Ratings Firms Say Braskem Is Burning Through Its Last Support

Brazilian petrochemical firm Braskem SA is experiencing significant financial deterioration, with its substantial cash reserves, previously a key support, rapidly depleting due to persistent cash burn and swelling debt. Following "dismal" Q2 results, which showed a 1.45 billion reais ($264 million) cash consumption, both Moody's and Fitch have downgraded the company's debt, signaling the erosion of its "last support" amidst a prolonged industry downturn and environmental disaster costs.

Analysis

Braskem SA is facing a critical erosion of its financial stability, as underscored by recent debt downgrades from both Moody’s and Fitch Ratings. The downgrades were triggered by "dismal" second-quarter results, which revealed a persistent and severe cash burn amounting to 1.45 billion reais ($264 million). This rapid depletion of cash, which the rating agencies identified as the company's "last support," is occurring alongside swelling debt levels. The financial strain is attributed to a dual-pronged pressure: a years-long downturn in the petrochemical industry and the escalating costs associated with a major environmental disaster, signaling a fundamental weakening of the company's balance sheet and a deteriorating credit profile.

Key Decisions for Investors

• Given the persistent cash burn and dual credit downgrades, investors should treat this as a significant red flag and re-evaluate any long exposure to Braskem's equity.
• Fixed-income investors must now price in a higher level of credit risk, scrutinizing the company's liquidity and ability to service its swelling debt in upcoming quarters.
• Future financial reports are critical and should be monitored for any stabilization in cash flow, as a failure to halt the cash burn could precipitate further negative credit actions and share price depreciation.