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18 Aug 2014
New York, August 18, 2014 -- 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 is negative.
Braskem's Baa3 rating is supported by its size as the largest petrochemical
company in Brazil and in the Americas by production capacity, with
historically above industry average operating margins coming from high
capacity utilization rates, long-term client relationships,
and product customization. The rating also reflects the company's
dominant market position in Brazil.
Challenges for the company´s credit metrics include the timid economic
growth in the Brazilian domestic market and the rising competition from
imported products, which somewhat limit volume growth and margin
expansion. The renegotiation of the naphtha-supply agreement
with Petrobras also brings uncertainties and further risk to margins.
Besides, Braskem's large capital spending in the next couple
of years limits leverage reduction potential. The rating also factors
in the company's exposure to naphtha and natural gas prices and its dependence
on Petrobras for the supply of those inputs. Finally, we
regard as credit positives Braskem's above-average level of disclosure,
its overall good governance practices and the significant interest of
Petrobras and Odebrecht in the company.
On a consolidated basis, Braskem's relatively high capital
spending requirements related to the greenfield Ethylene project in Mexico
(total investment of USD 4.5 billion) as well as the company's
sustaining capex has resulted in negative free cash flow, but the
company has been able to reduce leverage ratios over the last several
quarters as a consequence of improved operating results, tax incentives
and stable debt levels. Also, Braskem has good access to
capital markets and raised USD 750 million in 1H14 in two tranches for
liability management purposes.
In the last twelve months ended June 2014, Braskem's Total Adjusted
Debt (including refinanced taxes, FIDC, derivatives,
pension obligations and the limited recourse project finance debt in Mexico)
to Adjusted EBITDA of 4.4x was high for the rating category.
We acknowledge, however, an improvement from 2012 levels,
when leverage peaked at 5.9x. Adjusted EBITDA margins reached
13.2% in LTM ended June 2014, a recovery from 2012
levels, when margins bottomed at 9.5%. Notwithstanding,
a continued deterioration in Brazil's economic growth and rising
pressure from imported products in this industry could reduce Braskem's
ability to improve its credit metrics.
Meanwhile, Braskem's sound liquidity should provide the company
the financial flexibility necessary to ride through industry downturns.
At the end of June 2014, Braskem had BRL 3.2 billion in cash
and about BRL 1.8 billion in committed credit facilities fully
available. Divestitures of non-core assets (approximately
BRL 1 billion since the end of 2012) also support an improvement in the
company's liquidity. Notwithstanding the significant capital
expenditures underway, mitigating liquidity risk is that the greenfield
expansion in Mexico is funded under a project finance structure,
with 70% of debt (USD 3.2 billion) and 30% of equity
contribution, and Braskem's commitment towards the project
is limited to its 75% equity share and contractual obligations.
The negative outlook reflects Moody's expectation that Braskem's metrics
will remain pressured in the medium term owing to modest growth in key
developed markets and consequent pressure on international spreads,
weak domestic economic growth in Brazil, and the uncertainties surrounding
the naphtha-supply contract with Petrobras. Our expectations
of weak credit indicators, namely leverage and free cash flow metrics,
during the investments in its greenfield ethylene plant in Mexico (75%
equity participation) are also incorporated in the negative outlook.
A stabilization of the outlook would require Braskem's profitability to
return to its historical levels on a sustainable basis, while adjusted
leverage gradually decreases. A final agreement with Petrobras
for the naphtha contract and an outcome that does not imply a significant
cost increase for Braskem is also a necessary condition for the stabilization
of the outlook.
A rating upgrade is unlikely over the next few years given the current
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 (4.4x in LTM ended
June 2014). 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% (12.3% in the
LTM ended June 2014).
Negative pressure on the rating 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%. Furthermore, the rating could
be negatively affected if Braskem assumes substantial risks related to
greenfield projects (debt or completion guarantees, etc) or if the
level of consolidated secured debt materially increases.
The principal methodology used in these ratings was the Global Chemical
Industry Rating Methodology published in December 2013. 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 including polyethylene, polypropylene and
PVC. Braskem also produces caustic soda, chlorine,
gasoline and other basic petrochemicals. In the LTM ended June
2014, Braskem reported consolidated net revenues of BRL 44.4
billion (USD 19.5 billion converted by the average exchange rate
for the period).
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Marianna Fernandes Rodrigues Waltz
Associate Managing Director
Corporate Finance Group
Moody's affirms Braskem's Baa3 ratings; outlook remains negative
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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