Alpek SAB de CV

BMV:ALPEKA

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, everyone, and welcome to Alpek's Second Quarter 2018 Earnings Conference Call. With us this morning we have from Alpek, José Valdez, CEO; and Hernan Lozano, IRO, who will discuss the company's performance and answer any questions that you might have. As a reminder, today's conference is being recorded and will be available on the company's website, www.alpek.com.

I will now hand the call over to Mr. Lozano. Please go ahead, sir.

[Hernan Lozano, executive]

Thank you, operator. Good morning, and welcome. We very much appreciate everyone's participation today. This call will be divided into 2 parts. First, Pepe Valdez, our CEO, will provide a general overview of Alpek's second quarter 2018 performance and an update on relevant events. Afterwards, we will have a Q&A session.

Before we get started, let me remind you that the information discussed in today's call may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions not to rely unduly on these forward-looking statements. Alpek undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the call over to Mr. Pepe Valdez.

[Jose de Jesus Valdez Simancas, executive]

Thank you, Hernan. Good morning, everyone, and thank you for joining us today. We reached a new record EBITDA this quarter. Reference margins continue to expand under the favorable oil and feedstock price environment. Power plants had solid operations, and we made progress in key initiatives, such as the Suape/Citepe acquisition in Brazil.

The second quarter includes the first 2 months of Alpek-controlled operations at Suape/Citepe. We were pleased by the business' better-than-expected initial contribution supported by strong recovering in global polyester margins. These first few months of operations will be useful for us to get to know the assets firsthand and fine tune our plan to reach the plant's operating potential. We are excited by the prospect that these facilities provide to our integrated Polyester business, and global polyester margin have begun to improve [ way to ] the unsustainable low levels observed in the past.

Reference integrated PET margins in Asia posted the third consecutive quarter of sequential improvement. In fact, the average second quarter Asian margin is among the highest in the last 2 decades. However, we have a more conservative view on the sustainability of such high-margin matters. Margin -- margins appear to have expanded faster than utilization rates. And we have started to see a sequential correction in recent weeks. Even so, we do expect a sustained recovery versus previous years.

Asian PET and PTA utilization rates have improved over the past few years as capacity growth decelerated in the region. In addition, the Chinese waste [ program ] contributed to higher internal [indiscernible] PET raise in demand. Also, recent environmental regulations in China resulted in several plant shutdowns or reduced operating rates. These are some of the underlying factors we believe are driving the global polyester margin recovery, which benefits our Polyester business segment.

Comparable Polyester EBITDA was up more than 200 year-on-year and 42% when compared to first quarter '18. These are mainly by the strong recovery in global polyester margins and a positive EBITDA contribution from Suape/Citepe. In addition, M&G Mexico maintained normalized PET production levels, as Alpek continued providing support to secure financing while a definitive restructuring plan is implemented.

The Plastics & Chemicals segment also posted better-than-expected comparable EBITDA, up more than 40% when compared with second quarter '17 and 10% higher than first quarter '18, driven mainly by our polypropylene business. Alpek polypropylene margins reflect a tight supply/demand balance in the region and a favorable polypropylene supply mix.

Next, I will focus on updates for the Corpus Christi project, the cogeneration plant sale and the U.S. PET antidumping case.

Regarding the Corpus Christi project, we are actively engaged in the process to obtain the required approvals from governmental authorities to execute our winning there. Unfortunately, we are unable to provide an accurate estimate of the duration of this regulatory process at this time.

Simultaneously, Alpek is working together with JV partners on the plant to complete and operate the Corpus Christi plant upon the potential approval. The process to finalize the sale of our 2 cogeneration power plants in Mexico advanced during the second quarter. Most importantly, Mexican power tariffs increased consistently, as the regulator's implementation of its new tariff methodology appears to be moving in the right direction. This should allow us to accelerate the pace of commercial efforts to sign power purchase agreements with potential customers of the new Altamira cogeneration plant. Moreover, we plan construction to reach 95% completion at the end of the second quarter. We expect to finalize the sale of both power plants during the third quarter.

Second quarter '18 was also marked by an important milestone in our efforts to address on fairly traded PET imports. The U.S. Department of Commerce announced affirmative preliminary determinations in its antidumping duty investigations. As a result, cash deposits are now required for PET imports from Brazil, Indonesia, Korea, Pakistan and Taiwan, based on preliminary rates that range from 8% to 227%. Final determinations from the U.S. Department of Commerce and the U.S. International Trade Commission are expected before year-end.

