Brazil state oil Petrobras carries out due diligence of Braskem as it mulls option to add equity
Brazilian state oil Petrobras, specialized in deep-water, crude oil extraction, and which refines most of the fuel consumed by some 214 million Brazilians, confirmed on Aug. 22 a due diligence of Latin America´s biggest petrochemical company Braskem, where it has long been the biggest minority partner and will have rights in case of any coming, controlling-equity sale, as it may be the case.
“In relation to news in media, Petrobras restates that it is carrying out a due diligence of Braskem, to consider the exercise of ´tag along´ or preferential rights, in the hypothesis of alienation of the share held by Novonor,” Petrobras said in a statement on Aug. 22, 2023.
Novonor, formerly Odebrecht, holds just over half (50.1%) of all of the voting shares of Braskem, a company that has most petrochemical production capacity in Brazil but is also the biggest polypropylene producer in North America. Through a venture, Braskem is also a leading producer of both ethylene and polyethylene in Mexico.
Petrobras, which owns about 47% of the shares of Braskem, had said in June that it was considering the possibility of selling, or also buying a bigger participation in Braskem. Petrobras, as top minority shareholder, will have the first option to buy any additional stake if leading shareholder Novonor decides to sell its controlling equity.
There is already at least one company, Unipar Carbocloro, that made an offer to owners that allowed it to start a due diligence. Unipar is carrying out a due diligence since about early July to buy the much bigger Braskem, officials said at the time.
Petrobras had said in June that it was carrying out an “analysis” to determine the best course of action in relation to its ownership stake in Braskem, which besides being Latin America´s biggest petrochemical company is also the biggest polypropylene producer in North America, with plants in the U.S. Gulf Coast and in the East Coast.
Long-term strategy of Petrobras
Petrobras has a market capitalization of about $100 billion, compared with about $4 billion for Braskem, according to the website if Macrotrends. The market capitalization of Unipar Carbocloro as of mid-September 2023 was $1.6 billion, according to Companiesmarketcap.
Petrobras had said in June that petrochemicals were a key part of its strategy.
Petrobras, created in 1953 during the government of former Brazilian President Getulio Vargas (1930-1945, 1951-1954), has been divesting some businesses. It announded earlier this year the termination of the divestment processes for Petrobras' subsidiary in Argentina.
In 2022 Petrobras produced about two million barrels of crude oil per day while gas production was the equivalent of half a million barrels of crude daily, according to Statista.
As for the other assets, their permanence in the portfolio will be periodically re-assessed based on updated assumptions of profitability, strategic adherence, de-carbonization opportunities, and the stage of their productive life, the company said earlier this year. Some other divestment by Petrobras has included ownership of fuel oil-powered thermoelectric units.
For the second quarter of 2023 Petrobras reported net income of $5.8 billion, down from $7.3 billion in the first quarter, mainly due to lower crude prices.
While it divested older assets, the company kept investing in what it considers its core strenght, deep water exploration.
The company´s second quarter 2023 capex increased to $3.2 billion, 31% above the first quarter, mainly due to the need to finance the large pre-salt projects, it said.
Other recent developments
Petrobras informed in May 2023 that it had lost an arbitration proceeding against Braskem´s majority owner, Novonor, where it had claimed $162 million, but lost. The claim had been submitted in December 2020. The lawsuit had been started over alleged ownership agreement violations.
Brazilian media epbr said in a report published on Aug. 11 that a top Petrobras official had said during talks with investors that the state oil company does not have any plans to turn Braskem into another state owned company. Epbr had at the time cited Valor, a leading Brazilian financial media, as its source.
According to epbr, always citing Valor, a top official at Petrobras had said that a company like LyondellBasell, Saudi Aramco or ADNOC (Abu Dhabi National Oil Co.), could bring international know-how and be a well suited owner-partner for Braskem.
Braskem´s past suitors
LyondellBasell had been at one point a suitor for Braskem. But back in June 2019, LyondellBasell issued a Houston-dated statement to announce that it had “ended discussions with Odebrecht S.A. concerning the potential acquisition of Braskem.” At the time Novonor was still going by the name Odebrecht.
"The combination of LyondellBasell and Braskem is compelling because of the companies' complementary strengths, product portfolios and operational footprints. However, after careful consideration, we jointly decided not to pursue the transaction,” the company said at the time.
As for ADNOC, the company had made earlier this year an offer but Novonor said they would not even hold talks with ADNOC at the time as the offer was too low.
According to the website of TTRdata.com, Brazilian newspaper Estadao had published on Jan. 25, 2016 a report that Saudi Aramco and Petrobras had had some negotiations over the stake in Braskem.
According to a report from Folha de Sao Paulo dated July 23, 2023, a top official at Petrobras had estimated that negotiations related to a sale of control of Braskem would likely end in 2024, given the complexity.
Braskem is currently facing challenges related to weaker demand for its products in relation to previous periods, like in the case of the polypropylene market in North America, where it is the top producer.
Back in May 2021 company officials had explored whether Braskem would be worth more sold as one block as opposed to selling it per units, or divisions.
By Renzo Pipoli