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Rating Action:

Moody's upgrades CSN's ratings to Ba2; stable outlook

03 Sep 2021

New York, September 03, 2021 -- Moody's Investors Service ("Moody's") has today upgraded Companhia Siderurgica Nacional (CSN)'s global scale corporate family rating to Ba2 from Ba3. At the same time, Moody's upgraded to Ba2 from Ba3 the ratings assigned to the senior unsecured notes issued by CSN Inova Ventures, CSN Islands XII Corporation and CSN Resources S.A. and guaranteed by CSN. The outlook for the ratings is stable.

Ratings upgraded:

..Issuer: Companhia Siderurgica Nacional (CSN)

.... Corporate Family Rating, Upgraded to Ba2 from Ba3

..Issuer: CSN Inova Ventures

....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from Ba3

..Issuer: CSN Islands XII Corporation

....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from Ba3

..Issuer: CSN Resources S.A.

....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from Ba3

The outlook for all ratings is stable.

RATINGS RATIONALE

The upgrade of CSN's ratings to Ba2 from Ba3 reflects the additional improvement in the company's liquidity profile and leverage over the last few months, which increases its financial flexibility to weather future volatility in operations and abates risks associated with a limited track record of conservative financial management.

CSN's cash position increased to BRL22.2 billion at the end of June 2021 (BRL25.3 billion including Usinas Siderurgicas de Minas Gerais S.A. (Usiminas, Ba3 stable)' shares) from BRL1.6 billion at the end of 2019 (BRL3.7 billion with Usiminas shares) as a result of the BRL13.5 billion in free cash flow generated since mid-to-late 2020 and of the company's liquidity-enhancing initiatives, such as the BRL4 billion IPO of its mining subsidiary and the monetization of BRL1.3 billion related to Usiminas' preferred shares. CSN's debt amortization schedule also improved substantially with liability management initiatives that reduced debt costs and increased debt tenor. Moody's expects that CSN will maintain a recurring cash position close to BRL20 billion, compared to previous expectations of BRL10 billion, and CSN has stated its target to maintain net leverage below 1x overtime. Such milestones increase the visibility over CSN's ability to maintain solid credit metrics and liquidity, while still investing in growth and pursuing M&A activities.

CSN recently repurchased the totality of its $925 million notes due in 2023 with proceeds from a new $850 million issuance, thus addressing near-term maturities. Additionally, the company announced in July 2021 the early redemption of its $1 billion perpetual notes that will be concluded in September 23rd 2021. CSN continues to negotiate the refinancing of BRL3.4 billion in debt with Banco do Brasil S.A. (Ba2/(P)Ba2 stable, ba2) and Caixa Economica Federal (Caixa) (Ba2/Ba2 stable, ba3) that come due in 2021-23. Pro forma to all transactions, CSN's cash position will cover debt maturities through 2028, and the company's debt amortization schedule will be even more comfortable, with only BRL3 billion in debt coming due in 2021-22, compared to BRL9.2 billion at the beginning of the year. The company's total debt will also decline further with the payment of the perpetual notes, although CSN continues to raise new credit lines to fund growth.

CSN has been accelerating expansion investments and has publicly stated its intention to pursue M&A, particularly in the cement business. Despite the risks associated with an aggressive growth strategy in some of its lines of business, Moody's believes that CSN has built cushion in credit metrics and liquidity and will therefore be able to maintain a stronger balance sheet during the execution of its growth strategy. Additionally, CSN has levers to pull to mitigate liquidity risks associated with M&As or higher dividend distributions, such as continue pursuing additional debt reduction and liability management initiatives, and other liquidity events, namely the IPO of its cement subsidiary CSN Cimentos and the monetization of the remainder of its shareholdings in Usiminas.