Moving on to consolidated financial results. Alpek's second quarter revenue was up 35% year-on-year, driven by higher average consolidated prices and volume, adjusting for Suape/Citepe, revenue was up 27%. Second quarter consolidated EBITDA was $239 million. This is, as I mentioned, a new quarterly record for Alpek. Adjusting for a $21 million net gain from noncash inventory gains, a onetime profit from the sale of unused land in Mexico and the nonrecurring legal expenses, comparable consolidated EBITDA was $218 million, up $120 million year-over-year and 20% quarter-on-quarter. The strong recovery in global polyester margins, Suape/Citepe and solid polypropylene business performance contributed to EBITDA growth. Regarding the Suape/Citepe EBITDA, we were pleased to see a positive contribution in the first 2 months of operation and expect this trend to continue during the second half of the year.

Suape/Citepe's EBITDA will be reported on a consolidated basis within our Polyester segment. Alpek's plant-specific profitability is not subject to disclosure.

Second quarter majority net income was $142 million compared to $25 million in second quarter '17, bolstered by higher operating income. Net debt was $1.6 billion, up $375 million year-to-date, as the $435 million investment in Suape/Citepe was partially offset by better-than-expected EBITDA.

Our leverage ratio, net debt to EBITDA, decreased from 3.1x in the first quarter to 2.9x in the second quarter, even with the Suape/Citepe acquisition. Further deleverage is expected during the second half of the year, driven by incremental EBITDA and the potential sale of 2 power cogeneration plants in Mexico.

I will like to wrap up the call with few comments on this morning -- morning's announcement regarding our updated guidance. The revised volume and sales figure included estimated contribution from Suape/Citepe of 444,000 tons and $505 million, respectively. Our new $750 million EBITDA guidance includes a nondisclosed amount of positive EBITDA from Suape/Citepe. We assume a lower reference integrated PET margin versus second quarter '18, plus a negative impact of $23 million in inventory losses and nonrecurring legal expenses during the second half of the year.

In addition, we incorporated a conservative estimate associated to the unplanned Altamira PTA plant shutdown, based on the preliminary information available to us at this time. As announced earlier this week, a fire occurred in a section of the facility, specifically the oxidizer area, which supports both PTA production lines on site. The situation was controlled promptly and most importantly, with no reported injuries. Our team is actively engaged in assessing the required repairs to resume operations as soon as possible and evaluating all alternatives to mitigate the impact of this temporary disruption for our customers and suppliers. We believe that it's a matter of weeks before we can restart the plant, not months.

This concludes my remarks, and I would now like to open the call for questions. Operator, please instruct the participants on how to place their questions.

[Operator]

[Operator Instructions] We will now take our first question from Nikolaj Lippmann from Morgan Stanley.

[Nikolaj Lippmann, analyst]

Two very quick and rather simple questions, if I may. First, on Brazil, I understand that you're not talking about the specific Brazilian profitability levels. Would it be fair to assume that prices are very close to international prices in that market, and how should we think about the capacity utilization there, sort of, beyond 2018? So that's question number one. Question number two, which is kind of the same question for Corpus. When do -- should we expect the PET and the PTA capacity to start being produced in Corpus? And will the all the 3 partners have access to that capacity simultaneously at the same time, or is there a bit of a pecking order, where some would be able to market capacity before others? And final question, sorry about this. How -- can you talk anything about the excess capacity of PTA from Altamira and any strategy, sort of, beyond this year to sell that into international market?

[Jose de Jesus Valdez Simancas, executive]

Nikolaj, well, first, your question about Brazil profitability, well, for sure, the international margins have helped the profitability of the plant. However, I have to say that prices in Brazil are lower than international -- I mean, Asian margins at this moment. Asian margins have increased very quickly. And let's say, the margins in Brazil are -- have -- are not fully reflecting the increase in the international margins. So we do believe that the margins in Brazil will -- in Brazil, and for that same purpose in Argentina, will continue to be strong during the second half of the year. With respect to your question about Corpus, look, it's very difficult to give a clear answer to your question. But assuming that we get FTC approval during the remainder of the year, meaning before the end of the year, I think a reasonable estimate would be, starting off, PET plant first quarter '20, and PTA, perhaps, last quarter of '20, first quarter '21. I would say those are numbers that will be, at this point, a good preliminary estimate. But again, everything depends on the approval date from the FTC.

