Braskem Idesa Investment Boosts Latin American Bonds

Carlos Slim's financing of a terminal for Braskem Idesa, a major petrochemical company, has sparked the most significant bond rally in Latin America this year, offering investors a remarkable 26% return in 2024, the highest among peers tracked by a Bloomberg index.

This surge in bond prices follows a two-year decline that saw over 40% of the bonds' value wiped out due to high-interest rates and declining margins. However, Slim's bank's involvement in the final stage of financing for Braskem-Idesa's import terminal, poised to increase the company's production by about a fifth, has injected fresh optimism into the market.

The US$408 million loan announced last November is backed by a man whose personal fortune, estimated at US$98.2 billion by Bloomberg, lends significant credibility to the project. The ethane terminal, slated for completion by year-end, aligns with a more favorable global economic outlook expected to benefit the petrochemical industry.

Bond prices for those maturing in 2029 have surged by 16 cents to 77 cents on the dollar over the past two months, according to Trace data. Similarly, bonds maturing in 2032 have increased by 14 cents to 71 cents on the dollar.

Braskem Idesa, a joint venture between Brazilian petrochemical producer Braskem and Mexican conglomerate Grupo Idesa, operates a single polyethylene plant in Veracruz, Mexico. Last year, Inbursa, owned by Slim, became Idesa's majority shareholder, further solidifying Slim's involvement in the venture.

Slim's bank extending loans to a joint venture of one of his main investments underscores his dual incentive to support the company. Additionally, reports of interest from various companies, including Abu Dhabi's national oil company and Saudi Aramco, in acquiring a stake in Braskem's Brazilian parent company have also bolstered bond prices.

Despite the recent rally, Braskem Idesa's bonds had been on a downward trajectory, compounded by challenges with Mexico's state-owned oil producer, Pemex, over ethane purchases. The company's debt metrics have deteriorated significantly, with net debt-to-EBITDA reaching 48 times in the third quarter, compared to 8.4 times at the end of 2022.

While concerns about liquidity persist, the company retains the option to sell assets, including a water treatment plant and a logistics park, to address short-term liquidity needs. Analysts remain optimistic about the company's long-term prospects, particularly with the backing of Inbursa.

Fitch Ratings removed Braskem Idesa from its negative watchlist in December, indicating a more stable outlook. The completion of the terminal later this year is expected to position the company to capitalize on a new growth cycle in the industry.