Rating Type Rating Outlook Last Rating Action Long Term IDR B- Negative Downgrade 3 November 2017

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1 Rating Type Rating Outlook Last Rating Action Long Term IDR B- Negative Downgrade 3 November 2017 Local Currency Long Term IDR B- Negative Downgrade 3 November 2017 Click here for full list of ratings Financial Summary (MXNth) Dec 2015 Dec 2016 Dec 2017F Dec 2018F Gross Revenue 9,028,165 9,217,501 10,449,903 11,280,926 Operating EBITDAR Margin (%) FFO Margin (%) FFO Fixed Charge Coverage (x) FFO Adjusted Leverage (x) Source: Fitch The downgrade in November 2017 reflected the continued pressure on s (IDESA) capital structure resulting from a weakening of its stand-alone credit profile as well as its tight liquidity position. Weak ethylene glycols and ethanol amine spreads and low production rates due to feedstock shortages from Pemex have driven the company s LTM EBITDA to USD36 million. This figure compares negatively with USD49 million one year prior. Cash flows from the company s CyPlus joint venture (JV) are expected to be around USD2 million in 2017, which is also below Fitch s prior expectation of USD8 million. The company s financial profile is more consistent with CCC ratings. Between 2016 and 2017, IDESA has met its funding needs with USD26 million of shareholder equity and a USD116 million PIK loan from Inbursa, its second-largest shareholder. Given the strong incentives for these shareholders to continue to support the company s cash needs until its Braskem-IDESA JV starts distributing dividends, Fitch did not downgrade the issuer s ratings to CCC. The stabilization of IDESA s credit profile rests upon IDESA receiving much needed cash flows from Braskem-IDESA, as well as on stabilizing its core EBITDA generation. Fitch s base case incorporates expectations of IDESA s 2018 EBITDA at about USD30 million and no material dividends from Braskem-IDESA until Dividends from this JV are restricted by project financing until certain financial benchmarks are achieved. Cash flows from JVs of around USD50 million in 2018 would result in the Outlook being revised to Stable. Equity contributions from current or new shareholders to support a stronger capital structure would be viewed positively. The 'RR3' Recovery Rating (RR) on the notes reflects good recovery prospects in event of default. The above average recovery estimates reflect the value of IDESA s 25% stake in Braskem-IDESA. Key Rating Drivers High Leverage: IDESA s EBITDA declined to USD40 million in 2016 from USD65 million in 2015 mainly due to severely contracting petrochemical spreads. As of the LTM ended June 30, 2017, IDESA s EBITDA was USD36 million, resulting in a net leverage ratio of 12.2x. Leverage increased due to declining production volumes, a result of declining feedstock from PEMEX. Fitch s base case suggests net leverage should remain elevated in 2018 at around 12x, as underlying petrochemical spreads in, ethylene glycols and ethanol amines, remain fragile and the ethylene oxide (EO) shortage continues. Joint Venture Investments: IDESA has contributed USD513 million to Braskem-IDESA, and most of IDESA s current debt was used to support its 25% stake in this venture. IDESA s 25% stake should represent about USD150 million of November 22,