[Nikolaj Lippmann, analyst]

Got it. And on Altamira, can you address the -- you have a lot of excess capacity of PTA. If you're thinking about the spot market, any kind of, sort of, commercial strategies with regard to the excess PTA there?

[Jose de Jesus Valdez Simancas, executive]

Well, we have -- the excess PTA we have in Altamira, just as a reminder, well, remember that we do have -- we are purchasing a lot of PTA today in the U.S. We are purchasing PTA to supply our facilities in the U.S. And eventually, if we have excess capacity in Altamira, we could direct that to our U.S. plant and also, we are now importing most of our PTA that is used in our PET plant in Argentina. So we do have this possibility of consuming this excess PTA, as you mentioned, in our all own internal PET plants in the U.S. and in Altamira and in Argentina.

[Operator]

We will now take our next question from Frank McGann from Bank of America Merrill Lynch.

[Frank McGann, analyst]

Just -- I was wondering if you could give a little bit of perspective on how you are seeing the PET markets develop over the next, say, 3 to 18 months. You are expecting lower margins in the second half versus the second quarter. I was wondering what you're seeing that will drive that, and how much lower do you think they can get as you go into 2019.

[Jose de Jesus Valdez Simancas, executive]

Okay. We do expect lower PET margins for the second half of the year as compared to second quarter. In the second quarter of this year, actually, the PET margins, which is very high level. In others, during the quarter, the PET margins reached $345 per ton in Asia, which is extremely high. It's -- I mean, it used to before in the range of $150, $170. So the $350, we do believe is not going to be sustained. And indeed, as we speak, I think the margins of PET have come down to -- in Asia, to approximately $260. So we assume the margins could remain in this range. Capacity utilization is still strong in Asia and in China and in the rest of the world. So we do believe PET margins can still be, let's say, in that range for the remainder of the year. And the $260 [indiscernible] [ $340 ]. And then eventually, in the next year, certainly you will start to see some, perhaps, additional reductions as more capacity comes on stream in '19 and '20. PET. Let me now talk a little bit about PTA because it's the other important component. In PTA, we have a different perspective. And I guess, Nikolaj already sort of mentioned this previous report. We do believe the capacity utilization in PTA is going to remain stronger than PET. It takes longer to build PTA plant than a PET plant. And we still see the fundamentals for PTA a little bit more -- a little bit more optimistically. We believe that we might see good PTA margins over the next 2, 3 years and -- on the one hand. And on the other hand, PTA margins have not increased as much as PET margins. So that's the other part of why we do believe PTA margins are more sustainable in the, at least, medium term. So summarizing, PET, we agree we see reduction for the second half and perhaps, even a slightly bigger reduction going forward. PET, we think the margins can pretty much remain where they are for the next couple of years, 2 to 3 years. But again, this is where -- this is a subject to a lot of actions or situations that can change this. But that's our internal estimate for the time being.

[Frank McGann, analyst]

Okay. In terms of demand, are you -- did you see any demand changes as you got towards the end of the quarter? Or you see -- or how do you -- how are you seeing demands in the different markets that you're in?

[Jose de Jesus Valdez Simancas, executive]

No. Again, as you look at the demand, remember, in this particular PET, which drives PTA consumption at the end of the day, there is a certain seasonality. So second quarter was also positively impacted by the higher seasonal demand. Remember that the PET mostly goes to drinks. Water, carbonated soft drinks and the demand is higher during the summer months. So we do see, again, this is part of the explanation because I think PET utilization rates are becoming lower. That's why margins are moderating somewhat in the last weeks.

[Operator]

We will now take our next question from Christian Landi from Scotiabank.

[Christian Landi, analyst]

My question has to do with the impacts that you had in Q3 of last year. I remember that there's a $113 million of accounts receivables that are now -- right now in a provision. And also, there -- I remember that you mentioned in a previous report that there could be a write-off for the intangible assets that you [ wrote ] down in that quarter. I would like to know if there's a time line for these 2 things.

[Jose de Jesus Valdez Simancas, executive]

Yes, there was in quarter 2 last year, a write-off. It's a nonrepeatable, if you want, event, which was, as you mentioned, $113 million, okay? And at that time, we also wrote off a debt that -- M&G had a loss of $90 million, and we also wrote off all of our investment in Corpus, which was $435 million. And then eventually, when the FTC -- if the FTC -- well, assuming the FTC approves our Corpus deal, yes, part of those $435 million could be reversed, which would be around $200 million gain as a result of the approval of the Corpus Christi project.

