Braskem may return to the Investment Grade category

Braskem (BB + / Ba1 / BB +) posted strong quarterly results. The company's consolidated revenue in 1Q21 amounted to $ 4.13 bn, having increased by 19% (+ 47% YoY), while EBITDA grew by 52% qoq to $ 1.26 bn (4x EBITDA 1Q20), providing an increase in the margin up to 30.6% versus 24% in 4Q20 and 9.4% in 1Q20. Braskem's impressive financial performance has come amid continued growth in petrochemicals globally and strong demand in key markets. Although capacity utilization in Mexico remains low, the results were good in all regions of the geographic presence.

Management maintains a positive outlook for 2021 results, but believes there will be a slowdown in growth in the second half of the year as new capacity is expected to normalize global spreads. However, we note that spreads remain well above levels seen in recent years. Favorable fundamentals in the industry contributed to strong cash flow generation, which contributed to a further decrease in debt burden to 2x from 3.4x.

Gross debt decreased by $ 600 million to $ 8.3 billion. Net debt was $ 5.8 billion. Liquidity position at the end of the year was strong with cash and cash equivalents of 2.5 billion and unused credit line of 1 billion. In March In 2021, Braskem bought back $ 500 million of perpetual bonds. We believe that the favorable macro environment will continue to have a favorable impact on the debt profile, therefore Braskem has further potential to reduce its debt burden, which opens the possibility for the issuer to return to the Investment Grade category. Among Eurobonds, the most attractive issue looks to be maturing in January 2030 (USN15516AD40 / RegS). The securities are traded with a yield of 3.7% per annum with a duration of 7 years.

Much like the Amazon, Braskem is a South American giant, the continent's largest petrochemical company. The company produces thermoplastic resins (Polyethylene, Polypropylene and Polyvinyl Chloride). Braskem also makes aromatics like benzene, ethylene, propylene, and butadiene. It has some 40 industrial units installed in four countries (Brazil, United States, Mexico and Germany). Brazil accounts for the majority of sales.