Fitch maintains negative outlook on Brazilian petrochemical company Braskem due company's high leverage, but envisages potential positive trend for cash flow recovery as result of medium-term fiscal incentives, depreciation of Brazilian real
October 10, 2013
– Credit ratings agency Fitch has affirmed its BBB- rating on Brazilian petrochemical company Braskem (NYSE: BAK), maintaining its negative outlook on the company.
Fitch said the ratings reflect Braskem's leading position in the Latin American petrochemical sector, as the sole thermoplastic resin producer in Brazil and its ongoing challenges as a global high cost producer.
Fitch said the negative outlook reflects Braskem's high leverage, but said it also envisages a potential positive trend for cash flow recovery as a result of medium-term fiscal incentives, healthy petrochemical spreads and depreciation of the Brazilian real.
"If this scenario materializes in 2014, the company's rating outlook should be revised to stable," Fitch said.
According to Fitch, Braskem's large dependence on naphtha, which represents 70% of Braskem's total feedstock, currently positioned it as a high cost producer.
However, it said Braskem's position improved during 2013 due to the depreciation of the Brazilian real, healthy international petrochemical prices and initiatives by the Brazil government to support the competitiveness of the local industry through tax decreases.
Braskem's Ethylene XXI project in Mexico should also improve Braskem's competitive position once it becomes fully operational in 2016.
For 2013, Fitch projects a decline in Braskem's leverage to about 3.0x during 2013 from the 4.5x as of June 30, 2013. Leverage should then decline to 2.5x in 2014 as the company receives a full year's benefit from the tax reductions.