[Christian Landi, analyst]

Yes, okay. I understand that would be noncash. But the $113 million for receivables, that -- would it have an impact in free cash flow. I was wondering if you could give some perspective on when that amount might affect your cash flow positively.

[Jose de Jesus Valdez Simancas, executive]

Well, the $113 million, we are not expecting that we would recover.

[Operator]

We will now take our next question from Luiz Carvalho from UBS. [Operator Instructions] It appears the participant may have stepped away. We will now take our next question from Eduardo Altamirano from HSBC.

[Eduardo Altamirano, analyst]

I realize this may be a little bit premature but given the strong cash flow environment that you may be having for the next 2 to 3 years, as you alluded to, you do have a lot of integration to go under. But what would be the corporate strategy going forward? I mean, essentially, can -- should investors expect a repayment of, let's say, sort of, any sort of debt that you have dividends? Or can we expect any sort of further M&A into different, let's say, chains or at least further integrating to the current chains that you currently have a focus on?

[Jose de Jesus Valdez Simancas, executive]

Yes. Well, I think you are right. I mean, when we complete, I'm assuming we will complete the investment of the cogeneration facilities. And we are, in fact, I mean our debt would come down significantly. We hope to maintain a very strong cash flow generation. And I would say, we would be working actively in looking for new, of course, new M&A in -- but mostly in the businesses we're in. We are also going to be deploying some cash we do have as a result of technology improvements we have made in our technologies. We have some very, I would say, attractive investment opportunities in the bottlenecking and improving the cost of our existing facilities. And of course, dividends, some of -- I mean, remember, we will not pay dividend this year. So yes, we will hopefully be able to pay to -- let's say, presumably in [ one month ] dividend payment. And two, we are also -- integration projects, we are continuously looking at integration projects in our existing volumes, and that could also be an important, let's say, need for cash in the future.

[Operator]

We will now take our next question from Vanessa Quiroga from Crédit Suisse.

[Vanessa Quiroga, analyst]

My first question is regarding the guidance, the new guidance that you provided. Can you give us a breakdown between Polyester and Plastics & Chemicals, or should we just assume that all the change is related to Polyester? That will be the first one. And also, related to guidance, if you can provide an idea of EBITDA per ton or spreads. How are they comparing right now between your operation in North America and Brazil, and what you're assuming, also, for your guidance?

[Jose de Jesus Valdez Simancas, executive]

Well, let's say that most of the -- I mean, let's say, our EBITDA for the Plastic business for the second half, we expect it to be very similar to the first half, a little bit lower. Again, we already mentioned, there was a positive change in inventories revaluation in the first half, and we expect that to reverse a little bit in the second half. But let's say, the comparable EBITDA in Plastics & Chemicals is -- should be relatively similar, a little bit -- relatively similar. The reported EBITDA will be a little bit lower for the reasons I mentioned, okay? And in terms of Polyester, we are assuming that the margin for PTA and PET in Asia the integrated margin, in Asia for the second half is going to be $350 per ton, which compares to second quarter margins, which were $478, $480. Now regarding your question of margins in North America and the U.S. and in North America and Brazil and the -- what I can tell you the following: our prices in North America do not react immediately to margins in Asia. So for the most part, we had, in 2018, cost plus contract in North America, which pretty much makes the margins relatively steady. So the margins in North America have not reacted in an important way to the Asian increasing margins. Where the margins in Argentina and the margins in Brazil are more linked to Asian prices. So what you'd expect is in this second half of the year, and again, assuming the margins in Asia remain healthy, is that margins in South America could be a little bit higher than margins in North America, which are very steady. Only 7% of our product, the product we sell in North America, is related or is linked to Asian prices, okay? So that's the situation. So probably, in second half, we are going to see margins in South America being better than margins in Mexico and the U.S. in North America. Now your other question is a little bit more difficult. You were asking EBITDA per ton, right?

[Vanessa Quiroga, analyst]

Yes. No, but I think that with the insight that you provided, I think that we can infer, more or less, about the EBITDA per ton. I just have another question on the same topic, Pepe. What about the contracts that are being renewed in North America? How are customers reacting to the tighter global situation for PET?