2 approximately USD600 million projected EBITDA for the JV. This facility is capable of producing 1.0 million tons of polyethylene per year. Other IDESA investments include USD65 million in CyPlus, a 50/50 JV with Evonik Industries AG to build a sodium-cyanide production facility. This plant s capacity is 40,000mt and started operations in third-quarter Distribution Core Business: IDESA generates about 55% of its EBITDA from the distribution of solvents and chemicals within Mexico and 38% from chemicals manufacturing, with most of the remaining from chemical storage and handling services. IDESA s distribution business has grown steadily due to Mexico s industrialization. This segment has become IDESA s main cash flow generating business as its petrochemical segment has significantly contracted. High Reliance on Commodity Chemicals: IDESA has limited pricing power with its suppliers and customers, as the company s main product prices are based on international reference prices and are somewhat correlated to the price of oil. The price of ethane-based EO, IDESA s main raw material, increased in 2016 and 2017 due to tight EO supply in Mexico. Fitch expects this tightness to continue; modest upward movement in reference prices of EO due to higher demand for ethane in North America is also expected. Country and Production Site Concentration: About 90% of IDESA s total revenues come from the Mexican domestic market. Production capacity is heavily concentrated in its Coatzacoalcos plant, which is dependent on smooth operations at Pemex Etileno, IDESA s sole supplier of EO. IDESA s participation in Etileno XXI should diversify IDESA s cash flow sources and is considered positive for long-term credit quality. Rating Derivation Relative to Peers Rating Derivation Versus Peers Peer Comparison IDESA s vertical integration is limited and its product portfolio is more dependent on feedstock and product price dynamics. This limited pricing power creates higher volatility for cash flows when compared to peers such as Cydsa, S.A.B. de C.V. (BB+) that have a predominantly domestic profile. IDESA s scale and cost position mostly as a converter or distributor is consistent with those of companies in the low BB to B rating categories. Companies rated at those levels include Kronos Worldwide (B+) and Shandong Yuhuang Chemical (B). Parent/Subsidiary Linkage Country Ceiling Operating Environment Source: Fitch Weak product spreads and lack of feedstock, combined with high debt used to fund investments, have significantly pressured IDESA s financial profile and increased its reliance on expected cash flows from Braskem-IDESA, and in continued growth in chemical distribution activities. IDESA s financial profile is significantly pressured and consistent with that of a CCC credit on a stand-alone basis. IDESA s 25% stake in Braskem-IDESA is supports its IDESA s credit profile due to the JVs strong EBITDA generation. The value of this stake uplifts the unsecured debt by one notch above IDESA s IDR of B. No Parent/Subsidiary Linkage is applicable. No Country Ceiling constraint was in effect for these ratings. No Operating Environment influence was in effect for these ratings. Rating Sensitivities Future Developments That May, Individually or Collectively, Lead to Positive Rating Action Cash flow from Braskem IDESA of USD100 million before year-end 2019 could result in an upgrade; Capital infusions would be considered positive for credit quality. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action Failure to maintain Braskem-IDESA s capacity utilization levels above 85%; Cash flow contractions in Braskem-IDESA that result in expectations of negligible cash flows to IDESA by year-end November 22,

3 Liquidity and Debt Structure Tight Liquidity: IDESA s intrinsic liquidity is tight. FFO has declined to USD2 million as of LTM to second-quarter 2017 from USD27 million in FFO is expected to approach USD10 million in This estimate is based upon expectations from cash flows from CyPlus of USD7 million in IDESA s Working capital requirements have resulted in negative cash flow from operations of USD17 million and in negative FCF of USD34 million during the LTM ended June 30, Fitch expects continued pressure in IDESA s petrochemical business will likely result in negative FCF over the next months. Negative FCF should be funded with USD26 million in cash and marketable securities, USD14 million available undrawn from a contracted USD130 million committed credit line with Banco Inbursa, and uncommitted credit lines. Interest payments under this loan are due at maturity in IDESA s cash to short-term debt was 0.8x as of secondquarter Short-term debt consisted of USD31 million in revolving credit facilities. Debt Maturities and Liquidity Liquidity Summary Original Original (MXN Mil.) Total Cash and Cash Equivalents Short-Term Investments Less: Not Readily Available Cash and Cash Equivalents Fitch-defined Readily Available Cash and Cash Equivalents Availability under Committed Lines of Credit (25) 18 Total Liquidity Plus: Fitch Forecasted 2017 FCF (Post-Dividend) (365) Total Projected 2017 Liquidity 112 LTM EBITDA LTM FCF (423) (666) Source: Company filings, Fitch. Scheduled Debt Maturities Original (MXN Mil.) 43 June 30, June 30, 2019 June 30, ,469 June 30, ,370 June 30, 2022 Thereafter Total Debt Maturities 8,387 Source: Company filings, Fitch. November 22,

4 Trends and Forecasts Emerging B Cat Median Chemicals Median Revenue Growth (%) (2.0) F 2018F 2019F FCF Margin (%) (2.0) (4.0) (6.0) (8.0) F 2018F 2019F EBITDAR Fixed Charge Cover ( x ) 7.0 EBITDAR Net Leverage ( x ) F 2018F 2019F F 2018F 2019F Note: Including Fitch expectations Source: Fitch Definitions Revenue Growth: Percentage growth in revenues since previous reporting period. FCF Margin: FCF divided by Revenues. EBITDAR Fixed Charge Cover: Operating EBITDA+ Operating Lease Expense for Capitalised Leased Assets + Recurring Dividends received from Associates and Equity Method Investments - Dividends paid to Minorities (or, alternatively, net income attributable to noncontrolling interests) divided by Gross Interest Expense + Operating Lease Expense for Capitalised Leased Assets. EBITDAR Net Leverage: Total Adjusted Debt with Equity Credit - Readily Available Cash & Equivalents divided by Operating EBITDA + Operating Lease Expense for Capitalised Leased Assets + Recurring Dividends received from Associates and Equity Method Investments - Dividends paid to Minorities (or, alternatively, net income attributable to non-controlling interests). November 22,

