Braskem Idesa bonds led the market declines in the credit sell-off seen in June and are now leading the rally, buoyed by bargain hunters.
The petrochemical company’s dollar-denominated bonds due in 2032 gave investors a 15.4% return over the past month, third-best among Mexico’s dollar-denominated corporate bonds, according to data compiled by Bloomberg. The average return was 2%. The company’s bonds due 2029 gained 10.1%.
The June liquidation was not the first blow to the petrochemical company’s debt. In early 2021, Braskem Idesa’s bonds fell after it lost a battle with the Mexican government and was no longer able to buy cheap ethane from state-owned Petróleos Mexicanos. Pemex later agreed to resume supplies, but at a higher price.
“The agreement with Pemex has already been modified and the outlook is favorable,” Stefan Styk, a research analyst at Bank of America, wrote in a note to clients published in June in mid-June, recommending an overweight position in the bonds of the Bank of America. company. “The political risk is lower with the signing of a new ethane supply agreement.”
The Mexican firm, which is a partnership between Brazil’s Braskem and Mexico’s Grupo Idesa, produces polyethylene at a single plant in Mexico’s Veracruz state. The company plans to invest $150 million to increase production at the Ethylene XXI plant by 20% by 2025. The 2032 bonds have risen 15 cents to 85 cents on the dollar in the past three weeks.
Braskem — the Sao Paulo-based parent company, which has a market capitalization of about $5.7 billion — will report earnings on Wednesday, which should show higher revenue compared to the previous quarter, according to Morgan Stanley strategists. In addition, other petrochemical companies in the region, such as Alpek and Orbia Advance Corporation, have posted better-than-expected results.
Bondholders of the subsidiary should see that as a positive, given that Braskem could offer support in episodes of financial stress, said Édgar Cruz, a BBVA strategist in Mexico City.
“With higher oil prices and good margins to produce ethylene, your results should be good,” he said. “In a risky environment, this type of company should benefit.”