[Jose de Jesus Valdez Simancas, executive]

Well, I think, again, when I said that margins in North America do not react immediately to Asian margins, then it doesn't mean that for contracts that expire end of this year, the Asian margins or the Asian reference prices are going to be a factor in determining the new prices. So we do expect, I mentioned today, 7% of our sales are related to Asian margins in North America. For next year, this number could be significantly higher. 70%, [ 35% ], will be related to margins in Asia. So yes, there is the opportunity, perhaps, to improve margins a little bit in North America for next year, assuming, of course, margins in Asia remain strong.

[Operator]

We will now take our next question from Murilo Riccini from GBM.

[Murilo Riccini, analyst]

Actually, I have 2 questions. Could you confirm the status of the syndicated loan, and when do you expect to use this line or if you already used a part of that during the second quarter? And the second one is, how much do you expect of additional cost to finish the construction of Corpus Christi?

[Jose de Jesus Valdez Simancas, executive]

Well, we -- with respect to your question of the loan, we have already disbursed $290 million of the $710 million, right? And...

[Murilo Riccini, analyst]

Wait. Sorry, I didn't understand how much.

[Jose de Jesus Valdez Simancas, executive]

$290 million is what we already, used to be of the $710 million. And at this point, again, this is going to depend quite a lot on the sale of cogeneration. Because with this cogeneration, then perhaps, we don't have to expose more of the amount that -- more of that loan. And additional cost in Corpus, I don't know we have disclosed this before, but we are, right now, part of the team, the 3-way joint venture is exactly assessing the cost to complete. But right now, I mean, until we have a more firm number, we could not allow to disclose the numbers. But it's within the limits of what we analyzed during the billing process.

[Operator]

We will now take our next question from [ Rodrigo Verdugo ] from GBM.

[Unknown Analyst]

My question is regarding the Brazil market dynamics. We saw that -- well, we heard from you and from past statements that the Suape and Citepe utilization rates were improving given the market dynamics and perhaps, the M&G bankruptcy down there as well. We were wondering how the market dynamics will go forward, as Indorama takes control of M&G's assets in Brazil, and whether we can expect some changes in the Suape and Citepe utilization rates going forward, given this dynamic.

[Jose de Jesus Valdez Simancas, executive]

Look, in normal times, the utilization rates of both plants are pretty much determined by the domestic demand in Brazil. As you know, Brazil exported -- imported quantities of PTA last year to the U.S. But after the antidumping, we don't believe that's going to be a relief [indiscernible] in the future, I mean, not to the U.S. So for the time being, the plants are operating close to capacity. PTA, for sure, is operating close to capacity. As we have additional needs for PTA in Argentina and other parts of the world, so PTA plant's operating at full capacity. PET, our PET plant, I think, is going to be operating, let's say, one line or a little bit more than that to supply domestic market. And then again, as long as the window for export is open with these Asian margins, I think we would also be able to operate PET then at close to full capacity in the remainder of the year. So for -- the situation now looks more favorable than what we considered in the past due mostly to the improvement in margins in Asia, which will allow us to export to other countries other than the U.S.

[Operator]

We will now take our next question from [ Jose Vasques ] from GBM.

[Unknown Analyst]

I have a question regarding the Suape and Citepe contribution. Could you repeat the number for EBITDA that you said to us considered in the guidance? That would be my first one. And the second one is also related to the operations in Brazil that if the numbers that you are currently reflecting are similar to those that were considered at the beginning, or there -- well, you have explained the dynamics going forward. But those numbers currently are higher or at the same level or there has been any change in that?

[Jose de Jesus Valdez Simancas, executive]

Okay. Well, we didn't mention numbers of EBITDA for the Brazil acquisition in the guidance just because we don't want to start disclosing individual plans, EBITDA individual plans. And this is the way we have always managed this before. We're just disclosing the consolidated figure. So we did -- I did not disclose any EBITDA. What I can tell you is that yes, the margins and volumes, going forward, are higher than our original estimates. And again, the main reason for that is the improvement in Asian margins.

[Operator]

We will now take our next question from [ Eric Nunqua ] from Merrill Lynch.

[Unknown Analyst]

I'd like to know if there are any more details you could provide on the sale of cogeneration plants and also, regarding the Altamira fire. Is the plant halted entirely, or is it just a fraction of the full capacity?

