Fight for Brazil chemicals group Braskem draws in foreign bidders — and Lula government

A contest is under way for control of Latin America’s largest petrochemicals producer, Braskem, with big-name bidders including US private equity giant Apollo, a Gulf petrostate and one of Brazil’s most prominent business families.

On the block is a majority stake in a $3.7bn-valued enterprise that runs factories across its homeland as well as Mexico, the US and Germany, supplying the raw materials for everything from plastics to paints.

Alongside Apollo, the sale has drawn in Abu Dhabi’s state-run oil company, the dynasty behind top beef processor JBS, fellow Brazilian chemical manufacturer Unipar Carbocloro — and even Brazil’s government.

The future of São Paulo-headquartered Braskem is considered of strategic national importance by the administration of president Luiz Inácio Lula da Silva, which could exert a major sway on the outcome. 

In the eyes of some in Brazil’s corporate world, it is set to be a litmus test for how far the leftwing leader is prepared to expand the reach of the state into the economy. 

“It will be proof of whether we return to a government that interferes in the dynamic of private competition, or one that remains far away from the business sector,” said one person involved in the process, who asked not to be named. “It represents much more than the sale of a stake in a big company.”

The 38.3 per cent block of Braskem equity, carrying just over half of voting rights, is being offloaded by Brazilian construction and engineering conglomerate Novonor. It is in bankruptcy protection and any deal requires approval from five banks with claims over the shares as a guarantee for debts of about R$15bn ($3bn). 

However, a complex ownership structure and the Lula government’s hands-on industrial agenda make the negotiations far from straightforward. Talks with another potential buyer, the US-listed chemicals group LyondellBasell, broke down in 2019.

Key to how the situation plays out is Brazilian oil major Petrobras, the other main investor in Braskem with a 36.1 per cent shareholding. 

To fulfil a campaign call by Lula, the state-controlled energy business is looking to diversify beyond its main activity of pumping offshore crude. One target area is petrochemicals, which it exited in the past. If Novonor agrees to sell its Braskem stake, Petrobras has the right of first refusal.

Braskem’s bylaws also stipulate any buyer must extend its offer to all shareholders, including Petrobras and smaller minority investors.

So far, Apollo has teamed up with the Abu Dhabi National Oil Company, or Adnoc, with an offer pitched at R$47 per share. It consists of R$20 in cash, R$20 in perpetual bonds with 4 per cent interest and R$7 of deferred payments in the form of warrants. Goldman Sachs is advising the consortium.

The bid implies a R$37.5bn ($7.7bn) valuation for the whole of Braskem — well above its market capitalisation of R$18.6bn. According to estimates by BTG Pactual analysts, however, it equates to less than R$30 a share on a net present value basis.

For state-owned Adnoc, the attraction is an entry into the Americas as it embarks on an international push into chemicals, according to a person familiar with the bid.

A bid for R$36.50 a share in cash has been tabled by Unipar, a smaller industry peer of Braskem. It intends to acquire 34.4 per cent for R$10bn and leave Novonor with a 4 per cent slice. Unipar is being advised by local investment bank BR Partners.

Another cash offer for the entire stake worth R$10bn came from J&F Investimentos. It is the holding entity of the billionaire Batista brothers of Brazil, whose family founded JBS, the world’s largest meatpacker.

While the size of the Adnoc/Apollo offer envisages making good the creditor banks in full according to people aware of the details, albeit only partially in cash, under the other two bids a chunk of the R$15bn owed would remain outstanding.

With Braskem’s São Paulo-quoted shares trading at about R$23, the stock market appears sceptical at the chances of a takeover happening.

Petrobras said it was conducting due diligence on Braskem but was yet to make a decision. Its chief executive Jean Paul Prates, a former senator appointed by Lula after he assumed office in January, recently told the Financial Times that Braskem should remain “under Brazilian control”.

People involved in or close to the sale process say this could be achieved through Petrobras maintaining its interest alongside either a domestic or foreign co-investor. 

Another state actor involved is the national development bank, BNDES, which is one of the lenders that must agree to any proposal. Its head, also a close Lula ally, has suggested the president himself will have the final say.

Separately, a senior government official who spoke on condition of anonymity, said the case was being carefully considered. “It’s under analysis with a view to strengthening the petrochemicals industry in Brazil,” the person said.

Novonor’s disposal has its roots in a sprawling corruption scandal that unfolded the last time Lula’s party was in power. Then known as Odebrecht, it led a cartel of contractors that overbilled Petrobras, with bribes paid to executives and public officials. 

Dozens of businessmen and politicians were jailed, including Lula — although his conviction was later overturned. Odebrecht was brought to its knees financially and pledged its Braskem shares as collateral for loans. 

Central figures at both Brazilian bidders for the stake were also reprimanded. Brothers Joesley and Wesley Batista signed leniency deals with prosecutors and spent time incarcerated.

The controlling shareholder of Unipar and its former chief executive, Frank Geyer Abubakir, received a fine for irregularities he says were related to the creation of a business later sold to Braskem. 

“I made a mistake in a very difficult situation, almost 15 years ago. I have admitted, paid and learnt from it,” he told the FT.

Geyer argued Unipar’s offer represented “the best price” and said it had R$10bn of bank financing commitments. Established by his family more than half a century ago, he said the company’s industry experience would make it a good long-term partner. 

“Unipar has the culture and the knowhow of the sector,” he added. “We managed petrochemical plants and also constructed factories that today are part of Braskem.”

Braskem, Novonor, J&F, Apollo and Adnoc declined to comment.

Any new owner will confront a weak global petrochemicals market. Braskem reported a second-quarter net loss of R$771mn on revenues down 30 per cent.

A possible complicating factor is the fallout from an environmental disaster in the city of Maceió, where Braskem operated a rock salt mine. Due to geological disturbances, some 60,000 residents have been permanently evacuated.

Despite already making payouts, the company is facing further compensation claims and the state governor has requested the divestment process be suspended. 

Given the political dimension and the consensus required from various stakeholders, people involved say Braskem’s ownership is unlikely to be resolved in a hurry.