Fitch Rates Braskem's Proposed Reopening of Perpetual Notes 'BBB-'

Fitch Rates Braskem's Proposed Reopening of Perpetual Notes 'BBB-' | Bild: © ad-hoc-news

Fitch currently rates Braskem as follows:

--Long-term foreign Issuer Default Rating (IDR) 'BBB-';

--Long-term local currency IDR 'BBB-';

--National scale rating 'AA+(bra)'.

Braskem Finance Limited

--Long-term foreign currency IDR 'BBB-'.

The Rating Outlook is Stable.

The ratings of Braskem and Braskem Finance have been directly linked through Fitch's parent and subsidiary methodology.

Braskem's investment grade ratings are supported by its leading position in the Latin-American petrochemical sector as the sole thermoplastic resin producer in Brazil and by the ongoing strengthening of its business base within the global petrochemical industry. Braskem's ratings are also supported by its strong shareholder structure with Odebrecht and Petrobras ('BBB'; Stable Outlook by Fitch) as its main two shareholders.

Fitch expects that Braskem will be able to reduce its leverage to levels more commensurate with the 'BBB-' rating due expectation of ongoing improvements in operating cash flow generation over the short to medium term and the company's management strong commitment to support this deleveraging process. New green field projects are expected to be financed through non-recourse project-finance debt. Acquisitions may likely continue to play an important role in Braskem's growth strategy, but the company is expected to be selective with its acquisitions, which build geographic diversity or access to competitive raw materials using a conservative capital structure.

Braskem's robust liquidity position is a key factor supporting its ratings. Company's management has been adopting a conservative and pro-active financial strategy to limit the risks associated to its business exposure to a cyclic and capital intensive industry. The company has strategically maintained a strong liquidity position and long-term debt life, combined with continuous financial cost reduction. This strategy has provided Braskem with a satisfactory payment profile, even in challenging operating cash generation scenarios or in the event of global credit tightness. As of Sept. 30, 2011, short-term debt was BRL1.6 billion while cash and marketable securities was BRL3.4 billion, further supported by USD600 million of undrawn stand-by credit lines due in 2013 and 2016, without material adverse change clauses. At the same period, Braskem recorded total adjusted debt of BRL16 billion, which incorporates the BRL1.6 billion debt with the tax refinancing program (Refis).

The devaluation of the Brazilian Real recorded in 2H'11 and a more challenging scenario during the period negatively affected the company's consistent de-leveraging process that has been occurring over the most recent quarters. However, Fitch believes that the positive fundamentals for the company's business remain unchanged in the medium term and expects that margins and operational cash flow to benefit with the devaluation of the Brazilian Real.

EBITDA generated during the last 12 months ended in September 2011 (LTM) was BRL4.3 billion, quite stable compared to the BRL4.1 billion reported in 2010. In September 2011, the leverage ratio as measured by Net Adjusted Debt/EBITDA was 2.9 times (x), which compares to a 3.0x in 2010 and 5.0x at year-end 2009, considering pro forma figures of acquired assets. For 2012, Fitch expects leverage ratio as measured by Net Debt/EBITDA to close to range between 2.0x - 2.5x, and around 2.0x in 2013, which are key to sustaining the current ratings.

Key Rating Drivers

A greater than expected geographical diversification of its cash flow generation combined with the maintenance of strong financial profile could positively impact the ratings. Braskem's inability to increase its cash flow generation or to reduce leverage may pressure the ratings. In the short to medium term, event risk is moderate, yet Fitch expects that the company will carefully manage to adequately fund any possible future acquisitions and/or to finance relevant investments without moving the company's capital structure away from current levels.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011);

--'National Ratings - Methodology Update' (Jan. 19, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

National Ratings Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885

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