Cash Crunch Leaves Braskem’s Mexico Unit Missing Out on Oil Boom

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(Bloomberg) — Braskem SA’s beleaguered petrochemical Mexico unit is missing out on the energy prices boom, hobbled by a cash crunch even as investors push its bonds higher.

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Supply-chain disruptions since the war in the Middle East began have been a boon for the petrochemical sector, lifting profits and improving margins. That’s led banks, including Barclays Plc and JPMorgan Chase & Co. to upgrade their recommendation on Braskem’s debt and shares, respectively.

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But Braskem Idesa, a joint venture between Brazil’s Braskem and Mexico’s Grupo Idesa SA, is missing out on the windfall since defaulting in November. The Mexican unit’s single polyethylene plant in Veracruz was running at just above half of its capacity by the end of March, a 30 percentage point drop from the previous quarter, according to Braskem’s latest earnings report.

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“You have much healthier spreads than before, but the company has to preserve a minimum cash balance”, said Filipe Botelho, a credit analyst at Lucror Analytics. “They waited so long to be able to increase the output, now that the spreads are favorable, they can’t. It’s unfortunate.”

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Braskem Idesa burned through hundreds of millions in cash before it missed interest payments on its dollar notes due in 2032 and in 2029, as it suffered from a combination of higher input prices and plunging demand for its product. 

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The company held 230 million reais ($45.6 million) in cash and cash equivalents at the end of March, down from $267.6 million the year before, while its leverage ratio jumped to about 40.3 times. Net revenue dropped 32% in dollar terms in the first quarter, even as a 21% rise in international polyethylene prices offered some support. 

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Even so, the bonds are rallying. Notes due in 2029 have gained more than 10 cents since the conflict began in late February, rebounding from their lows.

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Stronger petrochemical spreads are improving the outlook for creditors and supporting bond prices, said Juan Manuel Patiño, an analyst at Sun Capital Valores. But that optimism, he added, depends on whether the company can raise output.

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Braskem Idesa’s “heavily stressed balance sheet is forcing it to run at very low operating rates,” weighing on cash flow, Patiño said. To generate meaningful earnings, it would need to run its plants above 90% capacity for the rest of 2026, a sharp jump from current levels, he added.

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Debt Restructuring

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Braskem Idesa has been in talks with creditors for financing that would help carry it through a potential Chapter 11 bankruptcy proceeding in the US after struggling to reach an agreement to restructure its debt. 

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The company and its advisers are now racing to secure about $250 million in debtor-in-possession financing to capitalize on the war-driven rebound in petrochemical spreads, people familiar with the matter have said.