSEOURSWITCHTRADEOPPORTUNITY1108

1、credit globalmarketsresearch emergingmarkets 5.0 20 4.5 gerdau 157.0 203.5 330 310 7.0 20 global emerging markets brazil steel 6 november 2012 csn csn vs. gerdau: close our switch trade opportunity we close our switch trade between gerdau 20s, 21s into csn 19s, 20s since we last reviewed csn and ger

2、dau credit fundamentals and relative value on 27 august, csn 19s and 20s have tightened approximately 35bps and 41bps, respectively, while gerdau 20s and gerdau 21s experienced further spread compression of 10bps and 37bps, respectively. at current levels, we believe csn notes are at fair value if c

3、ompared to similarly rated peers, whereas we believe gerdau 20s and gerdau 21s trade at tight spread levels. in addition, we continue to question the spread premium between csn and gerdau as we do not see any fundamental reason that could support such a divergence (15 to 40bps depending on the notes

4、). following the rally experienced in recent weeks, we close our switch trade opportunity, but maintain our sell recommendation on gerdau 20s and 21s given the notes tight spread levels. at the same time, we lower csn 19s and 20s to hold from buy based on valuation. csn 3q12 results highlights csns

5、3q12 results were marked by a better-than-expected performance of the companys steel business and disappointing mining operations driven largely by lower iron ore prices during the quarter. going forward, while we believe leverage will still deteriorate in 4q12, we do not see much downside for the c

6、ompanys operations, as the brazilian economy picks up, import taxes take effect in 2013 and iron-ore prices stabilize in the usd100-120t levels. in addition, based on managements comments, it seems that any m other political risks including changes to laws and tariffs, and nationalization of assets;

7、 and currency exchange risk. deutsche bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. in addition, others within deutsche bank, including strategists and sales staff, may take a view that is incons

8、istent with that taken in this research report. past performance is not necessarily indicative of future results. deutsche bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary ba

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