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The future of Braskem Idesa is in the hands of AMLO: Mexico Fixed Income

(Bloomberg) – The fate of the bonds sold by Braskem Idesa SAPI, one of the largest chemical companies in Mexico, may be in the hands of President Andrés Manuel López Obrador. The US $ 900 million debt of the Brazilian-Mexican company with maturity In 2029, it fell almost 10% on Wednesday, after Mexico’s decision to cancel a natural gas supply contract forced it to close a key production plant, Ethylene XXI. It was the worst weekly performance for the notes since March 2019. Analysts say there is little chance that the bonds will recover until Braskem Idesa, a partnership between a unit of Brazil’s Odebrect SA and Mexico’s Grupo Idesa, reaches a agreement with the Mexican leader. Braskem Idesa’s bonds were the worst performers among Mexican companies last week, countering an uptrend among their peers. Negotiations could drag on if the contract turns into a political dispute as the Mexican midterm elections are held. is coming up next year, Soummo Mukherjee, a senior analyst at Lucror Analytics in Florida, said by email. Bonds could remain volatile, “as President AMLO is likely to continue to use the current situation for political gain,” he said. Ethylene XXI has long been in López Obrador’s crosshairs, due to an ethane supply contract. below the market price, apart from the one that was suspended, between the company and state oil company Petróleos Mexicanos Tension erupted in August, when a former head of Pemex, as the state oil producer is known, testified in a case of unrelated bribery that Braskem Idesa received “economic benefits” and privileges in the ethane supply prices. That, in turn, led López Obrador to request the termination of the ethane contract. It was not until last week that Braskem Idesa said in a letter that Cenagas, a Mexican government agency that oversees gas pipelines, informed it that the natural gas contract had been suspended. López Obrador said the contract had expired and would not be renewed due to alleged corruption, and Braskem Idesa has repeatedly denied the corruption allegations and said in August that it had been acquitted over investigations in both Mexico and Brazil. In a statement following the cancellation on Wednesday, Braskem said the plant’s closure violated multiple legal provisions. A López Obrador spokesperson did not respond to a request for comment. In an interview with Aristegui Noticias, a Mexican news website, Grupo Idesa’s CEO, Patricio Gutiérrez Fernández, said that Braskem Idesa is willing to negotiate. “The hand that the government played in closing the gas pipeline to the plant actually means that talks must move quickly, “says Roger Horn, a senior strategist at SMBC Nikko Securities America in New York. Still, although Braskem Idesa plans to take the matter to court, there is no guarantee that a decision will result in” a return. sustainable operations as they were, ”says Lucror’s Mukherjee. That could mean that there are “potentially more disadvantages than advantages at current levels,” he says. Apart from Braskem Idesa, Mexican corporate debt added to gains on sovereign bonds denominated in pesos and in dollars last week. Mexican swaps and peso-denominated bond yields fell, with the rear much lower than the front, causing the curve to flatten upward. Market sentiment was supportive as the peso appreciated for the fifth week and investors were mostly positive on the outlook for Mexican fixed income. “Yields are likely to continue falling, in line with the strength of the emerging markets, despite the sell-off of US Treasuries, “said Bloomberg currency strategist George Lei. This week, investors will take a look at inflation figures for November, which are expected to be well below of the central bank’s 4% upper limit. That should give the central bank some breathing space for cuts after authorities kept the key rate stable last month. Mexico will also report gross fixed investment for September and industrial production for October. Click here to follow First Word Fixed Income news, which includes headlines, notes and analyzes selected by editors for their relevance to the FX and bond markets of Latin America. WHAT TO SEE: Dec. 7: Gross Fixed Investment Dec. 8: International Reserves Dec. 9: Inflation Dec. 10: Sales in the same AntadDic stores. 11: Industrial production BONUS SALE: Viva Aerobus will sell up to 1,000M pesos in local bonds on December 15 Original Note: Braskem Idesa’s Future Is in AMLO’s Hands: Mexico Fixed IncomeFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source. © 2020 Bloomberg LP

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