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Rating Action:

Moody's confirms Braskem's Ba1 rating; negative outlook

22 Aug 2017

New York, August 22, 2017 -- Moody's Investors Service, ("Moody's") confirmed Braskem S.A. ("Braskem")'s corporate family rating at Ba1 and the ratings on the foreign currency debt issuances of Braskem Finance Ltd and Braskem America Finance Company, fully guaranteed by Braskem S.A, at Ba1. The rating outlook is negative.

Ratings Actions:

..Issuer: : Braskem S.A.

LT Corporate Family Rating, confirmed at Ba1

..Issuer: Braskem America Finance Company

USD 750 mm GTD Global Senior Unsecured notes due 2041, confirmed at Ba1

..Issuer: Braskem Finance Ltd

USD 500 mm GTD Global Senior Unsecured notes due 2018, confirmed at Ba1

USD 750 mm GTD Global Senior Unsecured bonds due 2020, confirmed at Ba1

USD 1000 mm GTD Global Senior Unsecured bonds due 2021, confirmed at Ba1

USD 500 mm GTD Global Senior Unsecured notes due 2022, confirmed at Ba1

USD 750 mm GTD Global Senior Unsecured notes due 2024, confirmed at Ba1

USD 700 mm GTD Global Senior Unsecured notes (perpetual), confirmed at Ba1

Outlook Actions:

.. Issuer:: Braskem S.A:

....Outlook, Changed To Negative from Rating Under Review

..Issuer: Braskem America Finance Company:

....Outlook, Changed To Negative from Rating Under Review

..Issuer: Braskem Finance Ltd

....Outlook, Changed To Negative from Rating Under Review

RATINGS RATIONALE

The confirmation of the Ba1 ratings reflects the publication of audited financial statements for fiscal-year 2016 and 1st and 2nd quarters of 2017 with no material changes to unaudited results previously released. As a consequence, the company is now in compliance with Brazil´s Securities and Exchange Commission (CVM) reporting regulations, as well as capital market debt agreements. This eliminates the risk that bondholders would take actions that could lead to a declaration of default and a debt acceleration, therefore removing a material liquidity risk for Braskem. However, the company has not yet filed the 20-F, and is not in compliance with SEC reporting regulations. The SEC has extended the filing deadline for the 20-F report until mid-November 2017. Still, we understand this delay does not carry the risk of potential debt acceleration because the financial reporting requirements under capital markets debt agreements have been met by the CVM filing.

The Ba1 rating reflects Braskem's standalone credit profile and risks. The rating is supported by its size as the largest petrochemical company in Brazil and in the Americas by production capacity of resins, 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 and the geographic diversification with operations in the USA, Mexico and Europe. Exports from Brazil and international operations in the US, Europe and Mexico already represented about 49% and 51% of the company's consolidated revenues and EBITDA, respectively, in LTM ended June 2017. Geographic diversity should improve further as the company maintains its strategy of international expansion, enhancing product and feedstock diversification, reducing the inherent volatility to the petrochemical cycles, and helping to offset the impact of weak domestic economic fundamentals on the company's creditworthiness. Braskem's Ba1 rating ranks one notch above Brazil's government bond rating.

Challenges for the company's credit metrics include the timid economic growth in the Brazilian domestic market, which somewhat limits sales volume in Brazil, and the expected decline in PE spreads from 2017 onwards as new capacity hits the market, which will also compete with Braskem's established markets. The rating also factors in the company's exposure to naphtha and gas prices and its dependence on Petróleo Brasileiro S.A. - Petrobras (B1 positive) for the supply of a large portion of those inputs in Brazil and on Petroleos Mexicanos -- PEMEX (Baa3 negative) for the ethane supply in Mexico. Deceleration in global demand for resins and basic petrochemicals is an additional challenge.

The negative outlook reflects the outlook of Brazil's government bond rating.

An upgrade of Braskem's rating is unlikely given the high credit risk of the company's controlling shareholder Odebrecht S.A. (unrated) , that could require Braskem to increase its dividend distribution to levels materially above the minimum law requirements, jeopardizing its liquidity position. In 2016, Braskem, supported by its strong cash flows, distributed BRL2 billion in dividends relative to FY 2015, a substantial increase when compared to dividends distributed in previous years (2011-2015). Quantitatively, an upgrade would also require Braskem's leverage (as measured by Total Adjusted Debt to EBITDA) to be sustained below 3x (3.1x in the LTM ended June 2017, incorporating Mexico´s project finance debt) and the maintenance of a sound liquidity profile and positive free cash flow generation.

Negative pressure on the rating could result from weaker operating results or from persistently high leverage, with Total Adjusted Debt to EBITDA of 3.5x or above and Retained Cash Flow/Total Debt lower than 15% (17.9% in the LTM ended June 2017) on a sustained basis, with dividend payout consistently above the minimum established by the law. Furthermore, the rating could be negatively affected if Braskem faces material liabilities from litigations and class actions in addition to the amount related to the Global Agreement signed in December 2016 or if Braskem assumes substantial risks related to greenfield projects.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Braskem S.A. (Braskem) is the largest producer of thermoplastic resins (Polyethylene, Polypropylene and Polyvinyl chloride) in the Americas, with annual production capacity of 8.9 million tons. Braskem also has production capacity of 10.8 million tons of basic petrochemicals as ethylene, propylene, gasoline, among others and 1 million ton of caustic soda and chlorine. In the LTM ended June 2017, Braskem reported consolidated net revenues of BRL 48.5 billion (USD 15.0 billion).

REGULATORY DISCLOSURES

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Barbara Mattos, CFA
VP - Senior Credit Officer
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
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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