[Jose de Jesus Valdez Simancas, executive]

Okay. Look, in terms of the cogeneration sale, I'd tell you we are in a very advanced stage of the negotiation. And again, as I think I mentioned during my call, we believe that this should be closed during the second quarter and -- during the third quarter, I'm sorry. And perhaps -- I mean, the agreement should be signed in third quarter and perhaps, the transaction will take place in the fourth quarter, right after we start the plant. The plant, by the way, is -- the Altamira cogeneration plant is within budget, and we are starting -- we are expecting the startup to be in October, early October, which is 1-month delay from the original startup in September. So we believe in October we'll start up the plant. And at that time, once we start up the plant, that should be when we could finalize the transaction. So that will be the estimated time frame. So at that time, we will receive the funds from the buyer. Now in terms of the Altamira fire, I think, first of all, the whole plant is shut down. As I mentioned again in my presentation before, we believe it's a matter of weeks for the plant to restart. The latest information we have as of this morning, we have an internal estimate, which -- in terms of the startup date, which ranges from, let's say, 4 weeks to 8 weeks from the time of the accident. We are leaning more towards the lower end of the range. Our preliminary inspections of the facility and -- well, first of all, as you know, there were no injure -- there was -- nobody was injured, which is very good. But also, as we have been inspecting the equipment, we have seen that most of the damage has been in the electrical wiring, in piping, some valves, some pumps and the major equipment, as far as we have been able to inspect those, are in good shape as well as the structures in the plant. So most of the equipment or most of the parts that were damaged with the -- in this accident, in this fire, most of them, we do have in our inventory for spare parts, in our spare parts inventory. So we have been right in the plan. And the -- some of the other parts that we do not have, we have already been able to secure with some suppliers. So that's very important because it tells us, as of today, that there is not going to be long wait time for any equipment or any part that we need. So we seem to have every -- all the parts we need under our control, so that's part of the reasons why we believe we are going to be ready restarting the plant in the low range of the estimate. That's number one. Number two, the other great critical concern for us is to mitigate the impact that this might have on our customers, and we are working very hard on that, as we speak, and we are taking a lot of different actions. Some -- I mean, some of our customers, for example, one of our largest -- actually, the largest customer of this facility, which is located in the same site, have a planned shutdown for August. So what they are doing is they are moving this shutdown 1 month ahead. So they are doing the shutdown during the next 2, 3 weeks. So that will also help them mitigate the impact. So that's going to help significantly. And then with some other customers, we are finding ways -- we're working very hard with them to limit, again, the shipments that -- or the reduction in shipments. So we, again, can accomplish this, let's say, 1-month objective. I think, we will be able to help most of our customers not to have a significant impact. So that's very important. On the other hand, what we are also doing in our plant, we had a scheduled shutdown also of this facility in October. So again, what we're doing is, we are doing the shutdown today so that we don't have to shut down the plant as planned within the next 2 months. So that would also in the long run or in the medium-term mitigate the impact of the -- of this accident. So again, this is very fluid, but as of related to permission we have, we are relatively optimistic that we can restart the plant again in this 4- to 8-week period.

[Operator]

We will now take our next question from Luiz Carvalho from UBS.

[Luiz Carvalho, analyst]

Can you hear me well?

[Jose de Jesus Valdez Simancas, executive]

Yes.

[Luiz Carvalho, analyst]

Yes, Okay. Sorry, apologies for the first one and apologies for the background noise. Basically, I have 2 questions here, Pepe, mostly related to 2 topics already discussed in the call. The first one is regarding the cogeneration asset sales. You just mentioned that, potentially, the agreement will be announced in the third quarter and the conclusion of the deal will be in fourth quarter. But I just would like to hear from you, after the elections and all these tariff [ review ] that we had in Mexico and with the high-energy prices, should we think more close -- something close to $1 billion for the 2 plants in terms of value? Or is it too high from your understanding for now? And the second question, related to the capital allocation. As you just mentioned as well, I mean, leverage will go down because of the -- to the positive free cash flow that you're generating and potentially you're considering, I don't know, dividends. But I just would like to understand, how the -- having said the integration of Citepe at Suape, would've say postponed potential acquisitions at least in the short term and would increase the chances of, I don't know, dividend payments throughout the end of the year.

