Fitch Assigns 'BB-' Rating to Gerdau's Perpetual Bond Issuance.

CHICAGO -- Fitch Ratings has assigned a 'BB-' foreign currency rating to the proposed US$300 million senior unsecured perpetual bond issuance by Gerdau S.A. (Gerdau). Fitch has also assigned to Gerdau a 'BB-' foreign currency rating. Gerdau's foreign currency rating is constrained at the current level due to the 'BB-' foreign currency rating of Brazil. The Rating Outlook is Stable.

Gerdau's rating reflects the group's consolidated financial profile characterized by low leverage and strong liquidity, as well as the favorable business positions and strong financial profiles of its main steel production subsidiaries, Gerdau Acominas S.A. (Acominas), Gerdau Acos Longos S.A. (Acos Longos) and Gerdau Ameristeel Corporation (Ameristeel).

The perpetual bonds have no fixed maturity date but will become callable in whole on a quarterly basis after five years. The bonds are unconditionally and irrevocably, jointly and severally guaranteed by Gerdau's four majority-owned Brazilian operating subsidiaries: Gerdau Acominas S.A., Gerdau Acos Longos S.A., Gerdau Acos Especiais S.A. and Gerdau Comercial de Acos S.A., collectively the Guarantors. Proceeds of the offering are expected to be used for general corporate purposes including primarily the funding of acquisitions outside of North America and the repayment of short-term debt.

Acos Longos is the dominant player in the long steel products market in Brazil with a market share of about 50%, while Acominas is a leading exporter of billets, bloom and slabs. Both companies benefit from a relatively competitive cost structure as a result of vertical integration and access to low-cost raw materials and labor. The rating also considers the concentrated nature of the Brazilian steel industry, which limits competition based solely upon price. Barriers to entry include the logistical challenges of transporting steel to Brazil and within the country, as foreign steel producers have limited access to efficient distribution networks. Gerdau's ratings factor in the stand-alone credit strength of both these key Brazilian operating subsidiaries, which were created on July 29, 2005 when the former Gerdau Acominas S.A. was split up into the four Guarantors mentioned above

Ameristeel, Gerdau's North American operations, also has a low leveraged financial profile. The company has made many strategic acquisitions such that it now holds the second leading position in the North American long products market. Ameristeel has been a key participant in the consolidation of the North American steel industry which has recently restructured itself to become a less fragmented and more competitive. Although Gerdau's perpetual bond does not have a guarantee by Ameristeel, Gerdau stands to benefit from potential future dividends to be received from Ameristeel.

In 2004, Gerdau enjoyed its strongest performance ever, generating consolidated net revenues of US$7.0 billion and operating EBITDA of US$1.9 billion. Compared with the prior year, revenues and operating EBITDA increased 53% and 116%, respectively, mainly due to the increase in the spread between steel prices and scrap prices and the recovery of demand both in Brazil and worldwide. With total consolidated debt of about US$2.5 billion and cash of US$1.1 billion at June 30, 2005, Gerdau's leverage, as measured by net debt to operating EBITDA, decreased to 0.7 times (x) from 2.2x in 2003, and the ratio of total debt to operating EBITDA decreased to 1.2x from 2.5x. About 64% of the company's consolidated debt was held at companies in Brazil and about 22% was at Ameristeel.

Although Gerdau is a geographically well diversified, with 54% of its total production capacity outside Brazil, approximately 67% of consolidated operating EBITDA was generated by the company's Brazilian operations in 2004. This exposure, as well as the overall risk of the cyclical steel industry, is factored into Gerdau's ratings and the credit assessment of its operating subsidiaries.

Headquartered in Porto Alegre, Brazil, Gerdau is a holding company for the group's steel production facilities in North and South America. The Gerdau companies operate mini-mill and integrated-steel facilities in Brazil, Argentina, Canada, Chile, the United States and Uruguay and have a crude steel production capacity of 16.4 million tons. Gerdau owns 89.3% of its Brazilian operating companies, which consist primarily of the Acominas and Acos Longos and have a combined production capacity of about 7.6 million tons of crude steel. In North America, Gerdau owns 66.5% of Ameristeel which ranks as the second-largest producer of long-steel products with an annual production capacity of 8.3 million tons.

A full copy of Fitch's Credit Analysis report about Gerdau can be found within FitchResearch, Fitch's subscription-based web site, located at www.fitchratings.com or by contacting Products & Services at [phone].

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