5 Key Assumptions Fitch s key assumptions within our rating case for the issuer include: Revenue, measured in U.S. dollars, rises about 10% during 2017 and by low single digits in 2018, reflecting product pricing and stronger sales volumes in distribution business. Petrochemical prices trade modestly upward with Fitch s Brent oil price deck expectations of USD52.5/bbl in 2018 and USD55/bbl in EBITDA under pressure during reflecting weak petrochemical spreads due to feedstock storage and higher EO prices. Cash flows received from Braskem-IDESA before mid Recovery Assumptions: Recovery reflects a hybrid going concern approach for IDESA at a 4.5x multiple of estimated post-restructuring EBITDA of USD31 million plus. A value of IDESA s 25% stake in Braskem-IDESA resulting from the USD513 million replacement value of IDESA s equity at a 50% advance rate. The estimated recovered value after administrative claims and concessions results in a 65% recovery to unsecured creditors. Financial Data (MXNth) Historical Forecast SUMMARY INCOME STATEMENT Dec 2014 Dec 2015 Dec 2016 Dec 2017F Dec 2018F Dec 2019F Gross Revenue 8,966,382 9,028,165 9,217,501 10,449,903 11,280,926 11,858,751 Revenue Growth (%) Operating EBITDA (Before Income From Associates) 947,602 1,024, , , , ,103 Operating EBITDA Margin (%) Operating EBITDAR 947,602 1,024, , , , ,103 Operating EBITDAR Margin (%) Operating EBIT 840, , , , , ,330 Operating EBIT Margin (%) Gross Interest Expense -361, , , , , ,453 Pretax Income (Including Associate Income/Loss) 209, ,194-1,047, , , ,857 SUMMARY BALANCE SHEET Readily Available Cash and Equivalents 948, , , , , ,713 Total Debt With Equity Credit 4,340,385 5,954,574 9,399,597 9,177,409 9,576,648 9,415,887 Total Adjusted Debt with Equity Credit 4,340,385 5,954,574 9,399,597 9,177,409 9,576,648 9,415,887 November 22,

6 Net Debt 3,391,828 5,540,552 8,790,766 8,642,910 9,101,676 9,098,174 SUMMARY CASH FLOW STATEMENT Operating EBITDA 947,602 1,024, , , , ,103 Cash Interest Paid -348, , , , , ,048 Cash Tax -200, , , , , ,200 Dividends Received Less Dividends Paid to Minorities (Inflow/(Out)flow) , , ,500 Other Items Before FFO 302,638 81, , FFO 712, ,370 95,211 54, , ,855 Change in Working Capital -242, , , ,912-94,365-65,614 Cash Flow From Operations (Fitch Defined) Total Non-Operating/Nonrecurring Cash Flow 469, , , ,956 77, , , Capex -201, , ,312 Capital Intensity (Capex/Revenue) Common Dividends -28, ,800 Net Acquisitions and Divestitures -851,287 70, ,941 Other Investing and Financing Cash Flow Items -466,172-1,641,423-1,811, , , ,739 Net Debt Proceeds -196, ,767 1,888, , , ,761 Net Equity Proceeds ,759 88, Total Change in Cash -910, , ,809-74,332-59, ,259 DETAIL CASH FLOW STATEMENT FFO Margin (%) Calculations for Forecast Publication Capex, Dividends, Acquisitions and Other Items Before FCF FCF After Acquisitions and Divestitures FCF Margin (After Net Acquisitions) (%) -717, , ,171 20, , , , , , ,747-99, , COVERAGE RATIOS FFO Interest Coverage (x) FFO Fixed-Charge Coverage (x) Operating EBITDAR/Interest Paid + Rents (x) Operating EBITDA/Interest Paid (x) LEVERAGE RATIOS November 22,

