Brazil’s Braskem stock down as Novonor’s majority stake sale still distant prospect

SAO PAULO (ICIS)–Braskem’s shares were down nearly 0.75% in Monday afternoon trading after the company issued another statement to say that, officially, there has been no progress in its main shareholder Novonor’s intention to sell its stake, according to the Brazilian polymers major.

In a filing with the stock exchange, Braskem said it had “sought clarification from its major shareholders” following media reports about a potential sale process.

The two shareholders are Novonor – formerly Odebrecht – with a controlling stake, and Brazil’s state-owned energy major Petrobras. Some shares also trade on the stock.

To reports in Brazilian and foreign media about a potential Novonor stake sale, the two shareholders sent Braskem the same responses they have been sending for the past few years when this situation recurrently arises.

And it does arise often, because Novonor has for years now been trying to unload its stake – valued at around $10 billion – so it can pay down debt after the company was at the center of Brazil’s largest corruption scandal in the 2010s, the Lava Jato.

However, Novonor has so far failed to find a buyer after several attempts, due to Braskem’s liabilities related to the disaster in the state of Alagoas in 2018 caused by its mining activities.

Over the weekend, Sao Paulo’s daily Estadao reported that Novonor’s creditors would be designing a new strategy to dispose of the Braskem stake consisting in the creditors keeping the stake themselves until the value of the shares rises, to then sell it on.

TAGGING ALONG
Petrobras, according to Braskem regulations, would be able to exercise tag-along rights, also called right of first refusal: ie, in the event of sale of shares held by Novonor in Braskem, Petrobras would have the right to sell its stake under the exact same terms as Novonor.

“Petrobras reiterates that no decision has been taken regarding its participation in Braskem and continues studying alternatives,” said the energy major.

Novonor, meanwhile, said that after all the years it has been trying to dispose of its stake to get its finances back on track, “until the present moment there has not been” any material or binding development in the discussions held with several companies.

Tag-along rights, also referred to as co-sale rights, function as a protective measure for minority shareholders in companies, with provisions enabling them to participate – or “tag along” – when a majority shareholder sells their stake, ensuring they can exit the investment under identical terms.

Conversely, drag-along rights give majority shareholders the authority to compel – or “drag” – minority shareholders into participating in a sale, potentially against their wishes.