Senior Credit Analyst - Emerging Markets, EM Spreads

Leandro Gubler

Senior Credit Analyst - Emerging Markets

EM Spreads

Credit

<ul>
<li>Underweight from Neutral on valuation: Principal impairment and creditor-funded, potentially secured new money are now on the table, yet the 2028–2041 curve still averages $54.7, leaving limited recovery cushion.</li>
<li>Proposal cuts debt, but not enough: At 50-cent buybacks, debt-funded US$2.0bn new money nets only ~US$0.5bn gross reduction versus our US$4–5bn need; a group of bondholders demands US$3.0bn shareholder equity.</li>
<li>Rotate from the belly into the 2050s: At $43.3, ~15 points below the 2031s, they cushion better if consideration converges; Neutral, though preserved coupons and maturities would reverse the edge.</li>
</ul>


Underweight from Neutral on valuation: Principal impairment and creditor-funded, potentially secured new money are now on the table, yet the 2028–2041 curve still averages $54.7, leaving limited recovery cushion.
Proposal cuts debt, but not enough: At 50-cent buybacks, debt-funded US$2.0bn new money nets only ~US$0.5bn gross reduction versus our US$4–5bn need; a group of bondholders demands US$3.0bn shareholder equity.
Rotate from the belly into the 2050s: At $43.3, ~15 points below the 2031s, they cushion better if consideration converges; Neutral, though preserved coupons and maturities would reverse the edge.


Braskem: A Haircut Enters the Talks, but the Cash Is Still Missing

<ul>
<li>Braskem’s 2Q26 EBITDA surged to R$5.25bn on temporarily wider petrochemical spreads, but statutory free operating cash flow remained negative and liquidity stayed tight.</li>
<li>The credit is now an active restructuring story, with defaults, creditor protection measures and potential new collateralization shifting bond value toward recovery and claim treatment.</li>
<li>We remain Neutral and prefer the 8.500% 2031s, where accrued-claim optionality offsets a modest price premium, while the 2050s offer higher recovery convexity.</li>
</ul>


Braskem’s 2Q26 EBITDA surged to R$5.25bn on temporarily wider petrochemical spreads, but statutory free operating cash flow remained negative and liquidity stayed tight.
The credit is now an active restructuring story, with defaults, creditor protection measures and potential new collateralization shifting bond value toward recovery and claim treatment.
We remain Neutral and prefer the 8.500% 2031s, where accrued-claim optionality offsets a modest price premium, while the 2050s offer higher recovery convexity.


Braskem 2Q26: Better Quarter, Harder Credit

<ul>
<li>Neutral maintained: The 60-day court stay reduces immediate enforcement risk, but does not restore working capital access, resolve maturities or define the final creditor package.</li>
<li>Structure drives value: The proposed five-year extension, PIK option and 200 bps coupon reduction favor higher-coupon belly bonds over the front end and long end.</li>
<li>2031s preferred: The BRASKM 8.500% 2031s offer the strongest mix of amended coupon, potential PIK accretion, maturity protection and recent trading support.</li>
</ul>


Neutral maintained: The 60-day court stay reduces immediate enforcement risk, but does not restore working capital access, resolve maturities or define the final creditor package.
Structure drives value: The proposed five-year extension, PIK option and 200 bps coupon reduction favor higher-coupon belly bonds over the front end and long end.
2031s preferred: The BRASKM 8.500% 2031s offer the strongest mix of amended coupon, potential PIK accretion, maturity protection and recent trading support.


Braskem Standstill Shifts Focus to Structure

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

iShares MSCI Emerging Markets / Technical Analysis

<ul>
<li>The bullish outlook we initiated in early November 2023 remains intact. The SPX and QQQ still refuse to close below their 20-day MAs/21-day EMAs for more than 2-3 consecutive days.</li>
<li>Even if/when they do, important supports are close by, including 4983-5050 on the S&amp;P 500 and $425-$433 on QQQ (gap supports from 2/22/24). Anything above 4800 SPX is a buy.</li>
<li>We continue to get an ever-increasing number of global indexes/Sectors with long-term breakouts, the latest being the MSCI Emerging Market and Frontier indexes. Clearly risk-on behavior.</li>
</ul>


The bullish outlook we initiated in early November 2023 remains intact. The SPX and QQQ still refuse to close below their 20-day MAs/21-day EMAs for more than 2-3 consecutive days.
Even if/when they do, important supports are close by, including 4983-5050 on the S&amp;P 500 and $425-$433 on QQQ (gap supports from 2/22/24). Anything above 4800 SPX is a buy.
We continue to get an ever-increasing number of global indexes/Sectors with long-term breakouts, the latest being the MSCI Emerging Market and Frontier indexes. Clearly risk-on behavior.


Long-Term Breakouts for Emerging and Frontier Markets; Treasury Yields and Commodities Rising YTD

US Treasury (10 Yr Generic) / Technical Analysis

<ul>
<li>Our bullish outlook initiated on November 7, 2023 remains intact; this intermediate-to-long-term outlook is likely to stay in place as long as 4800 support holds on the SPX (7-10% downside).</li>
<li>To be clear, we aren't calling for a pullback to 4800; we view it as a worst-case scenario for the S&amp;P 500, and we want to be prepared for anything.</li>
<li>Shorter-Term, we remain bullish on the S&amp;P 500 and Nasdaq 100 (QQQ) as they both refuse to close below their 20-day MAs for more than 2-3 consecutive days.</li>
</ul>


Our bullish outlook initiated on November 7, 2023 remains intact; this intermediate-to-long-term outlook is likely to stay in place as long as 4800 support holds on the SPX (7-10% downside).
To be clear, we aren't calling for a pullback to 4800; we view it as a worst-case scenario for the S&amp;P 500, and we want to be prepared for anything.
Shorter-Term, we remain bullish on the S&amp;P 500 and Nasdaq 100 (QQQ) as they both refuse to close below their 20-day MAs for more than 2-3 consecutive days.


Downgrading Real Estate to Underweight; Bullish Outlook Intact; Broadening Participation

Brazil

Braskem is a global petrochemical company specializing in the production and sale of thermoplastic resins, including polyethylene, polypropylene, and PVC, as well as basic petrochemicals and fuels. Its products serve various industries such as packaging, automotive, construction, and consumer goods. The company is headquartered in São Paulo, Brazil, and was founded in August 2002.

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