7 Total Adjusted Debt/Operating EBITDAR (x) Total Adjusted Net Debt/Operating EBITDAR (x) Total Debt with Equity Credit/Operating EBITDA (x) FFO-Adjusted Leverage (x) FFO-Adjusted Net Leverage (x) How to Interpret the Forecast Presented The forecast presented is based on the agency s internally produced, conservative rating case forecast. It does not represent the forecast of the rated issuer. The forecast set out above is only one component used by Fitch to assign a rating or determine a rating outlook, and the information in the forecast reflects material but not exhaustive elements of Fitch s rating assumptions for the issuer s financial performance. As such, it cannot be used to establish a rating, and it should not be relied on for that purpose. Fitch s forecasts are constructed using a proprietary internal forecasting tool, which employs Fitch s own assumptions on operating and financial performance that may not reflect the assumptions that you would make. Fitch s own definitions of financial terms such as EBITDA, debt or free cash flow may differ from your own such definitions. Fitch may be granted access, from time to time, to confidential information on certain elements of the issuer s forward planning. Certain elements of such information may be omitted from this forecast, even where they are included in Fitch s own internal deliberations, where Fitch, at its sole discretion, considers the data may be potentially sensitive in a commercial, legal or regulatory context. The forecast (as with the entirety of this report) is produced strictly subject to the disclaimers set out at the end of this report. Fitch may update the forecast in future reports but assumes no responsibility to do so. November 22,

8 Rating Navigator November 22,

9 Corporates Ratings Navigator Chemicals Operating Environment Management and Corporate Governance bbb- Economic Environment bb Below average combination of countries where economic value is created and where assets are located. bbb Management Strategy bb Strategy generally coherent but some evidence of weak implementation. bb+ Financial Access bbb Average combination of issuer specific funding characteristics and of the Good CG track record but effectiveness/independence of board less bbb- Governance Structure bbb strength of the relevant local financial market. obvious. No evidence of abuse of power even with ownership concentration. Systemic Governance bb Systemic governance (eg rule of law, corruption; government effectiveness) Complex group structure or non transparent ownership structure. Relatedparty transactions exist but with reasonable economic rationale. bb+ Group Structure bb of the issuer s country of incorporation consistent with bb. b- bb Financial Transparency bb Financial reporting is appropriate but with some failings (eg, lack of interim or segment analysis). ccc Product Nature Product Leadership bbb- Portfolio Characteristics Portfolio with a high content of specialty chemicals with moderate bb (Specialty Chemicals) differentiation. Potential temporary structural weaknesses. bbb- Market Position bb bb+ Portfolio Characteristics Commodity chemicals with average growth prospects and characterized by bb (Commodity Chemicals) overcapacity, volatile raw material prices, price-driven competition. bb+ Top-10 market position in core activities or leader in niche, protected geographical or product market. bb bb- bb bb- bbb+ b+ Diversification, Scale Cost Position bb- Portfolio Diversification b Small or very small with little or no diversification. bb- Raw Material & Energy Costs b b+ End-Market Diversification bb Modest end-market diversification, some customer concentration, mid to high product cyclicality, leader in stable niche applications. b+ Degree of Integration b b Number of Sites b Single site operations. b Production Flexibility b b- Regional Footprint b Little or no regional diversification. b- Production Technology bb High sensitivity to raw material price volatility, high raw material or energy costs, or high supply concentration. No integration with high operating gearing. No raw material diversification, high supplier concentration, no feedstock flexibility or no production process flexibility Average production technology ccc EBITDAR ($) b 0.1 billion ccc Profitability Financial Structure bb FFO Margin b 6% b+ Lease Adjusted FFO Gross Leverage b bb- EBIT Margin b 7% b Lease Adjusted FFO Net Leverage ccc b+ FCF Margin bbb 1.5% b- Net Debt/(CFO-Capex) ccc b EBITDAR Margin b 5% ccc Total Adjusted Debt/Operating ccc b- cc 5.0x 7.0x+ 8.0x+ 7.0x+ Financial Flexibility bb bb- Financial Discipline Liquidity bb b Financial policies in place but flexibility in applying it could lead to temporary exceeding downgrade guidelines. Liquidity ratio below 1.x. Overly reliant on one funding source. How to Read This Page: The left column shows the three-notch band assessment for the overall Factor, illustrated by a bar. The right column breaks down the Factor into Sub-Factors, with a description appropriate for each Sub-Factor and its corresponding category. b+ FFO Fixed Charge Cover b b FX Exposure bb EBITDAR/(Gross Interest b- bb Expense + Rent) 2.0x FX exposure on profitability and/or debt/cash flow match. Some hedging in place but only partly effective. 3.5x Navigator Version: RN November 22,

