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Daniela Manique — Foto: Ana Paula Paiva/Valor
Belgium’s Solvay, owner of Rhodia, closed the doors to a potential sale of assets in Latin America after deciding to split businesses into two independent, public companies. Instead, the operation will gain prominence within the global essential chemicals company to be formed from the split, said Daniela Manique, Solvay’s chief executive in Latin America. “There will be no divestment in the region”, she said.
As Valor reported last year, Solvay studied selling Coatis, a division whose operations are concentrated in Brazil, and attracted potential buyers including large domestic and foreign companies and private-equity funds.
Two months ago, however, the parent company unveiled plans to split businesses into two new companies, dubbed EssentialCo and SpecialtyCo for now, in order to “sharpen strategic focus, optimize growth opportunities.” The final names of the new companies, which will be controlled by the Solvay family and trade on the Euronext in Brussels and Paris, are expected to be confirmed in the first quarter of 2023, and they are likely to be operational by the end of that year.
“The proposed spin-off will allow each company to pursue growth and capital investments under distinct capital structures and with different underlying cash generation patterns,” Moody’s said in a report. According to the agency, “EssentialCo activities will be in more mature and highly consolidated end markets and are highly cash generative.”
“Given the large carbon footprint of its soda ash activities, the necessary high investments to facilitate the energy transition and other measures to reduce EssentialCo’s CO2 output will be very different from SpecialtyCo,” the agency said.
EssentialCo will retain the main mono-technology businesses, including soda ash, peroxides, silica and Coatis, with net sales of €4.1 billion in 2021. SpecialtyCo will keep the materials operations, covering specialty polymers, high performance composites and solutions, which last year generated net sales of nearly €6 billion.
All Brazilian assets will remain with EssentialCo, except Novecare’s plant in Itatiba, São Paulo. In addition to its own operations in the region, Solvay is a partner of PQM (Produtos Químicos Makay) in Peróxidos do Brasil. Right now, the joint venture is investing $78 million to increase the production capacity of hydrogen peroxide in Brazil and Chile.
According to Ms. Manique, Latin America will represent about 20% of the essential chemicals company’s revenues, compared with 8% now. “From this division, we expect more investments and growth for the region, which becomes relevant again,” she said. Investments in Brazil total around R$150 million a year.
Brazil is seen by Solvay as a relevant market and future source of sustainable solutions, given its potential for the green economy and the strategic location of the group’s largest operation, in Paulinia, São Paulo – near major suppliers of energy and renewable raw materials.
Solvay is a great defender of the free gas market, but has reevaluated the use of biomass for power generation in the country amid the recent appreciation of oil prices. In addition, it has a project for the use of biogas together with Raízen – which already supplies biomass to Solvay’s power cogeneration unit in Brotas, São Paulo. Next year, the company is expected to consolidate itself as the world’s leading supplier of renewable essential solvents.
According to the executive, there have always been companies interested in the assets of the group in the region, and Solvay’s stance has always been to keep the doors open for possible conversations. “Now it is closing this door to focus on the spin-off and on growth,” she said. Solvay has set up a working group to handle the spin-off, and Ms. Manique is the ambassador of this group in the region.
Last year, Solvay grossed €1.3 billion in Latin America, up 35% over 2020 – worldwide, net sales reached €10.1 billion. In 2022 so far, the CEO said, business in the region is up 15% year over year, and the company expects a positive evolution during the year, despite the uncertainties regarding economic conditions in the second half of the year.
“I am afraid of inflation and its impact on the purchasing power of Brazilian consumers,” she said. The successive lockdowns in China and the oil prices are also factors of attention. The logistical bottlenecks in the world, on the other hand, have a limited impact on the Brazilian operation, which has greater exposure to the Brazilian market both in the purchase of inputs and in the sales of products.
Source: Valor International