The Brazilian petrochemical industry is going through a new consolidation cycle and is expected to draw foreign capital – unlike most other economic sectors in the country. The shift reflects, to a large extent, the growth difficulties faced by traditional groups after the stimulus to the so-called national champions.
Braskem, for example, was the result of this model with the formation of a partnership between Petrobras and Odebrecht (now Novonor). Furthermore, there were structural problems that undermined the sector’s competitiveness in recent years.
In addition to the sale of Novonor’s 38.3% stake in Brazil’s largest petrochemical company, the Geyer Abubakir family, Unipar’s controlling shareholder, has hired Essentia Partners and is considering combining its assets with a rival or attracting a private equity fund. Asset manager Apollo presented the holding company a proposal for the asset before the Geyer family sought an advisor.
Petrobras is also selling its almost 28% stake in the Deten chemical company and may get rid of Copenor, a petrochemical company. Meanwhile, Unigel, owned by the Slezynger family, has filed for an IPO to raise $500 million, sources say.
The expectation is that, in the next 12 months, mergers and acquisitions in this sector will total $23.4 billion, sources say. The figure includes the value of Novonor’s slice in the petrochemical company – excluding premium payment for the sale of the business – and the estimates of how much Unigel can raise with the IPO and a possible combination of assets of Unipar. The combined amount may reach R$40 billion, should Petrobras decide to sell its stake in Braskem, also without considering the premium.
The main bet is that private equity funds with historical bets in the sector and foreign chemical groups strong in the global market will play a prominent role in the reorganization of the local industry. The most recent example is the acquisition of Oxiteno, which belonged to Ultra, by the Asian group Indorama, for $1.1billion.
The challenges to the new players will not be few. According to a businessman of the sector, many Brazilian petrochemical companies are in their best shape in terms of results and operation, but macroeconomic and political instability weighs on negotiations.
“To a good extent, the industry has done its part to ensure competitiveness, and this attracts investors. But some issues are beyond our reach and end up hindering the fair valuation of assets,” said the businessman, who spoke on condition of anonymity. The absence of structural reforms – such as a tax overhaul, which would reduce the costs of industrial production in the country – and the slower-than-expected pace of the opening of the natural gas market are used as a bargaining chip by potential investors, added the source.
For the founding partner of the consultancy Maxiquim, João Luiz Zuñeda, the petrochemical industry is in the last chapter of a book. Investment funds and multinationals with operations in the sector will be the main characters of the story from now on, which according to him proves that foreign investors once again have an appetite for the Brazilian chemical industry.
This shift of characters poses some risks, though, Mr. Zuñeda said. Initially, these “entrants” are buying “market share” – and Brazil is the sixth largest country for the chemical sector in the world. And they will only make new investments in Brazil if conditions are favorable. “Most of these companies are global, with plants around the world and overcapacity abroad. If it is not attractive, they will not invest to expand their operations further. They will just keep the market,” he said.
The changes of the petrochemical industry are directly linked to Odebrecht’s exit due to the group’s difficulties after the anticorruption task force Car Wash. Petrobras, its partner, hired J.P. Morgan to evaluate the strategic options it may have with its 36.15% stake in Braskem. Novonor, which is advised by Morgan Stanley, has not yet received a firm offer for the sale of its stake.
There has been more interest from potential buyers for certain assets than for Braskem’s full operation – and the initial expectation of fiercer competition for the company has not yet been confirmed, Valor found out.
There are three possible scenarios: the set of assets may be acquired by an investor or consortium of investors; operations could be sliced to be sold by region; and an exit through a secondary offering. The model may be defined in coming weeks, sources say.
The petrochemical company’s two largest shareholders, Novonor and Petrobras, have been holding informal talks about the format that will bring more value to their stakes. Creditor banks of Novonor are also participating in these discussions. In case the best option is to sell shares on the stock exchange, provided that the prices are trading at near all-time highs, the petrochemical company would first migrate to the so-called Novo Mercado – the strictest governance segment of B3 –, a process that will require about four months, a source said.
Besides Braskem’s stake, Petrobras plans to get rid of its stakes in Deten, the Brazilian market leader in biodegradable detergent inputs, and Copenor (Companhia Petroquímica do Nordeste). In Deten, the sovereign wealth fund Mubadala is seen as the main interested party in the 28% stake in the business – the Abu Dhabi-based asset manager already controls the company through Compañía Española de Petróleos (Cepsa). Bank Santander is advising the state-owned company in the sale process. The divestment in Copenor is in its initial phase.
Petrobras’s exit from the sector may be temporary, said Mr. Zuñeda, with Maxiquim. “Now the focus is on the deep-water oil. But I don’t rule out that, later on, Petrobras will look at petrochemicals again, as other oil companies are doing.”
Two other traditional Brazilian companies, Unigel and Unipar, want to take advantage of the good moment of the petrochemical cycle to raise capital from new partners. Unigel has already hired banks for its IPO after a failed attempt in 2017, and is waiting for the best scenario to go public.
Vila Velha Administração e Participações, parent company of Unipar Carbocloro, has been sought by private equity funds and chlorine-soda and PVC industries. Valor also found out that the preference of the holding company owned by businessman Frank Geyer Abubakir is to draw investors and stay in the business as a controlling shareholder after a possible merger.
Mubadala, Novonor, Petrobras and Unigel declined to comment on the matter. Unipar and Apollo did not reply to a request for comment.
Source: Valor international