10 Simplified Group Structure Diagram Organizational Structure Grupo IDESA S.A. de C.V. (USD Mil., As of June 30, 2017) Grupo IDESA S.A. de C.V. IDR B /Outlook Negative (Mexico) Revenue Total Debt EBITDA Debt/EBITDA (x) USD300 Million Notes due 2020, B/RR3 Guarantors Cyplus IDESA, S.A. de C.V. a 50% 100% Industrias Derivados de Etileno, S.A. de C.V. Etileno XXI, S.A. de C.V. 100% 100% Inmobiliaria Idesa, S.A. de C.V. 25% Braskem-IDESA S.A.P.I. de C.V. b 100% Reter Comercializadora de Productos Químicos, S.A. de C.V. Tonalli EnergÍa, S.A.P.I. de C.V. c 50% 100% 100% Alveg Distribucón Química, S.A. de C.V. Novidesa, S.A. de C.V 100% Síntesis Orgánicas, S.A. de C.V. Consolidated 100% Excellence Sea & Land Logistics, S.A. de C.V. a JV with Evonik international Holding B.V. (A wholly owned subsidiary of Evonik Industries AG). b JV with Braskem, S.A. c JV with International Frontier Resources Corp. IDR Issuer Default Rating. JV Joint venture. Source: Grupo IDESA S.A. de C.V. November 22,

11 Peer Financial Summary Company Date Rating Gross Revenue FFO Margin (%) FFO Fixed- Charge Total Adjusted Net (USDm) Coverage (x) Debt/Operating EBITDAR (x) 2016 B BB BB Kronos Worldwide, Inc B+ 1, BB- 1, BB- 1, Alpek, S.A.B. de C.V BBB- 4, BBB- 5, BBB- 6, Cydsa, S.A.B. de C.V Shandong Yuhuang Chemical Co., Ltd , , , NOVA Chemicals Corporation 2016 BBB- 3, BBB- 3, BB+ 5, Braskem S.A BBB- 13, Source: Fitch 2015 BBB- 14, BBB- 19, November 22,

12 Reconciliation of Key Financial Metrics (MXN Thousand, As reported) 31 Dec 2016 Income Statement Summary Operating EBITDA 755,330 + Recurring Dividends Paid to Non-controlling Interest 0 + Recurring Dividends Received from Associates 0 + Additional Analyst Adjustment for Recurring I/S Minorities and Associates 0 = Operating EBITDA After Associates and Minorities (k) 755,330 + Operating Lease Expense Treated as Capitalised (h) 0 = Operating EBITDAR after Associates and Minorities (j) 755,330 Debt & Cash Summary Total Debt with Equity Credit (l) 9,399,597 + Lease-Equivalent Debt 0 + Other Off-Balance-Sheet Debt 0 = Total Adjusted Debt with Equity Credit (a) 9,399,597 Readily Available Cash [Fitch-Defined] 608,831 + Readily Available Marketable Securities [Fitch-Defined] 0 = Readily Available Cash & Equivalents (o) 608,831 Total Adjusted Net Debt (b) 8,790,766 Cash-Flow Summary Preferred Dividends (Paid) (f) 0 Interest Received 40,552 + Interest (Paid) (d) (520,644) = Net Finance Charge (e) (480,092) Funds From Operations [FFO] ( c) 95,211 + Change in Working Capital [Fitch-Defined] (243,470) = Cash Flow from Operations [CFO] (n) (148,259) Capital Expenditures (m) (255,312) Multiple applied to Capitalised Leases 7.0 Gross Leverage Total Adjusted Debt / Op. EBITDAR* [x] (a/j) 12.4 FFO Adjusted Gross Leverage [x] (a/(c-e+h-f)) 16.3 Total Adjusted Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid) Total Debt With Equity Credit / Op. EBITDA* [x] (l/k) 12.4 Net Leverage Total Adjusted Net Debt / Op. EBITDAR* [x] (b/j) 11.6 FFO Adjusted Net Leverage [x] (b/(c-e+h-f)) 15.3 Total Adjusted Net Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid) Total Net Debt / (CFO - Capex) [x] ((l-o)/(n+m)) Coverage Op. EBITDAR / (Interest Paid + Lease Expense)* [x] (j/-d+h) 1.5 Op. EBITDA / Interest Paid* [x] (k/(-d)) 1.5 FFO Fixed Charge Cover [x] ((c-e+h-f)/(-d+h-f)) 1.1 (FFO - Net Finance Charge + Capit. Leases - Pref. Div Paid) / (Gross Int. Paid + Capit. Leases - Pref. Div. Paid) FFO Gross Interest Coverage [x] ((c-e-f)/(-d-f)) 1.1 (FFO - Net Finance Charge - Pref. Div Paid) / (Gross Int. Paid - Pref. Div. Paid) * EBITDA/R after Dividends to Associates and Minorities Source: Fitch based on company reports November 22,

