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Lyondell-Braskem deal delayed by Petrobras supply contract talks – sources

January 18, 2019
Chemical Value Chain

Brazil’s recent change of government has further delayed the long-awaited finalization of LyondellBasell Industries NV’s plan to buy Brazilian petrochemical company Braskem SA, three sources with knowledge of the matter said this week.

Netherlands-based LyondellBasell first said it had entered into exclusive talks to acquire control of Braskem from Brazilian conglomerate Odebrecht SA in June. However, the deal’s price depends on a long-term naphtha supply contract with state-controlled Petroleo Brasileiro SA, which also owns shares in Braskem.

The current contract with the state-controlled oil company, known as Petrobras, expires in December 2020.

The sources, who requested anonymity to discuss private talks, said a draft naphtha supply agreement was reached in December under former Petrobras Chief Executive Officer Ivan Monteiro. But Monteiro declined to ratify the deal when it became clear he would be replaced under the newly elected administration of far-right President Jair Bolsonaro, the people said.

Lyondell representatives are now waiting to hear whether there will be any changes to the Petrobras team that was negotiating the contract and for the talks to resume, one of the sources added. Jorge Celestino Ramos, Petrobras’ refining and natural gas director, who had headed the team, was replaced earlier this month by Anelise Lara.

Odebrecht and Petrobras expect a premium on the value of their stakes. Braskem’s current market capitalization on the Sao Paulo stock exchange is around $38.5 billion reais ($10 billion).

The delay in negotiations is putting additional pressure on corruption-ensnared Odebrecht SA, which is trying to restructure around 70 billion reais in debt. The conglomerate has managed so far to avoid filing for bankruptcy protection, but a fourth source with knowledge of the matter said the alternative cannot be ruled out completely.

Still, Odebrecht expects to receive a formal bid by the end of March, a fifth source with knowledge of the matter said, adding that it hopes Petrobras’ new management will ratify the previously negotiated supply agreement.

Petrobras, Odebrecht and LyondellBasell all declined to comment.

Shares of Braskem, which were down before the Reuters report, extended losses. Common shares were 2.9 percent down at 46.90 reais in late afternoon trading and preferred shares were down 1.64 percent, at 47.40 reais.

Another deal that was hinging on the political change, the tie-up between Embraer SA and Boeing Co, has already been approved by the new Bolsonaro government.

DEAL HURDLES
Any deal to sell Odebrecht’s 38 percent controlling stake in Braskem needs to be approved by the conglomerate’s creditors. The stake is pledged as collateral for Odebrecht’s largest banking loans.

Local banks such as Banco Bradesco SA and Itau Unibanco Holding SA also hold the rights over all of Braskem’s dividends to service the debt.

Banks claim they would own the Braskem stake if Odebrecht were to default on the loans. Under Brazilian law covering this type of collateral, creditors become formal owners of the stake in the case of a default.

But one of the people said other creditors, such as bondholders of the Odebrecht’s construction unit, could try to challenge the banks’ claim on the stake if there is a bankruptcy protection filing by the holding.

By Carolina Mandl and Tatiana Bautzer

Source: Reuters

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