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Announcement:

Moody's affirms Braskem's Baa3 ratings; changes outlook to negative

 The document has been translated in other languages

28 Nov 2012

Approximately USD 4.2 billion in rated debt affected

Sao Paulo, November 28, 2012 -- Moody's Investors Service has affirmed today Braskem Finance Ltd and Braskem America Finance Company's Baa3 global scale ratings and all related debt ratings. The outlook for the ratings was changed to negative from stable.

Ratings affirmed as follows:

Issuer: Braskem America Finance Company (Delaware, U.S.)

-USD 750 million in senior unsecured guaranteed notes due 2041: Baa3 foreign currency rating

Issuer: Braskem Finance Ltd. (Cayman Islands)

- USD 500 million senior unsecured guaranteed notes due 2018: Baa3 foreign currency rating

- USD 750 million senior unsecured guaranteed notes due 2020: Baa3 foreign currency rating

- USD 1000 million in senior unsecured guaranteed notes due 2021: Baa3 foreign currency rating

- USD 500 million in senior unsecured guaranteed notes due 2022: Baa3 foreign currency rating

- USD 450 million senior unsecured guaranteed perpetual notes: Baa3 foreign currency rating

- USD 250 million perpetual notes: Baa3 foreign currency rating

The outlook for all ratings is negative.

RATINGS RATIONALE

The change in outlook to negative reflects Braskem's weakening operational performance due to deterioration in the global petrochemical industry's fundamentals. During 2011 and 2012, a weaker global economic environment and increased oil prices resulted in petrochemical spreads at Braskem reaching historically low levels. At the same time, the appreciation of the Brazilian Real during 2011 increased resin imports, significantly reducing the company's market share. As a result, Braskem's EBITDA margin declined to 8.9% in the last twelve months ended September 2012 from average historical levels of 15%, while total adjusted leverage as measured by Total adjusted net debt (net of minimum cash cushion of BRL 1.5 billion) to adjusted EBITDA increased to 5.4x in the same period from 3.4 x in 2010.The sharp depreciation of the Brazilian Real starting in October 2011 also contributed to a nominal increase in total debt.

The company's Baa3 ratings continue to reflect the company's sound business profile, size, scale and dominant position in the Brazilian petrochemical industry. Braskem also benefits from sponsorship of its two controlling shareholders (Odebrecht and Petrobras) that would likely support Braskem if required. Braskem's ratings are also boosted by the company's strong liquidity which provides financial flexibility during industry downturns and supports its creditworthiness.

The company's exposure to volatile naphtha and natural gas prices, its dependence on Petrobras for naphtha and natural gas, and its modest geographic diversity compared to its international peers all constrain its ratings. We expect the company's credit profile to improve in the longer term as Braskem pursues additional international projects.

Moody's believes that Braskem will continue to step up its efforts to increase profitability and reduce leverage to levels more commensurate with an investment grade profile. Recently enacted government laws/incentives should enhance the petrochemical sector competitiveness by lowering imports via an increase in import tariffs and equalization of VAT taxes across states, and by reducing electricity tariffs and payroll costs. However, these measures may not be sufficient to bring margins closer to historical levels and additional support from the government or from the controlling shareholders may be necessary.

Still, we expect Braskem's metrics to remain pressured in the medium term owing to weaker economic conditions in Europe and North America, as well as tight margins and spending related to its greenfield project in Mexico.

A rating upgrade is unlikely over the next few years given the current weak credit metrics. Longer term, the rating could be upgraded if leverage decreases to a level which Moody's considers to be more compatible with the volatile nature of Braskem's cash flows, with Total Adjusted Net Debt (including a minimum cash cushion of BRL 1.5 billion) to EBITDA stabilizing at around 2.5x. An upgrade would also require that Braskem maintain strong liquidity and Retained Cash Flow (defined as Funds from Operations less Dividends) to Net Debt above 25%.

Further negative pressure on the rating or outlook could result from weaker operating results or from persistently high leverage, with Total Adjusted Net Debt/Adjusted EBITDA of 3.5x or above and Retained Cash Flow/Total Adjusted Net Debt lower than 15% by the end of 2013. Furthermore, the rating or outlook could be negatively affected if Braskem assumes substantial risks related to its greenfield projects (debt or completion guarantees, etc) or if the level of consolidated secured debt materially increases.

The principal methodology used in rating Braskem was the Global Chemical Industry Methodology published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Braskem S.A. ("Braskem") is the largest producer of thermoplastic resins in the Americas, with annual production capacity of some 7.5 million tons of resins including polyethylene, polypropylene and PVC. Braskem also produces caustic soda, chlorine, EDC and gasoline. Braskem reported consolidated net revenues of about USD 19.7 billion in the last twelve months ended September 2012.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Barbara Mattos
Asst Vice President - Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Moody's affirms Braskem's Baa3 ratings; changes outlook to negative
No Related Data.
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