13 Fitch Adjustment Reconciliation Fitch Financial Adjustments Summary Financials Income Statement Summary Reported Values 31 Dec 16 Sum of Fitch Adjustments Adjusted Values Revenue 9,217, ,217,501 Operating EBITDAR 755, ,330 Operating EBITDAR after Associates and Minorities 755, ,330 Operating Lease Expense Operating EBITDA 755, ,330 Operating EBITDA after Associates and Minorities 755, ,330 Operating EBIT 656, ,787 Debt & Cash Summary Total Debt With Equity Credit 9,166, ,018 9,399,597 Total Adjusted Debt With Equity Credit 9,166, ,018 9,399,597 Lease-Equivalent Debt Other Off-Balance Sheet Debt Readily Available Cash & Equivalents 608, ,831 Not Readily Available Cash & Equivalents Cash-Flow Summary Preferred Dividends (Paid) Interest Received 40, ,552 Interest (Paid) (520,644) 0 (520,644) Funds From Operations [FFO] 95, ,211 Change in Working Capital [Fitch-Defined] (243,470) 0 (243,470) Cash Flow from Operations [CFO] (148,259) 0 (148,259) Non-Operating/Non-Recurring Cash Flow Capital (Expenditures) (255,312) 0 (255,312) Common Dividends (Paid) (19,800) 0 (19,800) Free Cash Flow [FCF] (423,371) 0 (423,371) Gross Leverage Total Adjusted Debt / Op. EBITDAR* [x] FFO Adjusted Leverage [x] Total Debt With Equity Credit / Op. EBITDA* [x] Net Leverage Total Adjusted Net Debt / Op. EBITDAR* [x] FFO Adjusted Net Leverage [x] Total Net Debt / (CFO - Capex) [x] Coverage Op. EBITDAR / (Interest Paid + Lease Expense)* [x] Op. EBITDA / Interest Paid* [x] FFO Fixed Charge Coverage [x] FFO Interest Coverage [x] *EBITDA/R after Dividends to Associates and Minorities November 22,

14 Recovery Worksheet Recovery Analysis (USD Mil., IDR B-) Liquidation Value Advance Available to Going Concern Enterprise Value 6/30/17 Rate (%) Creditors LTM EBITDA 36 Equity in JV Discount (%) 15 Total Post-Restructuring EBITDA Estimation 31 Multiple (x) 4.5 Enterprise Value for Claims Distribution Going Concern Enterprise Value 140 Concern Enterprise and Liquidation Value of JV 396 Less Administrative Claims (10%) 40 Post-Restructuring EBITDA Estimation Guidelines Adjusted Enterprise Value for Claims 356 Interest Expense 24 Rent Expense Est. Maintenance Capex 7 Total 31 Distribution of Value Value Recovery Secured Priority Lien Recovered Recovery (%) Rating Notching Rating Senior Secured Secured Concession Payment Availability Table Adjusted Enterprise Value for Claims 356 Less Secured Debt Recovery Remaining Recovery for Unsecured Claims 356 Concession Allocation (5%) 18 Value to be Distributed to Senior Unsecured Claims 339 Value Concession Recovery Unsecured Priority Lien Recovered Recovery (%) Allocation Rating Notching Rating Senior Unsecured RR3 +1 B+ Unsecured Subordinated Junior Subordinated Note: Assumes fully drawn revolver. Source: Company data. Fitch. November 22,

