October 24, 2016 / 7:17 PM / 2 years ago

UPDATE 2-Brazil's Kroton taps bank to extend student loan alternatives

(Adds M&A activity and quote, paragraphs 6-9)

SAO PAULO, Oct 24 (Reuters) - Brazil’s No. 1 college operator Kroton Educacional SA has teamed up with an unidentified domestic lender to broaden financing alternatives other than state-backed loans, a sign it is preparing for a potential economic recovery by attracting more students.

The joint venture, which aims to offer financing instruments for students other than the state program known as Fies, could be launched as early as next year, Chief Executive Officer Rodrigo Galindo and company executives said on Monday at an event.

Kroton, which last quarter agreed to buy rival Estácio Participações SA, expects the venture to help mitigate financing-related risks ahead of completion of the deal, Chief Financial Officer Frederico Abreu said. Protecting cash is key for Kroton to undertake other acquisitions should the Estácio deal be approved by regulators, he said.

More cash could be used to increase dividend payouts beyond the current 35 percent of net income, Abreu said. He said share buybacks would be considered only as an alternative should Kroton’s stock fall considerably.

Shares shed 2.2 percent to 16.19 reais on Monday, paring this year’s gain to 74 percent.

The venture coincides with Kroton’s attempts to reduce reliance on government loans to lure and keep students. This year, credit funded entirely by Brazil-based Belo Horizonte represented 30 percent of enrollments, compared with 9 percent for the Fies program. The government cut back on Fies last year to help narrow a record budget deficit.

Fies has changed its student lending rules, reducing the number of people going to college using subsidized government loans.

Kroton expects to receive regulatory approval for Estácio’s takeover by mid-2017, finance director Carlos Lazar said. The combination would form the world’s largest education company by market value, with more than 1.5 million students.

“We are in a position to propose adequate remedies to approve the deal,” Galindo said of what is expected to be detailed antitrust scrutiny.

$1 = 3.1205 reais Reporting by Ana Mano; Writing by Guillermo Parra-Bernal; Editing by Chris Reese and Dan Grebler

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