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Fitch Affirms Braskem's IDR at 'BBB-'; Outlook Remains Negative

  Fitch Affirms Braskem's IDR at 'BBB-'; Outlook Remains Negative

Business Wire

RIO DE JANEIRO -- October 9, 2013

Fitch Ratings has affirmed the foreign and local currency Issuer Default
Ratings (IDRs) of Braskem S.A. (Braskem) and its subsidiaries at 'BBB-', as
well as its 'AA+ (bra)' national scale rating. The Rating Outlook remains
Negative. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Braskem's ratings reflect its leading position in the Latin American
petrochemical sector, as the sole thermoplastic resin producer in Brazil and
its ongoing challenges as global high cost producer. The ratings also reflects
ownership stakes of Grupo Odebrecht and Petroleo Brasileiro S.A (Petrobras;
local and foreign currency IDR of 'BBB', Stable Outlook by Fitch) in Braskem
of 38.3% and 35.8%, respectively. Further factored into the company's ratings
are its strong liquidity position and manageable debt amortization schedule.

Braskem's Negative Outlook reflects high leverage for the rating category. The
company continues to take extraordinary measure - such as assets sales - to
lower debt. Fitch envisages a potential positive trend for cash flow recovery
as result of medium-term fiscal incentives, healthy petrochemical spreads and
BRL depreciation. If this scenario materializes in 2014, the company's Rating
Outlook should be revised to Stable.

High Production Costs Challenges Robust Business Position

Braskem's large dependence on naphta, which represents 70% of Braskem total
feedstock, currently positioned it as high cost producer. During 2011 and
2012, in a scenario of depressed petrochemical spreads, Braskem was not able
to implement a pass-through of higher raw materials prices due to fierce
competition with imports, despite having a market position in Brazil of almost
100% in thermoplastic resins production and about 70% of the domestic sales
market. The company'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. The company is also constructing a greenfield
polyethylene project in Mexico that should improve Braskem's competitive
position once it becomes fully operational in 2016. The impact upon the
company will be limited; however, as the plant is projected to generate only
about 25% of the company's future cash flow.

Operating Cash Flow Recovery Depends on Government Incentives and Favorable
Scenario

Braskem's operating cash flow is sensitive to fiscal incentives, a scenario of
stronger petrochemical spreads, and the appreciation of the USD dollar versus
the Brazilian real. Fitch expects recently initiated fiscal incentives to
improve the company's cash flow by around BRL650 million in 2013, BRL1 billion
in 2014 and 2015, BRL650 million in 2016 and BRL120 million in 2017, when the
incentives are scheduled to be rescinded. Fitch's base case scenario foresees
BRL3 billion in funds from operations (FFO) and BRL4.6 billion in EBITDA in
2013. These figures compare favorably with BRL1.5 billion and BRL3.5 billion,
respectively, in 2012, and BRL2.5 billion and BRL3.8 billion during the latest
12 months (LTM) ended June 30, 2013.

Deleverage Trend
Braskem has only been able to sell BRL680 million of Fitch's expected amount
of asset sale of BRL1.5 billion. The negative impact of its shortfall upon the
company's goal of deleveraging has been mitigated to an extent by the
combination of stronger cash flow generation and the sale of smaller assets.
Fitch's expects free cash flow to be marginally positive in 2013 and be more
robust in 2014. The first disbursement of the Mexico project financing (USD1.5
billion), under non-recourse conditions, has allowed Braskem to receive USD649
million to prepay its bridge loan, which has lowered its leverage. For 2013,
Fitch projects a decline in Braskem's leverage to about 3.0 times (x) 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 years benefit from the tax reductions.

Proactive Liability Management/Robust Liquidity
Braskem's management has adopted a conservative and pro-active financial
strategy to limit the risks associated with its exposure to the cyclic and
capital intensive nature of its business. The company has a robust liquidity
position and a manageable debt amortization profile with BRL3.5 billion of
cash and marketable securities as of June 30, 2013. The company's liquidity
position is further supported by BRL450 million and USD600 million of undrawn
standby credit lines due 2016, without material adverse change clauses. These
levels of liquidity compare with BRL2.9 billion of short-term debt. As of June
30, 2013, Braskem had BRL20.7 billion of total adjusted debt. This debt
incorporates BRL1.2 billion debt of tax related debt (Refis).

RATING SENSITIVITIES

Braskem's inability to increase its cash flow generation or to reduce leverage
in the medium term will lead to a rating downgrade. Braskem's performance is
strongly focused on the Brazilian economy, as around 65% of its revenues are
generated in the local market. A downturn of the economy would weaken the
company's results and could also result in a negative rating action.

A rating upgrade is not likely until the company significantly improves its
operational performance and/or substantially lowers its financial obligations.
Continued strong performance during the end of 2013 and throughout 2014 could
result in the Rating Outlook being revised to Stable from Negative.

Fitch has affirmed the following ratings:

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

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

Braskem Finance Limited
--Long-term foreign currency IDR at 'BBB-';
--Unsecured senior notes due 2018, 2020, 2021 and 2022 at 'BBB-';
--Unsecured senior perpetual bonds at 'BBB-'.

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

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

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013).

Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=804578
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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
Centro - Rio de Janeiro - RJ
or
Secondary Analyst
Ricardo Carvalho, +55-11-4504-2607
Senior Director
or
Committee Chairperson
Dan Kastholm, CFA, +1-312-368-2070
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com
 
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