CSN's Ba2 ratings reflect the company's position as a leading manufacturer of flat-rolled steel in Brazil (Ba2 stable), with a favorable product mix that is focused on value-added products, and as a major producer of iron ore (second-largest exporter in Brazil). Historically, the company has reported a strong Moody's-adjusted EBITDA margin of 20%-35% (45.1% in the last twelve months ended June 2021), supported by its solid domestic market position, wide range of products across different segments and globally competitive production costs for both steel and iron ore. The ratings also incorporate the improvement in the company's leverage and liquidity after several measures taken over the past two years and the improved operating performance related to a favorable environment for both iron ore and steel.

The ratings are constrained by CSN's recent track record of aggressive financial policies, including a highly leveraged capital structure, appetite for growth and dividend requirements to cover debt service at the parent level, although Moody's recognizes that the current actions taken by the company evidences a change in approach to financial management. Additional credit concerns include the company's exposure to the volatility of the steel business in Brazil and to iron ore prices, its concentration in a single production site in the mining segment, and potential overhangs related to ongoing judicial disputes, such as the ones regarding the Transnordestina project, a recent arbitrage process and investigations involving the company's controlling shareholder.

CSN's operating performance and credit metrics have improved materially since 2019, backed by the strong performance of the iron ore export business and a better than expected performance for steel in 2021. The company's iron ore operations will remain strong based on still high prices through 2022, relatively stable sales volumes and a favorable exchange rate for exports, while the steel business will benefit from higher than historical price levels, firm demand in Brazil and improved profitability after investments made by CSN in a blast-furnace to improve efficiency. CSN's adjusted EBITDA increased to BRL20.6 billion in the last twelve months ended June 2021 from BRL10.1 billion in 2020 and adjusted leverage declined to 1.7x from 3.6x in the same period. Moody's expects CSN's adjusted leverage ratios to decline to around 1-2x in the next 12-18 months and to remain within the 2.0 -- 3.0x range overtime based on a range of price scenarios for iron ore 62% Fe of $80-$125 per ton and normalized steel operations.

RATING OUTLOOK

The stable outlook reflects Moody's expectation that the company's operations will continue to perform well in the next 12-18 months, and that CSN will maintain a strong balance sheet and liquidity while pursuing growth.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if CSN proves to have a conservative financial management for an extended period time, or if the company is able to maintain its financial flexibility, either through a strengthened cash position or lower debt balance through commodity cycles. An upgrade would also require total leverage (measured by total adjusted debt to EBITDA) below 3.0x (1.7x in the last twelve months ended June 2021) and interest coverage ratios (measured by EBIT to Interest expenses) above 4x (5.9x in the last twelve months ended June 2021) on a sustainable basis.

The ratings could be downgraded if performance over the next 12 to 18 months deteriorates such that leverage remains above 4.0x and EBIT/interest below 2.5x on a sustained basis. Evidences of more aggressive financial policies or a deterioration in the company's liquidity profile would also trigger a rating downgrade.

The principal methodology used in these ratings was Steel Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1074524. Alternatively, please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.

With an annual capacity of 5.6 million tons of crude steel, Companhia Siderurgica Nacional (CSN) is a vertically integrated, low cost producer of flat-rolled steel, including slabs, hot and cold rolled steel, and a wide range of value-added steel products, such as galvanized sheet and tinplate. In addition, the company has downstream operations to produce customized products, pre-painted steel and steel packaging. CSN sells its products to a broad array of industries, including the automotive, capital goods, packaging, construction and home appliance sectors. CSN owns and operates cold rolling and galvanizing facilities in Portugal, along with long steel assets in Germany through its subsidiary Stahlwerk Thüringen GmbH (SWT). The company also has a long steel line (500,000 tons capacity) in the Volta Redonda plant. CSN is a major producer of iron ore (the second-largest exporter in Brazil), with a sales volume of 35.1 million tons in the twelve months ended June 2021. The company has operations in other segments, such as cement, logistics, port terminals and power generation. CSN reported revenues of BRL45.8 billion ($8.5 billion) in the twelve months ended in June 2021 with an adjusted EBITDA margin of 45.1%.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Carolina Chimenti
Vice President - Senior Analyst
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Marcos Schmidt
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

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