Braskem S.A. downgraded by S&P due to high leverage and negative outlook

Investing.com -- S&P Global Ratings has downgraded its credit rating for petrochemical company Braskem (NYSE:BAK) S.A. to ’BB’ from ’BB+’ on May 27, 2025. The downgrade is due to continued high leverage and a negative outlook for the company. S&P also lowered the ratings for Braskem’s senior unsecured notes and subordinated notes. The company’s national scale issuer and issue-level ratings remain at ‘brAAA’.

The global petrochemical industry is facing low prices due to demand and supply imbalances, and no significant improvements are expected in the near term. Braskem’s EBITDA and cash flow generation have not improved over recent quarters, and the company’s credit metrics are likely to continue being strained due to persistently weak market conditions.

S&P’s adjusted leverage for Braskem in 2024 and the first quarter of 2025 was above 9x, mainly due to lower than expected volumes at low prices. Approximately 90% of the company’s debt is in U.S. dollars, which has also been affected by peak foreign exchange rates at the end of 2024.

Despite the challenging industry conditions, Braskem has a sound liquidity position. This is supported by an extended debt maturity profile, a strong cash position, a revolving credit line, and no significant debt maturities until 2028. The company’s credit strengths include most of its debt being at fixed rates at an average cost slightly above 6%, as well as its large scale and strong market position in Brazil.

Braskem has also requested an investigation into alleged dumping practices by U.S. and Canadian exporters of polyethylene (PE) to Brazil. If anti-dumping measures are implemented, it could potentially boost Braskem’s volumes and PE prices.

Additionally, there is an ongoing discussion in Brazil’s Congress about a special tax regime for the chemical industry, which could potentially increase the tax relief on raw material purchases. However, these potential benefits are not included in S&P’s forecast due to uncertainties about the timing and final impact.

In terms of ownership, Braskem disclosed last Friday that Novonor received a nonbinding offer from Petroquímica Verde Fundo de Investimento em Participações, owned by Nelson Tanure, to buy Novonor’s controlling stake in Braskem. If the new fund adheres to the existing shareholders’ agreement, S&P’s view of Braskem as insulated and delinked would likely remain unchanged.

The negative outlook for Braskem continues to reflect the challenging industry conditions for petrochemical companies, particularly those with naphtha-based operations like Braskem. The outlook indicates a one-in-three chance of a further downgrade if the company’s profitability and cash flow generation do not improve in line with S&P’s base-case scenario.

S&P could lower the ratings in the next 12-18 months if low petrochemical spreads and pressures from imported products in Brazil lead to weaker sales volumes, utilization rates, and revenues. The ratings could also be lowered if the company’s currently sound liquidity cushion is reduced due to higher-than-expected cash burn, or if the company makes sizable additional provisions related to the geological event in Alagoas.

However, the outlook could be revised to stable in the next 12-18 months if there are improvements in profitability and credit metrics aligned with S&P’s base-case scenario. This could occur as a result of lower competition from PE imports in Brazil, an increase of the REIQ tax relief, higher petrochemical spreads, or higher efficiency gains.

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