KPC’s subsidiary is analyzing assets of petrochemical company owned by Novonor and Petrobras

03/20/2024

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Roberto Bischoff — Foto: Leo Pinheiro/Valor

Two Arab groups interested in acquiring Braskem are conducting due diligence on the petrochemical company and a third one decided not to proceed with the deal, Valor has learned.

Petrochemical Industries Company (PIC), a subsidiary of Kuwait Petroleum Corporation (KPC), has recently started due diligence on the Brazilian company. Another Arab company, Abu Dhabi National Oil Company (ADNOC), is the only one to have submitted a proposal so far. SABIC, the chemicals arm of Saudi Aramco, approached Novonor (formerly Odebrecht) and Petrobras but did not enter the competition.

PIC’s interest emerges as Petrobras, Braskem’s second-largest shareholder, forges closer ties with oil companies in the Middle East. In February, Petrobras CEO Jean Paul Prates held several meetings during a trip to the region and shared on social media the news of potential “future partnerships” with local companies, specifically mentioning PIC by name.

At that time, Mr. Prates noted that the Arab company had shown interest in Braskem but had not made an offer. Novonor declined to comment on the matter. Braskem’s management team mentioned in a conference call with analysts to discuss fourth-quarter results that, besides ADNOC and Petrobras, another company was conducting due diligence.

According to Braskem’s chief financial and investor relations officer, Pedro Freitas, “in general terms,” Petrobras, Braskem’s second-largest shareholder, has completed its due diligence. ADNOC’s audit is still ongoing, and that of a third company, not identified by the executive, is more recent. Sources familiar with the talks told Valor that the third company is PIC.

In recent weeks, there has been speculation among investors that ADNOC is nearing the submission of a binding offer for Braskem. However, such a move has not yet materialized. While Novonor awaits an improved proposal from the potential buyer, ADNOC is still finalizing its due diligence. That includes addressing the complex situation in Alagoas—environmental and structural damage attributed to Braskem’s salt rock mining—before submitting an “adjusted” offer.

The need for adjustments stems partly from the consequences of Mine 18’s collapse at the end of last year. This event forced Braskem to reevaluate the funds allocated for addressing soil sinking in five Maceió neighborhoods, a situation linked to the company’s salt rock mining. The financial toll, including earmarked and already allocated funds, has climbed to R$15.5 billion—the company increased the tally by R$1 billion, according to its latest quarterly financial report.

To date, Braskem has recorded nearly R$11 billion in payments and outstanding obligations on its balance sheet related to this issue. The balance of provisions stands at about R$5.2 billion, with half of that expected to be disbursed in 2024, according to Mr. Freitas.

In terms of compensating the families needing relocation due to the soil sinking, Braskem has presented over 19,000 compensation offers, covering roughly 99.8% of the anticipated total, with a 98% acceptance rate and 95% of compensations paid. The company has disbursed R$4.5 billion within the compensation program, with R$1.4 billion yet to be paid.

Thus, most of the provisions today refer to the decommissioning program of the rock salt mine, which was altered after the collapse of Mine 18, and compliance with other agreements signed by the petrochemical company. According to Mr. Freitas, while Mine 18 will no longer need to be closed with sand filling, six others have been included in this package, which postponed the complete decommissioning of the mine to 2026 from the end of 2024.

The problems in Alagoas and the worst global petrochemical downturn in decades have impacted Braskem’s balance sheet in 2023. Net revenue was 27% lower, at R$70.6 billion, while recurring EBITDA fell 65% to R$3.7 billion. Net loss reached R$4.6 billion, more than 13 times greater than in 2022.

The petrochemical industry is expected to start emerging from the downturn cycle this year, with greater stability in spreads (the difference between the cost of raw materials and final prices) and a full recovery from 2025 onwards. Braskem CEO Roberto Bischoff said the government is aware of the “accelerated” deindustrialization process seen in Brazil and understands the need to adopt initiatives in search of an industrial policy. “There are several initiatives underway,” he said.

One of the government’s points of attention, according to Mr. Bischoff, is the price of natural gas, used as an energy source in petrochemical plants. “The price of gas in Brazil compared to the rest of the world has been a focus of the government, which is trying to make access to gas more affordable,” he said.

On another front, efforts are aimed at enabling the growth of Brazil’s production utilizing pre-salt ethane, which would bring more favorable conditions for competition. “There is a predisposition on the part of the government to seek initiatives that contribute to the sector’s competitiveness and make new investments viable,” he added.

*Por Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/