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Brazil

Braskem: Missed deadline could result in delisting

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    6 May 2019
    Published by

    On 3 May, Braskem, S.A. (BRASKM) issued a Notice to the Market informing that the company had not been in a position to file its annual report on Form 20-F for 2017.

    In our report of 11 March 2019, we stated that:

    "The New York Stock Exchange (NYSE) has given it a deadline extension to the 16 May to file its annual report of Form 20-F for the year ending 31 December 2017. The extension is subject to reassessment on an ongoing basis.

    Braskem previously filed a notice on 9 November saying that it had not been in a position to file by the previous 16 November deadline as it was conducting additional analysis on its internal processes and controls, adding that the NYSE had granted an extension to 15 March. However, the company says that it has not yet concluded that additional analysis.

    Braskem noted that, pursuant to the NYSE rules, it cannot be given more extensions. If it is unable to file by the extended deadline of 16 May, the NYSE will commence delisting procedures and simultaneously halt the trading of Braskem shares."

    If Braskem does not file by 16 May, the company will cease to be in compliance with the NYSE listing requirements and according to the company, on or about that date, the NYSE will commence de-listing procedures and simultaneously suspend the trading of Braskem's American Depository Shares (ADS).

    We believe that this adds to the many issues plaguing Odebrecht, S.A., which partially owns Braskem with 50.1% of the company's voting capital and 38.3% of Braskem's total capital. As for Braskem itself, we believe that being de-listed could have a negative impact on prices and perhaps ratings actions on its family of bonds, comprised of:

    1. Braskem Finance Ltd.'s US$400mn (out of an originally issued amount of US$750mn), 7.0% bonds due 2020 (Ba1/BBB-/BBB-) currently trading at cUS$103.989 (ALLQ) to yield c2.91%;

    2. Braskem Finance Ltd.'s US$1.0bn, 5.75% bonds due 2021 (Ba1/BBB-/BBB-) currently trading at cUS$104.348 (ALLQ) to yield c3.41%;

    3. Braskem Finance Ltd.'s US$500mn, 5.375% bonds due 2022 (Ba1/BBB-/BBB-) currently trading at cUS$104.596 (ALLQ) to yield c3.73%;

    4. Braskem Netherlands's US$500mn, 3.50% bonds due 2023 (BBB-/BBB-) currently trading at cUS$99.488 (ALLQ) to yield c3.65%;

    5. Braskem Finance Ltd.'s US$750mn, 6.45% bonds due 2024 (Ba1/BBB-/BBB-) currently trading at cUS$109.714 (ALLQ) to yield c4.17%;

    6. Braskem Netherlands's US$1.25bn, 4.50% bonds due 2028 (BBB-/BBB-) currently trading at cUS$98.698 (ALLQ) to yield c4.68%;

    7. Braskem America Finance's US$750mn, 7.125% bonds due 2041 (Ba1/BBB-/BBB-) currently trading at cUS$117.103 (ALLQ) to yield c5.74%;

    8. Braskem Finance Ltd.'s US$500mn (out of an originally issued amount of US$700mn), 7.375% Perpetual bonds (Ba1/BBB-/BBB-) currently trading at cUS$102.41 (ALLQ) to yield c7.20% and a negative yield when using the call date of 13 May 2019 at a price of US$100.00.

    We believe that the high dollar prices and low yields for the family of bonds mean that the markets are shrugging off the potential de-listing of the company's ADS's.

    However, if this event were to trigger a downgrade, it would bring about forced selling as the company would lose its investment-grade rating and we could see bonds trade down perhaps substantially.