15 FX Screener The FX screener chart shows Fitch s estimates of the foreign currency (FC) and local currency (LC) split between IDESA s debt, sales and operating costs. The chart illustrates the relative proportions rather than specific figures, thereby acknowledging the limitations of calculating the currency splits for a given financial year. Fitch analysts make estimates, sometimes with information from management, as to the actual FC receipts or FC-linked income relative to costs. Within the chart s debt columns, the short-term FC (usually U.S. dollars) debt is highlighted since, in a volatile currency market, this debt has to be physically repaid with FC using cash or accommodative refinancing in the bond or bank market. IDESA s financial performance benefits from a strong U.S. dollar. Revenues are significantly linked to the dollar. The company s products in petrochemical and distribution segments are largely based on international prices and typically referenced and billed to customers in dollars. IDESA s customers are less sensitive to local currency depreciations as their product prices tend to be also dollar-linked, which allows for local currency price increases without affecting demand. IDESA s cost structure is also dollar based, but to less extent, as it reflects labor, distribution and other expenses primarily denominated in Mexican pesos. A 10% hard currency strengthening should result in a decrease in IDESA s net leverage of about 0.6x. Fitch FX Screener ( B /Negative, LTM June 2017) (%) 100 Reported Currency (ST) Reported Currency (LT) Foreign Currency (ST) Foreign Currency (LT) (20) (40) Revenue Costs EBITDA Total Debt Total Cash Net Debt a a a a a a Post hedge, absolute figures displayed are Fitch s analytical estimates, based on publicly available information. Source: Fitch. November 22,

