INSIGHT: Strengthened Braskem can play a wider role

25 January 2010 17:48  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Braskem's consolidation with Quattor creates a Brazilian player that is better able to compete in an increasingly tough market.

The deal between the owners of the two producers of polyethylene (PE) and polypropylene (PP) in Brazil can create a stronger company. They say it will diversify feedstock supply for Braskem, strengthen the production chain of both petrochemicals and plastics, and provide the merged group with a balanced capital structure.

Both are pumping money into the businesses which, when combined, will have more than 3m tonnes of PE capacity, close to 2m tonnes of PP and 510,000 tonnes of PVC. It will operate four crackers.

In 2009, a combined group would have had sales of reais (R) 25.8bn ($14.2bn) and earnings before interest, tax, depreciation and amortisation of Rs2.9bn.

In capacity terms, it would have been the largest producer of PP and the third-largest producer of PE in the Americas.

When they were first revealed in August last year, the plans to combine Braskem and Quattor came as a surprise. But the proposed deal carried forward a turn of events that had seen the number of players in Brazilian petrochemicals and polyolefins shrink rapidly.

Few would have thought that industry restructuring would have proceeded to such an extent. But the global financial, economic and industry downturn accelerated the process. This latest consolidation should provide synergies, financial and otherwise, that will provide a boost to the polyolefins business in Brazil.

Moody’s Investor Services was positive on the deal on 22 January. It talked of Braskem’s successful track record of incorporating new assets. The businesses it is acquiring operate in Brazil’s most heavily industrialised region, where 70% of demand for thermoplastic resins in concentrated.

“We expect that the combination of the two companies will result in significant gains from synergies and operational improvements,” Moody's said.

Analysts at Polyolefins Consulting LLC underscored the aim of the partners to drive synergies from the deal and to assure the long-term investments needed in Brazil to accompany expected economic growth. The deal is also aligned, they add, with Petrobras’s aim to operate on a more integrated basis.

Odebrecht, Petrobras and Braskem have agreed that Braskem will take on the companies operating the first and second-generation petrochemical projects in the COMPERJ refinery and petrochemicals complex in the state of Rio de Janeiro.

It will gradually acquire equity interest in the companies operating the Petroquimica Suape complex that will produce purified terephthalic acid (PTA) and polyethylene terephthalate (PET).

Beyond these domestic projects, the merger gives Braskem greater incentive to play a major role in polyolefins in the Americas.

Braskem wants to rank among the top five global petrochemical companies. It will be ranked eighth by total plastics-resins capacity if this transaction is completed successfully.

Braskem said on 22 January that it had “aggressive growth plans” in Mexico and Venezuela that could add more to its capacity total.

The consolidation of Quattor may not have been the deal that Braskem wanted now, given its regional expansion plans. The Brazilian press on Monday suggested that the company was also looking for a polyolefins investment in North America worth up to $1bn.

($1 = R 1.82)

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By: Nigel Davis
+44 20 8652 3214



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