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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). |
