Wed 11/11/2020 07:32 AM
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Braskem’s net revenue was up 43% in the third quarter compared with the prior period to 15.992 billion Brazilian reais (about $2.953 billion using current rates) and up 20% year over year. Recurring EBITDA increased about 127% over the prior quarter to BRL 3.765 billion as a result of higher spreads and an increase in sales volumes as demand for resins picked up; on a year-over-year basis, recurring EBITDA in Brazilian real terms increased 129% (69% in U.S. dollar terms).
Braskem attributed the quarter-over-quarter increase in EBITDA to better spreads of polyethylene, or PE, in Brazil, polypropylene, or PP, in the United States, and PE in Mexico, as well as an increase in sales volume in Brazil and the U.S. due to a recovery in demand for resins in the Brazilian market and for PP in North America.

Regarding the year-over-year EBITDA improvement, Braskem said there were higher spreads of PE and polyvinyl chloride, or PVC, in Brazil, PP in Europe and PE in Mexico, as well as increases in sales volume in Brazil, United States and Mexico.

A sales breakdown shows increases in PP sales to the automobile sector and PVC sales to the textiles sector, offset by declines in agriculture-related PP sales and PVC sales to the construction sector:

Turning to consolidated cash flows, Braskem generated BRL 515 million of free cash flow after interest payments and spent BRL 159 million on lease payments. The company paid down BRL 8.883 billion of debt and received BRL 6.104 billion of proceeds from borrowings.

Cash and cash equivalents fell to BRL 12.324 billion from BRL 14.985 billion in the previous period.

The company had a BRL 1.250 billion working capital outflow due to receivables (BRL 532 million), inventories (BRL 584 million) and suppliers (BRL 134 million). However, the cash usage from the aforementioned items was offset by a BRL 908 million inflow due to recoverable taxes, as well as BRL 153 million of advanced expenses.

Braskem’s EBITDA increase and free cash flow generation helped reduce leverage. Net debt fell BRL 179 million from the previous period to BRL 6.153 billion. Net leverage declined by about 2 turns during the quarter, to about 5x from 7x:

Providing an update on the situation regarding the environmental incident in the state of Alagoas caused by the company’s salt mining operations, Braskem said it has started purchasing third-party feedstock for the plant. In January, Braskem disclosed a BRL 1 billion cost associated with closing the plant.

The estimated cost for resuming operations, including the third-party purchases, is approximately BRL 60 million, and by the end of the third quarter, BRL 59 million had already been spent. The chlor-alkali plant is expected to start up in the fourth quarter.

The company has, as of Sept. 30 provisioned BRL 7.911 billion for the damage and potential new measures associated with the incident, comprising BRL 3.682 billion under current liabilities and BRL 4.229 billion under non-current liabilities.

Braskem’s $1.3 billion 4.5% bond due 2028 is quoted at around par.

Braskem Idesa Cash Flows

During the quarter, Idesa imported 42,000 tons (about 8,000 barrels per day) of ethane from the United States, to complement ethane supplied by Pemex, which represented 13% of the PE utilization rate, which amounted to 84% during the quarter.

“Fast Track” capacity reached 10,600 barrels per day, or about 83% of the expected capacity.

Idesa has an accumulated $65 million balance of Pemex receivables and unpaid credit notes. During the quarter, Pemex failed to pay an $8 million credit note, which Braskem says should have been issued by Pemex as payment for liquidated damages for the supply of ethane at a volume lower than that established in the ethane supply contract with Pemex.

Turning to cash flows, Idesa generated $187 million of free cash flow and paid down $247 million of borrowings. The company reported $1.072 billion of cash and cash equivalents, compared with $1.126 billion at the beginning of the period.

Braskem Idesa’s $900 million 7.45% senior secured notes due 2029 are quoted at around 96. Idesa’s $277.7 million 9.375% senior secured notes due 2026 are quoted at around 55. There are also about $25.2 million of 7.88% unsecured holdout notes due in December, which are quoted at about 58.

A corporate chart below, from the Braskem Idesa prospectus, shows that the Braskem Idesa bonds were issued out of a subsidiary that is beneath Grupo Idesa, which issued the 2026 notes in exchange for existing 2020 notes:

Spread Definitions

PE spread: (U.S. PE price - naphtha ARA price) * 82% + (U.S. PE price - 50% U.S. ethane price - 50% U.S. propane price) * 18%

PP spread: PP Asia Price - Naphtha ARA price

PVC spread: PVC Asia Price - (0.23 * 3 * naphtha ARA price) - (EDC U.S. price * 0.832)

Main base chemical spreads: Average price of main chemicals (ethylene (20%), butadiene (10%), propylene (10%), cumene (5%), benzene (20%), paraxylene (5%), gasoline (25%) and toluene (5%), according to the capacity mix of Braskem’s industrial units in Brazil) - Naphtha ARA price.
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