(Bloomberg) -- Wall Street has the richest man in Latin America to thank for the best bond rally in the region this year. 

Debt from petrochemical company Braskem Idesa SAPI has handed money managers a return of 26% in 2024, the best in a Bloomberg index of peers. It followed a two-year decline that had wiped out more than 40% of the bonds’ value amid high interest rates and falling margins.

The bond rally came after Carlos Slim’s bank took part in the last leg of funding for an import terminal that will increase the company’s output by about a fifth. The $408 million loan announced last November implies the support of a man with a personal fortune estimated by Bloomberg at $98.2 billion. The ethane terminal is set to be completed by the end of the year, just as a brighter outlook for the global economy is set to benefit the petrochemical industry.  

“The fact that they put in a large chunk of money into the terminal financing suggests that they’re indirectly supporting Braskem Idesa,” said Alexis Panton, a credit analyst at BNP Paribas. Slim’s “companies have had a strong backing in the bond market.”

Representatives for Banco Inbursa SA and Braskem Idesa declined to comment. 

Notes due in 2029 jumped 16 cents to 77 cents on the dollar in the last two months, according to Trace data. Meantime, 2032 bonds have soared 14 cents to 71 cents on the dollar. 

Back Up

The company — which produces polyethylene at a single plant in Veracruz in Mexico —  is a joint venture between the Brazilian petrochemical maker Braskem SA and Mexico’s Grupo Idesa SA de CV. Last year, Slim-owned Inbursa became the majority shareholder of Idesa, quarterly earnings reports show. 

Effectively, the bank is now lending money to a joint venture of one of its own major investments. That means Slim has a double incentive to back up the company.

At the same time, Braskem Idesa’s bonds have gained from reports that several companies — including Abu Dhabi’s national oil company and Saudi Arabia’s Aramco — have expressed interest in acquiring a stake in its Brazilian parent. 

Before this year, it had been a long, steady slide for company’s $2.1 billion in notes. The 2029 bonds fell from a high of 107.4 cents on the dollar in June 2021 to a low of 56.4 cents on Dec. 12 last year.

The bonds had proved vulnerable even before the most recent downturn, tumbling in late 2020 when Braskem Idesa lost a battle with the Mexican government and could no longer buy cheap ethane from the state-run oil producer Petroleos Mexicanos. Pemex later agreed to resume supplies, but at a higher price. 

Margins

The prices for the polyethylene it produces have fallen, while Braskem Idesa is paying more for a key component it imports, ethane. The spread between the chemicals fell by 16% in the year through September, according to the company’s last earnings release.

The smaller difference has translated into “persistent cash burn” for the company, which may keep on draining liquidity and eventually lead to a restructuring, Barclays analysts Ansel Tessitore and Stella Cridge wrote in a note last month, recommending clients to sell the bonds. 

Braskem Idesa’s leverage ratios have exploded, with net debt to earnings before items — a key measure of indebtedness — hitting 48 times in the third quarter, compared to 8.4 times at the end of 2022, according to the company’s most recent financial statement. 

Yet many think the company remains fundamentally sound. If liquidity tightens in the short term, the company has the option of selling assets, including a water treatment plant and a logistics park, said the company. 

“The long-term story remains solid,” Siby Thomas, a portfolio manager at T. Rowe Price. At the same time, “Inbursa funding definitely helps.”

In December, Fitch Ratings removed Braskem Idesa from ratings watch negative. Completion of the terminal by the end of the year would help the company hopefully take advantage of a new growth cycle in the industry, BNP’s Panton said. 

But it’s Slim’s backing that has many investors looking at the bonds again. 

“We don’t view liquidity as an issue for this company given their debt profile and their ability to get financing for the terminal,” Liz Bakarich, a portfolio manager at AllianceBernstein in New York. “To have a strong partner in that is always a good sign.”

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