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31 Mar 2011
Approximately USD 1.7 billion in rated debt securities affected
Sao Paulo, March 31, 2011 -- Moody's Investors Service upgraded the ratings for Braskem S.A.'s
("Braskem") senior unsecured foreign currency notes to Baa3 from Ba1.
At the same time Braskem's corporate family ratings of Ba1 on the global
scale and Aa2.br on the Brazilian national scale were withdrawn.
The outlook for all ratings is stable.
Issuer: Braskem Finance Ltd. (Cayman Islands)
- USD 500 million senior unsecured guaranteed notes due 2018:
to Baa3 from Ba1 foreign currency rating
- USD 750 million senior unsecured guaranteed notes due 2020:
to Baa3 from Ba1 foreign currency rating
- USD 450 million senior unsecured guaranteed perpetual notes:
to Baa3 from Ba1 foreign currency rating
The outlook for all ratings is stable.
Issuer: Braskem S.A.
Corporate Family Rating: Ba1 (global scale), Aa2.br
(Brazilian national scale)
The upgrade of Braskem reflects the successful integration of Quattor
which is translating into improved operational performance as well as
cash generation. Following the recent approval by CADE of Quattor's
acquisition, we anticipate Braskem will be able to capture significant
additional synergies and accelerate leverage reduction in anticipation
to new expansion investments.
Braskem's Baa3 rating is supported by its large size as the largest petrochemical
company in Brazil and in the Americas by production capacity, with
above industry average operating margins that result from historically
high capacity utilization rates, long-term client relationships
and product customization. The rating also reflects the company's
significant market position, and the related benefits that will
accrue from the recent acquisition of Quattor. The rating also
factors in the company's exposure to volatile naphtha and natural gas
prices and its dependence on Petrobras for the supply of those inputs.
Braskem's moderate geographic diversification compared to international
peers, with revenues largely concentrated in Brazil, is expected
to improve in the long run as the company pursues its internationalization
projects, including potential investments in greenfield projects
in Latin American countries. The acquisitions of Quattor in Brazil
and Sunoco Chemical's assets in the U.S. have helped to
improve the operational diversity of Braskem by adding three relevant
site locations. Finally, Braskem's above-average level
of disclosure, its overall good governance practices and the relevant
interest of Petrobras in the company are regarded as credit positives.
The Baa3 rating of the notes also considers the moderate level of secured
debt and debt with claim priority at about 20% of Braskem's total
consolidated debt as well as the fact that some 90% of total adjusted
debt is at Braskem or issued by offshore financial subsidiaries against
the parent's guarantee.
The stable outlook reflects Moody's expectation that Braskem will maintain
its leading position in the Brazilian thermoplastic resins market,
improve its consolidated margins as additional synergies from the acquisition
of Quattor are captured, and prudently manage its liquidity position
(including a minimum liquidity cushion of BRL 1.5 billion) and
capital structure, which would include reducing leverage in terms
of Total Adjusted Net Debt (net of cash available for debt reduction)
to EBITDA approaching 2.5x by the end of 2011. Also,
the stable outlook assumes that the greenfield projects will be structured
in a way to ring-fence Braskem from any obligations other than
the anticipated equity contribution.
There is not expected to be any upward pressure on the company's rating
or outlook over the near term. Nevertheless, the rating or
outlook 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 (net of cash available
for debt redduction) to EBITDA stabilizing at around 2x. An upgrade
would also require that Braskem maintain strong liquidity and Retained
Cash Flow (defined as Funds from Operations less Dividends) to Net Debt
Though not anticipated in the near term, negative pressure on the
rating or outlook could result from weaker liquidity management or from
persistently high leverage, with Retained Cash Flow to Total Adjusted
Net Debt materially below 20% or Total Adjusted Net Debt to EBITDA
consistently above 3.0x. Furthermore, the rating or
outlook could be negatively affected if Braskem assumes higher risks in
greenfield projects than anticipated or still in case the level of consolidated
secured debt materially increases.
Moody's last rating action on Braskem occurred on September 23,
2010 when we rated the USD 450 million senior unsecured perpetual notes
issued by Braskem Finance Ltd. and guaranteed by Braskem.
The principal methodology used in this rating was Global Chemical Industry
published in December 2009
Braskem is the largest petrochemical company in the Americas, with
annual production capacity of some 6.5 million tons of thermoplastic
resins besides aromatics and automotive gasoline. Consolidated
net revenues in 2010 pro-forma for twelve months of Quattor and
Sunoco Chemical amounted to about USD 16 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
MD-US and Amer Corporate Fin
Corporate Finance Group
Moody's Investors Service
Moody's America Latina Ltda.
Moody's upgrades Braskem to Baa3
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