(Adds share price, covenants)
RIO DE JANEIRO, Oct 29 (Reuters) - Brazil's Gerdau SA posted the largest quarterly net loss in at least five years in the third quarter, after the largest steelmaker in the Americas booked a heavy asset writedown due to a challenging business outlook.
But the company's shares rallied on a solid operational performance and news that its holding firm could raise 1.2 billion reais in a private share offering, with Gerdau's preferred shares up as much as 7 percent in morning trading in Sao Paulo.
Porto Alegre, Brazil-based Gerdau lost a net 1.96 billion reais ($502 million) in the quarter, according to a securities filing on Thursday. The company wrote off 1.9 billion reais on assets across several units, citing a reduction in projected cash flow as a result of weaker demand for steel.
Currency moves, which raised the cost of servicing the company's dollar-denominated debt, also weighed on results. Brazil's real lost nearly 30 percent to the dollar over the period.
Gerdau's Chief Financial Officer said the company had managed to negotiate the removal of covenants from its bank loans, taking pressure off the company as it attempts to reduce its leverage over the coming quarters.
Analysts had expected the company to break even during the quarter, but lauded Gerdau's free cash flow in the midst of a challenging steel market.
"Positive results with excellent free cash flow," Citi analysts Alexander Hacking and Thiago Ojea wrote in a note to clients.
The steelmaker posted adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of 1.29 billion reais, a slight increase compared to the same quarter last year.
Gerdau highlighted the result, as well as a relatively stable EBITDA margin of 10.8 percent, as bright spots in the midst of a global steel market in oversupply and a Brazilian economy in recession.
$1 = 3.905 Brazilian reais Reporting by Stephen Eisenhammer; Editing by Bernadette Baum