[Jose de Jesus Valdez Simancas, executive]

Okay. Look, let me start by saying, we don't really expect $1 billion before the end of the year. For sure, we don't expect that. Dividends will be for next year not this year. And remember, for dividends to be paid, I mean, we have to make sure that our objective has been, as we mentioned to you in the past, to maintain our net debt EBITDA around 2x. So we're still working very hard to get there so that we can maintain our investment grade rating. And we do believe that even without the sale of cogeneration, we should be close to getting there by the end of the year. And so that's an important factor. And in terms of the sale I mentioned, yes, there was -- at the beginning -- at the end of last year December, beginning of this year, there was a change in methodology to calculate tariffs, power tariffs in Mexico, which was -- we could never understand. And it looks like, these tariffs now -- the new tariff system has been, let's say, improved or -- I mean, some glitches have been corrected. And now the -- let's say that rates today are much more in line with the history. So that, again, that, let's say, uncertainty in terms of what the power rates will be going forward, sort of, stopped our efforts to sign contracts during the first 6 months of the year. Now that in June, in fact, the rates have come up to normal and in July, there was an additional increase of 11%. And now at this point in time, we are progressing with finding additional contracts. And we think, again, within 1 or 2 months, we should have all this ready. And the $1 billion number you mentioned, it's very high. It is not a number we are expecting.

[Operator]

We will now take our next question from Jean Bruny from BBVA.

[Jean Baptiste Bruny, analyst]

All my questions have been answered. Thank you very much.

[Operator]

We will now take our next question from Gilberto Garcia from Barclays.

[Gilberto Garcia, analyst]

I have a question on Brazil. We have talked in previous calls about the potential for improvements in the profitability level. I understand, you are not disclosing the particular figures for Suape, but is there room for margin improvement coming from operations other than the improvement in margins overall in Asia?

[Jose de Jesus Valdez Simancas, executive]

Well, that's correct. And it's -- for sure, that's the basic assumption under which we made the acquisition, we did not assume that margins from Asia will improve or at least would not improve significantly. Perhaps, we assumed they would normalize a little bit, but not, we did not assume margins at the levels we have seen in second quarter. So no, most of the effort and -- to improve the Brazilian operations in our company, improve operating of the plant, improve efficiency, the reduction of cost. And that's why you might remember, Gilberto, that when we originally told you that we would acquire Brazil. And we told you, do not expect an immediate improvement in profitability because a lot of the improvements are going to come from -- again, higher utilization capacity, so which means producing more in the plant than was produced before. So higher volume and to -- higher efficiencies and lower cost. That was the drive for our acquisition. The fact that we knew we could produce and sell more and we could reduce cost, then we could improve, let's say, deals and efficiency. And that is, again, we are still going in that route. We are making some progress in that. But it's really too early, 2 months after the acquisition, but that's what's going to drive the improvement going forward. So our plan is that -- and I think I did share this with you. Even with the previous margins in Asia, over 2 or 3 years, once we make all these improvements in the operations, we would be targeting a $70 million, $75 million EBITDA for this facility. Not the first, not the second year but third or fourth year. That is the original problem we have. So we are preparing for that. We are preparing to be able to generate that type of cash flow even if the market in Asia goes back to the previous level.

[Operator]

[Operator Instructions] We will now take our next question from Vanessa Quiroga from Crédit Suisse.

[Vanessa Quiroga, analyst]

Just a follow-up. Are you able to provide any rough guidance of where the CapEx for Corpus Christi would be to finish the PET construction and to finish the PTA section and any maintenance works that need to be done until it starts operations?

[Jose de Jesus Valdez Simancas, executive]

Vanessa, I was just asked this question before. And remember, since this is a 3-way joint venture. I mean, we are not able to disclose those numbers until we -- the 3 partners have a more accurate estimate. We are, right now, in the process of working to assess that number in a more precise way. And I think, for sure, I would say, once we have the FTC approval, I think the partners will agree to disclose that number. It's a significant number, it's an important number, and -- but again, assuming, I mean, the financial capability, I mean, when you divide that among the 3 parties, it's not a number that is -- will change in any way our financial situation. So even after that, you can assume that Alpek will continue in a very strong financial -- with a very strong balance sheet.

[Operator]

With no further questions in the queue, I'd like to turn the conference back to Mr. Lozano for an additional or closing remarks.

[Hernan Lozano, executive]

I would just like to thank everyone for participating in today's call, and please feel free to contact us if you have any follow-up questions or comments. Have a great day.

[Operator]

Ladies and gentlemen, that does conclude today's conference. Thank you all for joining us.