Fitch Rates Suzano Papel e Celulose S.A. 'AA-(bra)'.

CHICAGO -- Fitch Ratings has assigned a national scale long-term rating of 'AA-(bra)' to Suzano Papel e Celulose S.A.'s (Suzano). In addition, Fitch has affirmed the 'AA- (bra)' ratings of Suzano's Brazilian real denominated debentures due in 2012 and 2014. These ratings are supported by the company's leading position in Brazil's printing and writing paper and paperboard markets. They also reflect the strength of Suzano's bleached eucalyptus kraft market pulp (BEKP) operations, which are based in the state of Bahia, and the generation of hard currency from exports of this product. Further factored into the credit rating of Suzano is its ownership of approximately 286,000 hectares of land in Brazil. The company has planted eucalyptus plantations on 172,000 hectares of this land.

Like its main Brazilian competitors, Suzano enjoys a production cost structure that is among the lowest in the world. This enables the company to generate positive cash flows during troughs in the pulp and paper cycle. Suzano's competitive advantage is viewed to be sustainable, because its cost structure is low due to its access to inexpensive fiber, which it sources from its eucalyptus plantations, low labor costs and inexpensive energy. The company's sales are diversified both in terms of products and markets, with paper and paperboard primarily sold in the domestic market and pulp destined for exports markets. During 2005, exports accounted for 59% of Suzano's sales volumes and 49% of its consolidated revenues. This diversification is positively factored into the company's rating.

The 'AA-(bra)' credit rating factors in Suzano's ambitious expansion program, which will increase the company's sales of market pulp to 1.7 million tons per year from 600,000 tons. The expenditures associated with the construction of the new pulp mill at Mucuri could increase the company's net debt-to-EBITDA ratio to above 3.5 times (x) during 2007. Once the new mill is fully operational in 2008, this ratio should decline to below 3.0x.

During the first nine months of 2006, Suzano generated BRL778 million of consolidated operating profits plus depreciation, depletion and amortization (EBITDA) on BRL2.3 billion of sales. Suzano has been proportionally consolidating 50% of Ripasa since May 1, 2006, following the conclusion of a restructuring process that resulted in the remaining shareholders of Ripasa exchanging their shares in that company for proportionate shares in Suzano and VCP. Prior to that time, Suzano had consolidated only 23.03% of Ripasa's results. If Suzano had been consolidating 50% of Ripasa for the entire year, its EBITDA from January through September would have been BRL813 million.

As of September 30, 2006, Suzano had BRL1.3 billion ($615 million) of cash and marketable securities and BRL4.8 billion ($2.2 billion) of total debt. These figures include the proportional consolidation of BRL67 million of cash and BRL322 million of debt at Ripasa. On a pro-forma basis, as if 50% of Ripasa had been consolidated since the beginning of the year, these numbers give the company a net debt-to-EBITDA ratio of 3.2x. The most important component of the company's debt is trade finance lines. These loans total BRL2.3 billion. Suzano also has BRL1.4 billion of loans from BNDES, which were used for expansion activities and are secured by mortgages and guarantees of the financed assets. In addition to the aforementioned, Suzano has issued BRL740 million of debentures in its local market, of which BRL240 million are convertible into stock. Liquidity is manageable with BRL800 million of debt falling due in the next 12 months and BRL583 million coming due in 2008.

Suzano's net debt is expected to climb to about $2.15 billion by the end of 2007 from $1.6 million. The increased leverage will come from about $800 million of capital expenditures that the company will make on its new pulp mill before it becomes operational at the end of 2007. To date, the company has spent $480 million on the mill. Most of this additional financing is expected to be provided by BNDES.

A comprehensive credit analysis of Suzano is available on Fitch Ratings web site at www.fitchresearch.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.