CHICAGO & RIO DE JANEIRO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BB+' rating to Braskem America Finance Company proposed notes issuance of approximately USD500 million due 2041, which will be unconditionally guaranteed by Braskem S.A. (Braskem). The guarantee will rank pari passu with other unsecured and unsubordinated obligations of Braskem. This issuance proceeds will be used to repay Sunoco's acquisition loan and other debt repayment. Fitch has also assigned a Foreign and Local Currency Issuer Default Rating (IDR) of 'BB+' to Braskem America Finance Company.
Fitch currently rates Braskem and its subsidiaries as follows:
--Long-term
foreign Issuer Default Rating (IDR) 'BB+';
--Long-term local
currency IDR 'BB+';
--National scale rating 'AA(bra)'.
The Rating Outlook is Positive.
Braskem was assigned a Positive
Outlook on Jan. 11, 2011, reflecting Fitch's expectation of ongoing
improvements in Braskem's operating cash generation, which should result
in a leverage reduction trend while maintaining strong liquidity,
sufficient to cover debt scheduled amortizations in the next two years.
Fitch expects a more robust EBITDA as a result of synergies from
Quattor's integration, estimated by the company at around BRL377 million
in 2011 and BRL495 million in 2012 on a recurring basis. Historically,
Braskem has been successful in identifying and capturing synergies from
acquired operations and investments and in most of the cases has reached
the expected additional cash generation in a shorter time frame.
In addition, the Positive Outlook incorporates that Braskem will prioritize the reduction of its net leverage, opposing its track record of aggressive growth strategy, and that the new green field projects will be financed through non-recourse project-finance debt. Fitch expects that Braskem's improved leverage profile will be maintained in the long term.
Braskem has consistently reduced its leverage since the Quattor acquisition in early 2010. Over the last year, Quattor has shown an increase in its operating margins, partially due to better stability of raw material supply and the maturation of investments that came on line in 2009. In addition, the new management at the business and the implementation of practices similar to those adopted at Braskem have led to a continuous strengthening in profitability.
BUSINESS PROFILE FAVORABLY COMPARES WITH GLOBAL PEERS:
Braskem's
ratings reflect its dominant position in the Brazilian and Latin
American petrochemical sector. Integration of its activities gives
Braskem a competitive advantage within the region's petrochemical
industry. Braskem presents a track record of strong and less volatile
margins when compared to its global peers. The company's positive free
cash flows through the cycle also benefits its credit profile. Quattor's
acquisition allowed Braskem to become the sole thermoplastic resin
producer in Brazil and to geographically diversify its production plants
in Brazil. The stronger partnership with Petrobras, which is its major
supplier and now also has a strategic position in Braskem's voting
capital (47%), as well as higher raw material diversification further
favors its business profile and cost structure. The company's ratings
are also supported by its strong liquidity and extended debt profile
that allows it to mitigate the volatility inherent to the cyclical
petrochemical industry.
HIGH EXPOSURE TO DOMESTIC MARKET PERFORMANCE:
Braskem's performance
is strongly focused on the Brazilian economy, as approximately 70% of
its revenues are generated in the local market, although its prices are
benchmarked to the international market. For 2011 and 2012, Fitch
expects that the Brazilian economy will grow 4% and 4.5%, respectively.
The favorable environment for the domestic market should further benefit
the company's cash generation combined with an expected recovery of the
global petrochemical industry cycle.
IMPROVEMENTS IN QUATTOR'S FINANCIAL PROFILE:
Braskem successfully
managed to refinance Quattor's riskier debt profile and to balance it
with its own financial standards. Braskem used the proceeds obtained
through an equity injection (BRL3.7 billion) from its shareholders to
prepay a portion of Quattor's debt. Braskem also accessed the
international capital markets to refinance part of the remaining
obligations. As of March 31, 2011, Braskem has extended its debt
scheduled amortizations and reduced its financial costs. Braskem's total
debt was BRL14.2 billion, and cash and marketable securities was BRL2.9
billion, with amortizations of BRL2.7 billion until 2012, including the
tax rescheduling program (Refis). Braskem's pro forma EBITDA for the
last twelve months period ended on March 31, 2011 was BRL4.1 billion.
FURTHER LEVERAGE REDUCTION EXPECTED AHEAD:
Braskem's credit metrics
are expected to strengthen reflecting higher operating cash generation.
The company's ability to support and to improve its main credit metrics
will be key to support an upgrade. As Fitch expected, Braskem posted a
net debt/EBITDA ratio in 2010 below 3.0 times (x) and it should move
closer to 2.0x going forward in 2011 and 2012. On a pro forma basis,
incorporating 12 months of operations of Quattor and Sunoco, Braskem's
net adjusted leverage ratio was 2.9x compared to 5.0x at the end of
2009. Braskem's main challenges are related to its ability to maintain a
balanced capital structure in case of another acquisition abroad. Fitch
also factors in Braskem's ratings the financial and operative support
from its main shareholders, Odebrecht Group and Petrobras.
STRONG LIQUIDITY IS KEY:
Braskem's liquidity remains robust, with
BRL2.9 billion in cash and marketable securities at March 31, 2011. In
addition, Braskem has USD350 million of an undrawn stand-by credit line
due to 2013, without finance restrictive clauses for neither draw-downs
nor acceleration, that further enhance its liquidity. In the past five
years, the company has maintained strong liquidity vis-a-vis its
obligations, reporting an average cash/short-term debt ratio of around
1.4x, which in turn has allowed it to mitigate the volatility inherent
to the cyclical petrochemical sector.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Corporate Rating
Methodology'(Aug. 13, 2010).
Applicable Criteria and Related Research:
Corporate Rating
Methodology - Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
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