Fitch assigns BBB- to Braskem proposed issuance of US$250M senior unsecured note to be added upon company's reopening of 5.75% notes due in 2021 to new, existing investors; most of issuance proceeds to be used for refinancing indebtedness
CHICAGO and RIO DE JANEIRO
January 26, 2012
– Fitch Ratings has assigned a 'BBB-' to Braskem Finance Limited's proposed add-on issuance of USD250 million senior unsecured note in a reopening of its 5.75% notes due in 2021 to new and existing investors. The notes are unconditionally guaranteed by Braskem S.A. (Braskem). The guarantee will rank pari passu with other unsecured and unsubordinated obligations of Braskem. The majority of this issuance proceeds will be used to refinance indebtedness.
Fitch currently rates Braskem as follows:
--Long-term foreign Issuer Default Rating (IDR) 'BBB-';
--Long-term local currency IDR 'BBB-';
--National scale rating 'AA+(bra)'.
The Rating Outlook is Stable.
Braskem's investment grade ratings are supported by its leading position in the Latin-American petrochemical sector as the sole thermoplastic resin producer in Brazil; and by the ongoing strengthening of its business base within the global petrochemical industry. Braskem's ratings are also supported by its strong shareholder structure with Odebrecht and Petrobras ('BBB'; Stable Outlook by Fitch) as its main two shareholders.
Fitch expects that Braskem will be able to reduce its leverage to levels more commensurate with the 'BBB-' rating due expectation of ongoing improvements in operating cash flow generation over the short to medium term and the company's management strong commitment to support this deleveraging process. New green field projects are expected to be financed through non-recourse project-finance debt. Acquisitions may likely continue to play an important role in Braskem's growth strategy, but the company is expected to be selective with its acquisitions, which build geographic diversity or access to competitive raw materials using a conservative capital structure.
Braskem's robust liquidity position is a key factor supporting its ratings. Company's management has been adopting a conservative and pro-active financial strategy to limit the risks associated to its business exposure to a cyclic and capital intensive industry. The company has strategically maintained a strong liquidity position and long-term debt life, combined with continuous financial cost reduction. This strategy has provided Braskem with a satisfactory payment profile, even in challenging operating cash generation scenarios or in the event of global credit tightness. As of Sept. 30, 2011, short term debt was BRL1.6 billion while cash and marketable securities was BRL3.4 billion, further supported by USD600 million of undrawn stand-by credit lines due in 2013 and 2016, without material adverse change clauses. At the same period, Braskem recorded total adjusted debt of BRL16.0 billion, which incorporates the BRL1.6 billion debt with the tax refinancing program (Refis).
The devaluation of the Brazilian Real recorded in 2H11 and a more challenging scenario during the period negatively affected the company's consistent de-leveraging process that has been occurring over the most recent quarters. However, Fitch believes that the positive fundamentals for the company's business remain unchanged on the medium term and expects that margins and operational cash flow to benefit with the devaluation of the Brazilian Real.
EBITDA generated during the last twelve months ended in September 2011 (LTM) was BRL4.3 billion, quite stable compared to the BRL4.1 billion reported in 2010. In September 2011, the leverage ratio as measured by Net Adjusted Debt/EBITDA was 2.9 times (x), which compares to a 3.0x in 2010 and 5.0x at year-end 2009, considering pro-forma figures of acquired assets. For 2012, Fitch expects leverage ratio as measured by Net Debt/EBITDA to close to range between 2.0x - 2.5x, and around 2.0x in 2013, which are key to sustaining the current ratings.
Key Rating Drivers
A greater than expected geographical diversification of its cash flow generation combined with the maintenance of strong financial profile could positively impact the ratings. Braskem's inability to increase its cash flow generation or to reduce leverage may pressure the ratings. In the short-to-medium term, event risk is moderate, yet Fitch expects that the company will carefully manage to adequately fund any possible future acquisitions and/or to finance relevant investments without moving the company's capital structure away from current levels.
Additional information is available at ' www.fitchratings.com '. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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