Brazil's government and banks in talks to take Novonor's Braskem stake, sources say

Banco Santander Brasil SA

26/11/2024 10:00

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      Novonor pressured to divest Braskem stake due to debt
collateral, sources say
    

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      Banks propose private equity fund to manage Braskem shares
-sources
    

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      Challenges include Petrobras partnership and Maceio
disaster
aftermath
    

  
    By Luciana Magalhaes, Marcela Ayres and Rodrigo Viga Gaier
       SAO PAULO, Nov 26 (Reuters) - Brazil's government and
several of its largest commercial banks are working on a plan to
speed the divestment of engineering group Novonor's majority
stake in Braskem  BRKM5.SA , Latin America's largest
petrochemical company, according to six people familiar with the
talks.
Novonor, which changed its name from Odebrecht after a major
graft scandal nearly a decade ago, has been exploring a sale for
years but failed repeatedly to get a deal across the line. 
The group has been under pressure to disinvest because, at the
height of the "Car Wash" corruption scandal, it put up its
Braskem shares as collateral for 15 billion reais ($2.6 billion)
in bank debt, including money owed to the state development
bank, BNDES. Today, the shares are worth less than a third of
the outstanding debt.
    Rather than a simple swap of Novonor debt for Braskem
shares, as first proposed, the prevailing idea among creditor
banks today is to consolidate the shares pledged as collateral
into a private equity fund controlled by the banks.  
    The fund would be managed by a seasoned executive with the
capital and expertise to make investments for a turnaround,
potentially boosting Braskem's market value, said three of the
six people, who requested anonymity because the negotiations are
private. 
    The leftist government of President Luiz Inacio Lula da
Silva, through the BNDES, is leading some of those talks,
sources say, with an eye to maintaining influence through a
shareholder agreement involving state-run oil firm Petrobras
 PETR4.SA , Braskem's second-largest shareholder.
    In an interview with Reuters, BNDES President Aloizio
Mercadante confirmed the interest in solving Braskem's
standoff. 
    "A solution for Braskem is in progress," said Mercadante.
"All creditor banks are interested, and so is Petrobras," he
added, without giving details or specifying a timeline for
negotiations.
    Braskem's other creditor banks, Bradesco  BBDC4.SA , Itau
Unibanco  ITUB4.SA , Banco do Brasil  BBAS3.SA  and Santander
 SANB3.SA , declined to comment for this story.
    Novonor, which in May said in a statement it was engaged in
selling its stake in Braskem, declined to comment.
    Sources said Novonor would like to keep a small stake in the
petrochemical company, but not all banks agree with that.
    The engineering group holds 50.1% of Braskem's voting shares
and 38.3% of total shares. 
    Due to challenges in the petrochemical sector and a string
of domestic setbacks, including environmental issues, Braskem's
market value plunged to around 12 billion reais, reducing the
value of Novonor's shares to less than 5 billion reais. 
    "For these debts to be paid, the value of Braskem's shares
need to appreciate," said one of the sources familiar with the
discussions, calculating the exit share price for banks would be
around 60 reais, about four times the current stock price. 
     
    TROUBLE WITH SUITORS
    The sale of most of Novonor's stake to a third party that
would share control with Petrobras is still not completely ruled
out, despite a string of failed attempts, the sources said.
    However, selling control of Braskem continues to be
challenging given the shareholder agreement with Petrobras,
according to analysts and people involved in the transaction.
    "Anyone acquiring Braskem will have to deal with a partner
whose interests will not necessarily be aligned with their own,"
said Ricardo Schweitzer, an independent financial analyst.
Braskem is also still dealing with the aftermath of a 2018
disaster in Maceio, the capital of Alagoas state, where
officials say the company's salt mines destabilized the ground,
cracking buildings and forcing tens of thousands of residents
from their homes. In a recent statement, Braskem said it has
always acted in line with the laws and regulations of the
sector.  
    In the last six years, Novonor engaged in unsuccessful talks
with LyondellBasell Industries  LYB.N  as well as Brazilian
groups Unipar and J&F Investimentos. 
    One person familiar with the situation told Reuters that
LyondellBasell gave up on the deal due to uncertainties related
to an investigation into the Maceio disaster. LyondellBasell did
not respond to a request for comment. 
In 2023, Abu Dhabi's National Oil Co (Adnoc) and Apollo Global
Management made a joint offer for up to 37.5 billion reais to
buy all of the company's shares, before negotiations fell
through. Adnoc continued negotiating alone, offering to buy only
Novonor's stake in the company, but also ended talks as the
situation in Maceio became more dramatic, two sources said.
    Two failed bidders told Reuters on condition of anonymity
that it was difficult buying such a large stake of a company
co-owned with state-run Petrobras. The others declined to
comment or did not respond to requests for comments.
    ($1 = 5.8050 reais)

 (Reporting by Luciana Magalhaes in Sao Paulo, Marcela Ayres in
Brasilia and Rodrigo Viga Gaier in Rio de Janeiro
Additional reporting by Paula Laier in Sao Paulo
Editing by Brad Haynes and Matthew Lewis)
 ((mailto:Luciana.NovaesMagalhaes@thomsonreuters.com;))