INSIGHT: Six decades on, Brazil’s Unigel founder fights the ultimate battle

SAO PAULO (ICIS)–The founder of Unigel, aged 87, is actively fighting the Brazilian chemicals and fertilizers producer’s most decisive battle, one for its survival, as it tries to restructure its debts, one step away from bankruptcy.

Henri Armand Szlezynger, who founded Unigel in 1966, has fought several financial battles before, and overcame them.

But the current struggle is the most decisive yet because it could see him and his family losing their controlling stake at the producer if investment funds were to take over.

Last week, Brazilian financial daily Valor reported the country’s fund IG4 was seeking to acquire a controlling stake in Unigel, citing several unnamed sources.

IG4 and Unigel had not responded to a request for comment at the time of writing.

Unigel producers styrenics and is one of Brazil’s few fertilizers producers, a sector it entered just a few years ago and which could prove to have been the reason for the company’s threatened demise.

BELGIUM-BORN, BRAZIL-MADE
If ICIS had a profile section portraying chemicals industry people, Szlezynger would have featured in it several times. Szlezynger was born to a Belgian Jewish family in 1936 which moved to Brazil when he was just three years old as Europe was entering the abyss of war.

The family had a good position and sent Szlezynger to the best schools in Brazil. After that, he went to the US to study chemical engineering at the Massachusetts Institute of Technology (MIT).

Aged only 30, he founded Unigel.

From there, on he went to become one of Brazil’s richest citizens, with Forbes estimating his net worth at Brazilian reais (R) 17.2 billion ($3.3 billion) in 2022.

From its foundation 58 years ago, Szlezynger still controls Unigel, and his presence cannot go unnoticed: he still goes to the company’s headquarters in Sao Paulo every weekday, according to previous profiles of him published in the press. A remarkable fate for an 87-year-old.

Unigel’s frantic 2023 was marked by high natural gas costs which made its fertilizer plants – and the company as a whole – a loss-making enterprise, a situation it tried to fix by knocking on the door of Brazil’s state-owned energy major Petrobras.

With a government-appointee CEO, to say Petrobras is to say Luiz Inacio Lula da Silva, a President who has repeatedly said that Brazil must reduce its dependence on fertilizer imports.

In Brazil’s economy, entrepreneurs and politicians tend to have close relationships, and Szlezynger has recurrently ticked the right boxes to get the support his company may have needed as the years and crises went by.

In the north, stronghold of Lula’s Workers’ Party (PT), he has not shied away from showing sympathy with PT politicians. In southern and generally conservative-governed states, Szlezynger has had good relationships with politicians from the right.

However, the business-politics link did not work for Unigel’s current downturn. Conversations with Petrobras were going nowhere while the company continued to lose millions every month.

In a way, Unigel’s annus horribilis of 2023 ended slightly earlier, in October, when everything changed: the company failed to pay a coupon on one of its bonds, effectively defaulting on its debt obligations.

Brazilian financial regulations give breathing space for companies in debt stress to negotiate their obligations with creditors, and Unigel is currently undergoing that process. Earlier in April, it said negotiations were progressing, without disclosing more detail.

Jonathan Szwarc, head of Latin America credit research at Debtwire, a data firm specialized on leveraged capital markets, told ICIS that Szlezynger would not easily give up his controlling interest, but added the current crisis would be difficult to circumvent.

“Unigel has had financial woes before and overcame them, but this time is quite different: once you fail to pay a coupon, things can go down very quickly. You are not meeting your debt obligations: a default,” said Scwarz.

“The company has now an initial agreement with some of its creditors, but it would need to convince 50% plus one of them for it to be effective: we don’t know if that is the case. That’s where they are: seeking adherents to that initial agreement to bring it before a judge, who must approve the Extrajudicial Reorganization Process.”

Will Szlezynger, after 58 successful years, be forced by circumstances to call it a day?

Not that fast. Szwarc said that, in Unigel’s case, sentimental issues could be as strong as economic issues.

“If they are up against it, Szlezynger may decide to reluctantly sell the company, but I really think that is the last option he contemplates,” he said.

“If Unigel was to be sold to a fund, I imagine he would prefer a Brazilian fund, with whom he would speak the same language business-wise, than a foreign fund.”

As an example, the analyst mentioned negotiations to raise $150m just in January, in the midst of the debt restructuring negotiations, through a group led by US investment fund Pimco, which is also the largest bondholder, according to reports at Brazilian financially daily Valor at the time.

That deal, which could have given Unigel breathing space amid its restructuring, fell through because it would have brought closer what Szlezynger has fiercely opposed: the funds taking away from the founding family a controlling interest.

“The company’s assets are good. But Unigel was very unlucky in terms of the petrochemicals and fertilizers downcycles combined. You must keep in mind that just in 2022 Unigel’s bonds were trading well over 100% [generating returns],” said Szwarc.

“The assets will continue operating in any case: either under a new ownership structure, in which the Szlezynger may still have a stake even if it’s not the controlling stake, or under a potential bankruptcy, when the assets could be sold separately.”

The analyst concluded saying he did fail to understand how Petrobras – the Lula-led government, effectively – had not paid more attention to Unigel, whose production of styrenics as well as fertilizers Brazil badly needs if the country is to reduce its dependence on imports.

BRAZILIAN SAGA
Amid all Unigel things that occurred in 2023, one of the most fascinating was its very public charge against Petrobras in November, when the company announced it would be shutting down one fertilizer plant in Camacari, state of Bahia, due to Petrobras’ “unbearable” pricing policy for natural gas.

It was part of Unigel’s strategy, however, as it became clear later in December when the two firms signed a tolling agreement for the fertilizers assets, in what seemed to be Petrobras finally giving in on natural gas pricing.

A Brazilian economic-political saga could not just end there.

In March, Unigel announced it was halting its fertilizers production, still mentioning high natural gas prices, while Brazil’s Federal Audit (TCU in its Portuguese acronym) raised concerns about the tolling deal, which would have meant losses for Petrobras.

As a state-owned company, Petrobras is audited by TCU civil servants. And as a company, the purpose of it is to make a profit: a sweet deal for Unigel on gas would not be following that logic, the auditors said.

Adding to it all, Petrobras said earlier in April it was re-entering the fertilizers sector by re-starting a large fertilizer plant in Araucaria, state of Parana, idled since 2020.

The energy major said fertilizers were now part of its strategic plan to 2028, adding it would therefore focus on “assets that already belong” to it.

Unigel’s fertilizers plants at the centre of the story, Camacari and Laranjeiras, state of Sergipe, were a lease from Petrobras signed in 2019, when the prior Brazilian Administration wanted Petrobras’ to focus on crude oil.

It was then when Unigel decided to go big on fertilizers.

What does seasoned Szlezynger think about that move now? He would not be too hard on himself if he thinks it was a bad move indeed, which is putting at risk his nearly six decades business legacy.

Petrobras returning to the fertilizers sector is, on the other hand, an expected move by Lula’s cabinet, who in general wants to expand the role of the state in the economy, or at least in those sectors where the country’s trade deficit is large, such as fertilizers.

The two plants leased to Unigel may end up, therefore, being run by Petrobras again at some point.

Unigel and its relentless founder will need to fend for themselves amid the largest financial crisis ever hitting the company.

At the end of the day, Lula’s key constituency and the PT party’s cadres would have had a hard time to digest the state was going to give strong and direct support to a private company owned by one of the richest citizens in the land.

The Unigel saga continues and, whatever the next act is, Szlezynger is still likely to have a role in it.

Insight by Jonathan Lopez