Itaú BBA Cuts Chile’s CMPC to a New Floor Over Its US.6 Billion Natureza Megaproject

CHILE · MARKETS

Brazilian broker Itaú BBA has slashed its target for Chilean pulp and paper group CMPC to a new psychological floor, blaming uncertainty over the company’s US$4.6 billion Natureza megaproject in Brazil and a balance sheet already at its limit.

What Itaú BBA actually said

The broker kept its underweight recommendation on the stock, meaning it tells clients to hold less of the stock than the index. It then cut the price target to 1,030 Chilean pesos (US$1.12) per share for the end of next year.

That is the lowest target among the 15 estimates compiled by Bloomberg. The average sits around 1,500 pesos (US$1.63), though that average has been falling for 12 months.

The report came from an analyst team led by Daniel Sasson and was published on Wednesday 26 August. Diario Financiero first reported the details in Santiago.

The team wrote that it sees a challenging medium-term outlook for market pulp prices. Uncertainty over the possible approval of the Natureza project adds risk, they said, given the company’s current leverage.

The paradox: better profits, worse debt

Here is the part that surprises. Itaú BBA actually raised its 2027 profit estimate for the pulp group slightly, to US$1.24 billion in EBITDA, the standard measure of operating earnings.

Better trends in the Softys tissue business and in Biopackaging more than offset weaker prices for short-fibre pulp. The company, in other words, is performing reasonably well.

The problem is what Natureza would do to the balance sheet. Itaú projects net debt at about 4.8 times EBITDA by the end of 2026, even before counting the project.

That ratio falls to about 4.2 times if only half of the hybrid bonds, worth roughly US$1.3 billion, count as debt. Either way, the analysts called the enterprise value multiple of 6.4 times between fair and elevated.

Why Natureza scares the rating agencies too

Natureza is a planned US$4.6 billion pulp mill in Brazil, one of the largest investments in Chilean corporate history. The company is the forestry arm of the Matte group, one of Chile’s richest families.

All three major rating agencies have already reacted. S&P cut the company to BBB-minus in February, Fitch trimmed its local rating in April, and Moody’s turned its outlook negative in June.

Moody’s warned that building Natureza without extra measures could push leverage above five times at the peak of construction. First-quarter net profit had already fallen 50 percent to US$24.8 million.

Itaú did offer one positive note. Management has signalled that selling forest assets could speed up deleveraging and free up money for future growth investments.

The pulp market behind the downgrade

Short-fibre pulp, the raw material for tissue and printing paper, has fallen to about US$560 per tonne. Itaú believes that is a floor and prices could rebound in the short term.

The longer view is darker. New supply from China, Indonesia and Latin America, including Indonesia’s giant OKI plant, meets weak demand growth toward 2030.

In the same report the broker kept its buy call on Suzano, the Brazilian pulp giant. It rated Empresas Copec, parent of its rival Arauco, at market return.

Meanwhile, ENAP fights a pollution-data scandal

Across Santiago’s corporate world, another Chilean heavyweight had a rough week. Cristián Muga, chairman of state oil company ENAP, denied that the firm hid information about pollution episodes at its Aconcagua refinery.

The refinery, in the coastal town of Concón near Valparaíso, is under internal investigation for irregularities in its environmental reporting. The anomalies involve sulphur dioxide emissions and sulphur recovery calculations.

Muga rejected any cover-up and said the company itself detected the anomalies. The case is sensitive because environmental watchdog SMA filed charges against the same refinery in December over liquid waste discharges into the sea.

The mining paradox hanging over it all

Chile’s wider business mood was captured this week by Jorge Riesco, president of mining association Sonami. Speaking at the group’s annual summit, he summed up a strange year.

"We have never earned so much producing so little," Riesco said, pointing to record copper prices alongside stagnant output. State copper giant Codelco just reported a sixfold profit jump for the first half while producing less copper.

For CMPC, the lesson cuts both ways. High prices saved the miners this year, but pulp prices are falling, which is exactly why the Natureza gamble worries Santiago’s market.

What to watch from here

The first milestone is the Natureza approval decision, expected in the coming months. A green light without asset sales would likely trigger fresh rating pressure.

The second is the promised forestry divestment plan. Its size and speed will show how serious CMPC is about protecting its investment-grade rating.

At ENAP, watch the internal investigation into the Aconcagua reporting anomalies. Any finding of deliberate misreporting would turn a corporate story into a political one.

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