Market Themes: CMPC's Brazil Project Tests Its Credit Rating

SANTIAGO, Chile — One of the more telling market themes this week is the collision between growth spending and balance-sheet discipline, and the Chilean forestry and pulp group CMPC is its clearest example. Bloomberg reported on Tuesday that the company’s plan for a US$4.6 billion pulp mill in Brazil, known as Natureza, threatens the investment-grade credit rating that CMPC treats as central to its investment decisions.

A project nearly twice the company’s value

Natureza would add about 2.5 million metric tons a year of eucalyptus pulp capacity in Rio Grande do Sul. Its cost is roughly double CMPC’s market capitalization, and it would be the largest investment abroad ever made by a Chilean company. CMPC first mentioned Brazilian expansion in April 2021, presented Natureza in 2024 and gave financing details at an investor day in December 2025. In March it pushed the final investment decision to the end of 2026, saying progress depends on permits, market conditions and financial considerations. It is still awaiting permits.

Chairman Bernardo Larraín Matte said in the annual shareholder letter, reported in April, that the company was working to create conditions for an investment decision this year. He said the company was preparing bank financing with entities such as export credit agencies and Brazil’s BNDES.

Where the rating stands

S&P rates CMPC’s dollar debt BBB-, one notch above speculative grade, with a negative outlook. Fitch also rates it BBB- with a stable outlook. Both agencies downgraded CMPC over a weaker capital structure and higher leverage, and 2025 profit fell 59% to US$202 million from US$491 million. Net debt reached 5.1 times EBITDA at the end of 2025, up from 3.6 times a year earlier, according to Bloomberg data.

Markets are already pricing the strain. CMPC shares are down about 30% this year, the second-worst on Chile’s IPSA index. Spreads on its 2034 notes over Treasuries hit a record in late September, and the yield has risen more than 160 basis points this year. Bradesco downgraded the stock to underperform last month, citing declining profit, high leverage and project risk, and Itaú kept its underperform rating in September.

How CMPC plans to pay for it

The funding plan relies on asset sales and hybrid securities. CMPC aims to sell US$1.0 billion to US$1.5 billion of non-core assets and has agreed to sell its Chilean corrugated packaging business for US$420 million. It issued about US$300 million in hybrid bonds in June, after two hybrid issues in 2025 meant to prepare the balance sheet. MBI Inversiones estimates the company could need US$600 million to US$700 million of new equity if asset sales produce only half the expected proceeds.

The pulp price question

Returns depend on pulp prices that are under pressure as China expands output and new South American capacity comes online. MBI’s Horacio Herrera estimates Natureza needs a long-term price of about US$575 a ton to earn an acceptable return, and says the project should not go ahead below that; current prices are only slightly above it. Competition adds urgency. Arauco’s Sucuriú mill in Brazil, approved in 2024, is more than 70% complete, with operations due in late 2027 and capacity of up to 3.5 million tons, which would make Arauco the world’s second-largest pulp producer. Credicorp Capital’s Josefina Valdivia argues CMPC is nearly compelled to build to stay in the race, but said it is uncertain that the company can retain investment grade even with a capital raise and asset sales.

What to watch

For equity strategy, the case shows why credit thresholds matter to industrial and materials names: they shape dividend capacity, refinancing costs and capital spending flexibility. The next markers are the Brazilian permits, the closing of the packaging sale, any rating action from S&P or Fitch, and the final investment decision due by year-end. Movement in CMPC’s 2034 bond spreads will show how credit investors read each step. This is not a recommendation on any security.