Fitch: Fiscal Incentives May Bring Some Relief to Braskem but Ratings Still Under Pressure

  Fitch: Fiscal Incentives May Bring Some Relief to Braskem but Ratings Still
  Under Pressure

Business Wire

RIO DE JANEIRO -- April 25, 2013

Recent initiatives announced by the Brazilian government to support the
competitiveness of the local chemical industry through lower taxes should
marginally improve the profitability and operating cash flow generation of
Braskem. Nevertheless, Fitch believes the expected change in Braskem's cash
flow will not be sufficient to materially lower the company's leverage, which
is high for the rating category. As a result, Braskem remains at risk of a
rating downgrade in the near-to-medium term if a deleverage does not occur.

Braskem has not been able to reduce its leverage to levels expected by Fitch.
In Fitch's base case for the current rating category, it had factored in
non-core asset sales of about BRL1.5 billion by Braskem by the end of 2012 and
the first quarter of 2013, which would have lowered Braskem's leverage to
below 3.5x. As of March 31, 2013, Braskem had sold only BRL652 million of
assets. Most of the proceeds from this sale will be received in the second
half of 2013.

Fitch had also incorporated in its base case rating the scenario that
Braskem's operating cash flow would improve in 2013 as a result of these
anticipated government incentives together with those announced at the end of
2012. The 2012 measures included the termination of tax incentives that states
were giving to imported products. Combined, divestments of BRL1.5 billion plus
increasing cash flow was anticipated to lower Braskem's net leverage to about
3.0x.

As per Fitch's calculation, the announced tax reduction of 4.6% on raw
materials such as naptha, which combined represent 52% of Braskem's cost of
goods sold (COGS), along with the 9.25% tax reduction for propylene, which
represents an additional 8% of COGS, should increase operating cash flow by
about BRL650 million in 2013 and BRL1 billion annually in 2014 and 2015. While
positive, these improvements on a stand-alone basis would not be sufficient to
reduce leverage to 3.0x or below by the end of 2013. On a pro forma basis,
considering the cash flow increase due to the tax reductions and the receipt
of BRL652 million from the asset sale, Braskem's net leverage should be around
3.6x by the end of 2013. Absent other assets sales or operation improvements,
the probability of a future downgrade for Braskem still remains.

Fitch currently rates Braskem as follows:

Braskem S.A.
--Long-term foreign currency IDR 'BBB-';
--Long-term local currency IDR 'BBB-';
--Long-term national rating 'AA+(bra)';
--Unsecured senior notes due 2014 and 2017 'BBB-'.

Braskem International
--Long-term foreign currency IDR 'BBB-';
--Unsecured senior notes due in 2015 'BBB-'.

Braskem Finance Limited
--Long-term foreign currency IDR 'BBB-';
--Unsecured senior notes due 2018, 2020 and 2021 'BBB-';
--Unsecured senior perpetual bonds 'BBB-'.

Braskem America Finance Company
--Long-term local and foreign currency IDR 'BBB-';
--Unsecured senior notes due 2041 'BBB-'.

The Rating Outlook is Negative.

Additional information is available at 'www.fitchratings.com'.

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Contact:

Fitch Ratings
Primary Analyst
Debora Jalles, +55-21-4503-2629
Director
Fitch Ratings Brasil Ltda.
Praca XV de Novembro, 20 - Sala 401 B
Centro - Rio de Janeiro - RJ - CEP: 20010-010
or
Secondary Analyst
Renata Pinho, +55-11-4504-2207
Director
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com
 
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