Fitch Braskem s US$200MM Perpetual Bond Issuance rated BB

Post on: 28 Июнь, 2015 No Comment

April 05, 2006 12:36 PM Eastern Daylight Time

RIO DE JANEIRO, Brazil & CHICAGO—( BUSINESS WIRE )—April 5, 2006—Fitch has assigned a rating of ‘BB-‘ to the proposed offering of US$200 million senior unsecured perpetual bonds to be issued by Braskem S.A. (Braskem). The perpetual bonds have no fixed final maturity but will become callable by Braskem in whole on a quarterly basis after the five-year initial term ending April 2011. The bonds are privately placed pursuant to rule 144A of the Securities Act of 1933. Interest will be paid on a quarterly basis. The proceeds of the offering are expected to be used to pay for the Politeno acquisition and for general corporate purposes. Fitch also maintains an international local currency rating of ‘BB+’ and a national scale rating of ‘AA-(bra)’ for Braskem. The Rating Outlook for Braskem’s Foreign Currency rating is Positive and is Stable for all other ratings.

Braskem’s ratings reflect the company’s solid credit profile, supported by a strong and sustained operational cash flow, low leverage, a long-term debt profile and a strong liquidity position. Braskem also benefits from its leadership position in the petrochemical industry in Latin America and Brazil. The integration of its first and second generation activities provides the company with a competitive advantage within the national petrochemical industry. Braskem is well positioned in the rating category to maintain its credit quality throughout the petrochemical cycle. Braskem’s foreign currency bond ratings are constrained by the ‘BB-‘ country ceiling of the Federative Republic of Brazil.

The acquisition of Politeno, a second generation petrochemical company, is positive but should not materially affect Braskem’s credit profile. Politeno represents approximately 18% of the domestic production of polyethylene thus strengthening Braskem’s leadership in the polyethylene market. Braskem also expects other relevant synergies to positively affect its consolidated EBITDA. Braskem previously owned 35% of Politeno’s voting capital (34% of total capital) and will consolidate the asset post-acquisition. The purchase of 65% of the voting capital of Politeno (62.2% of total capital) for approximately US$111 million, as announced on April 5 2006, will be financed with the proceeds from the Perpetual Bond issuance. In 2005 Politeno reported an EBITDA of BRL123 million and a total debt of BRL97 million.

On the other hand, the recent decision by Petrobras Quimica (Petroquisa) not to increase its participation in Braskem’s voting capital from 10% to 30% is neutral to Braskem’s credit quality. In Fitch’s view, however, a positive decision on Petroquisa’s part would have strengthened Braskem’s credit fundamentals due to the incorporation of new assets transferred by Petroquisa as compensation for Petroquisa’s increased participation in the capital of Braskem.

In recent years, Braskem has concentrated on consolidating its first and second generation petrochemical operations. Braskem has achieved substantial synergies and cost reductions that, added to a larger sales volume of its products in an environment of higher petrochemical prices, has enabled the company to build a strong liquidity position. Despite a more challenging scenario, as was seen in 2005, Braskem continued to reduce its indebtedness and increase the average maturity of its debt. The year 2005 was characterized by greater pressures on margins due to the increase in the price of naphtha and appreciation of the real against the dollar.

Braskem’s credit protection measures have shown solid improvement in recent years. In 2005, a larger sales volume and higher prices were not sufficient to neutralize the negative effects of the increase in the price of naphtha and the appreciation of the Real. Although Braskem reported a lower EBITDA, its credit quality was not compromised. Interest coverage increased to 4.8 times in 2005 versus 4.0 times (x)during 2004 and 3.5(x) in the same period for 2003. The reduction in Braskem’s EBITDA was offset by lower debt levels resulting in a gross debt/EBITDA ratio of 2.4(x), close to the 2.2(x) of 2004. Increased liquidity was reflected in its net debt/EBITDA ratio of 1.4(x), versus 1.5(x) in 2004 and 3.5(x) in 2003. The maintenance of a strong credit profile in 2005 reflects the company’s efficiency in generating robust free cash flows in less favorable scenarios and its ability to continue its debt reduction process. The company has reduced debt by BRL2.3 billion since December 2003.

Fitch expects that Braskem management will maintain a debt profile that in terms of maturities and cost of debt, will allow the company to satisfactorily operate through the peaks and troughs of the petrochemical industry cycle. Fitch expects that the company will maintain a liquidity position sufficiently strong to limit its exposure to refinancing risk.

The actual results of the petrochemical industry in 2005 were not completely in line with the outlook from the beginning of the year. The significant rise in the prices of oil and its derivates tempered the expected greater spreads within the petrochemical chain. Also, the outlook of continued high oil prices resulted in increasing purchases of petrochemical products in the beginning of 2005, which caused an accumulation of stocks in the petrochemical chain throughout the year. The price of oil (Brent) in 2005 rose by 43% in relation to the same period of 2004, while the increase for naphtha was 26% in relation to the 2004 average.

The Brazilian petrochemical sector followed the same tendency as the international market. The industry was affected by the rise in average naphtha prices, which was mitigated, in part, by the appreciation of the Brazilian real versus the U.S. dollar. The weaker performance of the Brazilian economy and higher interest rates resulted in a lower demand for the petrochemical industry in the local market, especially resin products, and, consequently, the companies directed a higher proportion of production to the international market, with consequent losses in margin. Under this scenario, Braskem reported a decline of 18% in its EBITDA (BRL2.1 billion) compared with that of 2004. Despite its less robust EBITDA, Braskem was able to reduce its total debt by BRL647 million and increase its liquidity position by BRL387 million.

The near term fundamentals that drive industry performance are still positive. For the next three years, the global balance for petrochemical products remains favorable. Capacity utilization rates are expected to remain above 92% until 2008, influenced by expectations that the growth in demand will exceed that of supply. The additions of ethylene capacity from the Middle East and Asia are not expected to be sufficient to change the current imbalance between supply and demand. However, for 2006 Fitch does not expect significant changes in the current spreads obtained by Braskem within the petrochemical chain. Consequently, in 2006 Braskem is expected to report an EBITDA close to that of 2005.

Braskem remains exposed to risks of an increase in the price of oil and its direct influence on the raw material costs of petrochemical companies, as well as the effect of high prices on demand and the market’s capacity to continue passing on cost increases. Continued appreciation of the already strong Real against the dollar could also continue to affect the company’s EBITDA. In 2005, Braskem reported a net negative impact of BRL652 million from the negative and positive exchange effects, respectively, on revenues and costs.

Braskem is the largest petrochemical company in Latin America, producing 5.7 million tons of primary, secondary and intermediary petrochemical products in its integrated first and second generation petrochemical production facilities. The company has grown over the past four years as a result of the integration of six Brazilian petrochemical companies: Copene Petroquimica do Nordeste S.A. OPP Quimica S.A. Polialden Petroquimica S.A. Trikem S.A. Proppet S.A. and Nitrocarbono S.A. The company is currently organized into four business units: basic inputs, polyolefins, vinyls and business development. Braskem is controlled by the Odebrecht group and Norquisa, which hold 47.5% and 25.4%, respectively, of its voting capital.

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