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S&P reduces Braskem rating

July 13/2020

MOSCOW (MRC) -- S&P Global Ratings lowered its rating for Braskem to speculative grade because the company's debt is expected to exceed the previous estimates of the credit agency, said the company.

The rating now stands at BB+, down from BBB-. The outlook is stable. By the end of 2020, Braskem could report a net debt ratio of 3.5x-4.5x in relation to earnings before interest, tax, depreciation and amortisation (EBITDA), S&P said. That compares with the agency's earlier estimate of 3.0x-3.5x.

The higher debt ratio reflects the fall in demand for petrochemicals around the world, a decline caused by the coronavirus (Covid-19). Given the effects of the pandemic, Braskem's utilisation rates for its crackers fell to 70-75%, S&P said. Based on those lower rates, S&P expects Braskem's volumes to fall by 5-10% in 2020.

At the same time, Braskem could continue to spend money to address damage linked to a former salt mine in the Brazilian state of Alagoas. A report from the Brazilian Geological Service (CPRM) said the mine caused subsidence that damaged nearby neighbourhoods. Already, Braskem reached an agreement with prosecutors worth hundreds of millions of dollars.

With that, S&P expects Braskem to report 2020 EBITDA of USD1.25bn-1.35bn, excluding any income from its Braskem Idesa joint venture. That would be 20-30% higher than in 2019. In 2021, S&P expects petrochemical volumes to increase gradually. Markets should continue to be oversupplied until at least mid-2021 and oil prices should rebound. A rise in oil prices could compress Braskem's margins.

S&P noted the commitment of Braskem's management to lower the company's debt ratio. Given that commitment, S&P expects Braskem's net debt/EBITDA to reach 3.0x-4.0x by the end of 2021. Braskem acknowledged the downgrade in a statement. The company said it has maintained a solid cash position and its debt has long maturity dates.

The company stressed its commitment to maintain liquidity and cost discipline while continuing to adopt measures to reduce its debt ratio at a level corresponding to investment grade.

Braskem makes polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC).

As MRC informed earlier, in H2 June, 2020, Braskem announced it had completed construction of its newest PP production facility at La Porte, Texas. The new plant has the capability to produce the entire PP portfolio including homopolymer, impact copolymer and random copolymers. The plant added 50 permanent full-time jobs to support long-term commercial production.

According to MRC's ScanPlast report, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.

Braskem S.A. produces petrochemicals and generates electricity. The Company produces ethylene, propylene, benzene, toluene, xylenes, butadiene, butene, isoprene, dicyclopentediene, MTBE, caprolactam, ammonium sulfate, cyclohexene, polyethylene theraphtalat, polyethylene, and polyvinyl chloride (PVC).


mrcplast.com
Author:Anna Larionova
Tags:PVC, PP, PE, Braskem, Brazil, Rossiya.
Category:General News
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