--Local currency IDR to 'BB+' from 'BBB-';

--Foreign currency IDR to 'BB+' from 'BBB-';

--National scale rating to 'AA-(bra)' from 'AA(bra)'.

VCP remains on Rating Watch Negative by Fitch. In conjunction with this rating action, Fitch has placed the following ratings of Aracruz Celulose S.A. (Aracruz) on Rating Watch Positive:

--Local currency IDR at 'BB-';

--Foreign currency IDR at 'BB-';

--National scale rating at 'A (bra)'.

Fitch took these rating actions following the announcement by VCP that it had concluded negotiations with Arapar to acquire 28.03% of the voting capital of Aracruz for BRL2.71 billion. This agreement was reached after Aracruz had agreed to a repayment schedule with banks representing more than 80% of its $2.13 billion of derivative losses. The acquisition of Arapar's stake in Aracruz will be paid for over a three-year time period. It will increase VCP's voting stake in Aracruz to 56% from 28%, and its total economic stake in the company to 24.8%. The first payment of BRL500 million has already been made by VCP through funds received from Votorantim Industrial S.A. (VID), VCP's controlling shareholder, through an Advance on a Future Capital Increase. The downgrade of VCP's ratings to 'BB+' and 'AA-(bra)' reflects the leveraging impact on VCP's stand-alone capital structure due to the acquisition, as well as the very high debt burden of Aracruz.

Arainvest Participacoes S.A. (Arainvest), a part of the Safra Group, also owns 28.03% of the voting shares of Aracruz. Under an existing shareholders agreement, Arainvest has a right of first refusal, which would allow it to acquire the shares sold by Arapar. Fitch's downgrade of VCP's credit ratings and the placement of Aracruz's ratings on Rating Watch Positive reflects Fitch's view that it is unlikely that Arainvest will exercise its right of first refusal and purchase the shares of Arapar. Under an existing shareholder agreement, Arainvest also has the right to sell its common shares in Aracruz to VCP for BRL2.71 billion under similar terms and conditions.

VCP has outlined for the market a plan in which it intends to increase its capital by BRL4.254 billion to finance the acquisition of both Arainvest and Arapar's common shares in Aracruz. BNDESPAR, a subsidiary of the Brazilian development bank BNDES, would be the main subscriber to the equity issuance. Some of the capital increase would not be in cash, however, as BNDESPAR would swap its common shares of Aracruz for preferred shares of VCP.