16 Debt and Covenant Synopsis Debt and Covenant Synopsis Overview Issuer Security Ranking Guarantee Release of Guarantee Equity Clawback Issue Issue Date Maturity Date Original Issue/Outstanding Indenture Date 8.500% Senior Unsecured Notes due May /31/13 12/31/13 USD300 Mil. 12/31/13 Unsecured Senior Alveg Distribución Química, S.A. de C.V.; Excellence Sea & Land Logistics, S.A. de C.V.; Industrias Derivados del Etileno, S.A. de C.V.; Inmobiliaria Idesa, S.A. de C.V.; Novidesa, S.A. de C.V.; Reter Comercializadora de Productos Petroquímicos, S.A. de C.V.; and Síntesis Orgánicas, S.A. de C.V. Guarantee will be released if (1) there is a sale or other disposition of such subsidiary guarantor; (2) the guarantor is no longer a restricted subsidiary; (3) IDESA and its other guarantors constitute at least 85% of EBITDA and such subsidiary has not incurred other-than-permissible debt (4) there is satisfaction and discharge of the notes. Prior to Dec.19, 2016, issuer may redeem up to 35% of the aggregate principal at % plus accrued and unpaid interest using net cash proceeds of equity offerings. Callability The issuer may redeem the notes, in whole or in part, prior to Dec. 19, 2017, at a redemption price equal to the greater of 1)100% of the principal amount, plus accrued and unpaid interest, and 2) the sum of the present value at such redemption date of the redemption price of plus all required remaining scheduled interest payments on such notes through Dec.18, 2017 at the treasury rate plus a 50bps premium. On or after Dec. 18, 2017, the issuer may redeem all or part of notes at specified redemption prices and accrued and unpaid interest. For 12-month period from Dec. 18, 2017 at %. For 12-month period from Dec. 18, 2018 at %. For 12-month period from Dec. 18, 2019, and thereafter at 100%. The issuer may redeem the notes, in whole but not in part, at 100% of their principal amount plus accrued and unpaid interest upon the occurrence of specified events relating to Mexican tax law, that result in higher withholding taxes with respect to interest payments under the notes. Financial Covenants Consolidated Leverage (Maximum) None Senior Secured Leverage (Maximum) None Interest Coverage (Minimum) None Acquisitions/Divestitures Change of Control (CoC) Provision Sale of Assets Restriction A CoC occurs if (1) (i) persons other than permitted holders acquire more than 35% of the voting stock of IDESA (or its direct/indirect parents) and (ii) the permitted holders (on an aggregate basis) beneficially own, directly or indirectly, outstanding voting stock of the company less than such person. (2) there is a disposition of assets or 3) Shareholders approve liquidation or dissolution of the company. Upon a CoC, the issuer will offer to repurchase at 101% of par. Asset sales are permitted provided the issuer receives fair market value and at least 75% of consideration is in cash. Net cash proceeds may be used for acquisitions, such that the acquired company becomes a restricted subsidiary, for capital expenditures; or to reduce debt if assets are pledged to secure indebtedness. Limitation on Acquisitions/Investments IDESA is prevented from merging with, or transferring or otherwise selling substantially all of its assets unless (1) the entity surviving the merger or to which the assets are sold is IDESA, or a company domiciled in Mexico, the U.S. or in any member country of the OECD or any other country with an investment grade rating; (2) no event of default exists; (3) after giving effect to the transaction the entity surviving the merger or to which substantially all assets were sold has a pro forma fixed-charge coverage ratio not less than the ratio prior to the transaction with an incurrence of $1 of incremental debt. Debt Restrictions Additional Debt Restriction Limitation on Liens Restricted Payments Other Cross-Default Cross Acceleration Incremental indebtedness is permitted if the pro forma fixed-charge coverage ratio on a consolidated basis for IDESA is at least 2.25x. If Ratio Test is not met, indebtedness is permitted if debt is intercompany, refinancing, acquisition (provided Ratio Test stays the same or improves, incurred to make Permitted Investments (not exceeding USD150 million), general basket does not exceed the greater of USD50 million or 7.5% of consolidated total assets. Restricted except for permitted liens including Liens securing intercompany debt between and or among Restricted Subsidiaries, acquisition liens, liens securing refinancing debt, liens securing hedging obligations, general liens basket not to exceed USD 50 million or 7.5% of the consolidated assets, liens associated with the acquisition, repair or improvement of fixed or capital assets. Restricted Payments include: (1) Capital Stock dividends unless they are on a pro-rata basis to minority holders or made in Qualified Capital Stock and; (2) repurchases; (3) voluntary repayments of subordinated debt, (4) investments other than Permitted Investments. If any event of default occurs and is continuing, the trustee or the holders of at least 25% of the outstanding notes may declare the notes to be due and payable. Events of default include but are not limited to: defaults in any indebtedness of at least USD25.0 Mil. If an event of default has occurred and is continuing, the trustee or holders of 25% of the principal amount of the notes may declare the notes to be immediately due and payable. An acceleration is automatic under certain bankruptcy events affecting the company or any of its significant subsidiaries. None MAC Clause Capex Restrictions None Covenant Applicability and Suspension Covenant Suspension Provided notes have investment-grade ratings from at least two agencies and no default or event of default exists, covenants are lifted pertaining to CoC repurchases, restricted payments, additional indebtedness, asset sales, transactions with affiliates, dividends, sales and leaseback transactions, nature of business and the limitation on consolidations and mergers. Covenants will be reinstated if ratings are subsequently downgraded out of investment grade. MAC Material adverse change. Note: Disclaimer The covenant summaries reflect Fitch s interpretation and synopsis of information contained in publicly available documents identified in the Document Date and Location section of each covenant summary table. Fitch cannot ensure that the information contained in such documents is either accurate or complete, or that the covenant summaries, or any particular covenant summary, accurately or completely reflect the key terms of any such document. The information presented in the covenant summaries is provided as is without any representation or warranty and is not a substitute for information provided to investors by an issuer and its agents in connection with a sale of securities. Source: Company reports, Fitch. November 22,

17 Full List of Ratings Rating Outlook Last Rating Action Long Term IDR B- Negative Downgrade 3 November 2017 Local Currency Long Term IDR B- Negative Downgrade 3 November 2017 Sr. Unsecured Notes due 2020 B/RR3 Downgrade 3 November 2017 Related Research & Criteria Corporate Rating Criteria (August 2017) Country-Specific Treatment of Recovery Ratings (October 2016) Non-Financial Corporates Notching and Recovery Ratings Criteria (June 2017) Analysts Gilberto Gonzalez, CFA gilberto.gonzalez@fitchratings.com Rogelio Gonzalez (+52) rogelio.gonzalez@fitchratings.com November 22,

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