2008-05-21 23:55:43 -
- Fitch Ratings has assigned a 'BB+' rating to the proposed issuance of approximately US$400 million of notes due 2018 to be issued by Braskem Finance Ltd., a wholly owned special purpose finance company of Brazilian petrochemical company Braskem S.A. (Braskem). The notes will be unconditionally guaranteed by Braskem. The guarantee will rank pari passu with other unsecured and unsubordinated
obligations of Braskem. The proceeds of this issuance will be used to partially repay a bridge loan taken on to fund the acquisition of the Ipiranga Group's petrochemical assets. Fitch has foreign currency and local currency Issuer Default Ratings (IDRs) of 'BB+' and a national scale rating of 'AA(bra)' for Braskem. The corporate Rating Outlook is Positive.
The ratings reflect Braskem's continued leadership position in the Brazilian and Latin American petrochemicals sector. Braskem's ratings are also supported by the company's moderate leverage, strong liquidity, adequate debt composition, financial flexibility and solid but highly volatile operating cash flow. Integration of its first- and second-generation activities provides the company with a competitive advantage within the Brazilian industry, and has allowed Braskem to achieve substantial synergies, lower costs and higher-than-average EBITDA margins compared to similar local and international peers.
Fitch expects that the costs of raw materials derived from oil and natural gas prices will continue to be volatile in 2008. The passing on of naphtha costs and maintenance of current spreads and operating margins will continue to be one of the company's main challenges. Meanwhile, important factors such as the probable continued growth of the domestic economy, a reasonable balance between the supply and demand for petrochemical products, high utilization rates of production capacity, and strong demand in the principal consumer sectors that use plastics (civil construction, packaging, and consumer goods) are expected to contribute to possible increased naphtha prices being passed on to end-users.
Over the past 12 months, Braskem has consolidated its leadership position in the Brazilian petrochemical industry, obtaining a market share of over 50% in thermoplastic resins. It also strengthened its corporate structure and businesses following the announcement of an agreement with Petrobras (Fitch FC 'IDR' of 'BBB-' and National scale of 'AAA(bra)') to exchange petrochemical assets for an increased shareholder participation, which is expected to increase Petrobras' holdings from 8% to 25% in Braskem's total capital. The consolidation of important petrochemical assets bolstered the company's cash generation without incurring increased leverage contributing to its credit ratios. In 2007, the company generated EBITDA of BRL3.2 billion versus BRL1.6 billion in fiscal 2006. The EBITDA margin rose from 14% to 17% due to Braskem's ability to pass on costs.
The proposed investment program in Venezuela (construction of new petrochemical plants) could limit future capacity to reduce debt. Total investments are projected at USD3.5 billion, to be divided equally between Braskem and Petroquimica de Venezuela S.A (Pequiven) for the construction of a polypropylene plant (450,000 tons) and a cracker (1.3 million tons) in Venezuela. The project will be 70% financed through project finance and the remaining 30% from shareholder capital support in equal proportions. The expansion into a country with higher sovereign risk profile than that of Brazil could present new risks.
Braskem continues to have substantial liquidity, with BRL1,7 billion (USD971 million) in cash and marketable securities at March 2008. For the same period, Braskem's total debt was BRL9.3 billion (USD5,3 billion), with total debt/EBITDA ratio, 3.2x and the net debt/EBITDA ratio, 2.6x.
The Positive Outlook reflects an expectation that Braskem will be capable of increasing its cash flow generation and capturing relevant synergies, following the strategic acquisition of petrochemical assets of the Ipiranga Group in March 2007. Over the medium- to long term, the company's leverage should decrease, reflecting an increase in EBITDA. However, the programmed investments and increase in oil prices may slow the rate of this improvement. Fitch believes that the rate at which Braskem is able to reduce leverage will be fundamental to a potential upgrade to investment grade.
Braskem is the largest petrochemical company in Latin America. In the last five years, the company has grown due to the integration of petrochemical assets located in the Camacari (Bahia) and Triunfo (Rio Grande do Sul) petrochemical parks. In the Bahian Park, the assets encompass Copene Petroquimica do Nordeste S.A., OPP Quimica S.A., Polialden Petroquimica S.A., Trikem S.A., Nitrocarbono S.A. and Politeno S.A. In the Rio Grande Park, they consist of Ipiranga Petroquimica S.A, Ipiranga Quimica S.A., Copesul S.A., and OPP Quimica S.A. Following the relevant fact released on May, 14 2008, Braskem?s total capital is shared by Odebrecht/Norquisa (38.1% total capital and 60.3% voting capital), Petrobras (23.1% total capital and 30% voting capital) and capital market (38.8% total capital and 9.7% voting capital).
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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