INSIGHT: Major Brazilian chemical companies are up for sale amid M&A surge

Author: Al Greenwood


HOUSTON (ICIS)--Two of Brazil's biggest chemical companies, Braskem and Oxiteno, are up for sale with a third reportedly attracting an offer from a US private equity firm.

Meanwhile, Petrobras is continuing its process to sell several of its refineries.

Altogether, a large portion of Brazil's petrochemical capacity could change hands.

The owners of polyolefins producer Braskem and surfactants producer Oxiteno have all acknowledged their willingness to sell the companies.

A third, vinyls producer Unipar Carbocloro, reportedly attracted an offer from private equity firm Apollo, according to an article by the Brazilian business publication Valor Economico.

The increase in deal making in Brazil is part of a larger trend of rising activity in mergers and acquisitions (M&A), said Flavio Alves, a managing director for the consultancy Accenture. He leads Accenture's chemicals and natural resources portfolio in Brazil.

Alves was speaking about M&A and the chemical industry in general without making any reference to any specific companies.

Investors are becoming more confident about the recovery of the global economy and of future growth, he said.

Economists surveyed by Brazil's central bank expect the nation's GDP to grow by 4.36% in 2021, up from a forecast of 3.21% they made four weeks ago.

Trends within the chemical industry are increasing M&A, Alves said. Businesses are adjusting their portfolios. Feedstock costs continue to change among the regions of the world.

For Brazil in particular, the government has pushed to increase investment in the country's oil and gas industry, he said.

Giovanni Cordeiro, chief economist of Deloitte Brasil, said a decree of the country's new gas law took effect that intends to make the gas industry more competitive.

A rise in energy production would increase supplies of feedstock to the chemical industry. Brazil has crackers that can use naphtha or ethane, opening the prospect of future expansion if more feedstock becomes available at the right price.

Braskem has long stated that a proposed expansion of its gas cracker in Duque de Caxias in Rio de Janeiro state depends on access to competitive feedstock.

For renewable feedstock, Brazil's sugarcane gives it a competitive advantage against other parts of the world that rely on different crops for sugars.

Beyond the potential for more feedstock, Brazil's large and competitive agricultural market makes local companies attractive, Alves said.

"Specifically, in agri-chemicals, this is a market which is booming, along with fertilizers, because companies have been investing to keep up with the growth in agricultural commodity production," he said. "This demand is expected to continue growing as the global need for food continues rising."

Brazil is one of the few in the world with available arable land, even after taking into account tightening environmental regulations, Alves said. Brazil's agriculture sector has room to expand, so chemical companies that serve the sector could grow with it.

Those include companies that make fertilizer as well as herbicides, pesticides and fungicides.

Plastic products are used in greenhouses, silobags and mulch films. Fruits destined for export are packaged in films with oxygen barriers to extend their shelf lives.

A growing interest in resilient supply chains is another draw, Alves said. Brazil has local oil-, gas- and bio-based feedstock. It has local chemical plants and large domestic markets. "Typical supply chain risks related to global trade flows or global shipments are significantly reduced," he said.

Cordeiro of Deloitte Brasil, noted that demand for chemicals used in construction has increased, reflecting the general rise in demand for housing caused by low interest rates and people working from home.

Like Alves, Cordeiro was speaking in general and he did not name any specific companies in his comments.

One trend working against the industry is the possible withdrawal of a tax break that Brazil grants to the chemical industry.

The tax break, called the Special Regime for the Chemical Industry (REIQ), lowers the PIS/COFINS rate that the chemical industry pays on inputs. The rate would gradually increase, based on legislation pending in Congress.

Beyond 2021, Brazil's economic outlook becomes weaker. Economists surveyed by the central bank expect GDP to grow by 2.31% in 2022 and 2.50% in 2023.

Recently, The Economist published a special section about Brazil, which noted that the nation's economy is smaller now than it was in 2011.

By far the largest of the three companies is Braskem, which owns all of Brazil's crackers as well as its polyethylene (PE) and polypropylene (PP) plants.

Braskem's largest shareholder, the construction company Novonor, has said the sale of its stake is part of its plan to emerge from bankruptcy. Novonor filed for bankruptcy back when it was called Odebrecht.

Among the reported companies interested in acquiring Novonor's stake are the private-equity firm Advent International and the Emerati sovereign-wealth fund Mubadala.

Both were reported by the Brazilian publication O Estado de Sao Paulo.

Braskem has been referring questions about potential buyers to Novonor.

Novonor said its position has been not to comment about reports of potential buyers.

Advent said it does not comment on reports about acquisitions.

Mubadala did not immediately respond to a request for comment.

Petrobras, the second largest shareholder, has repeatedly stated its intention to sell its stake in Braskem. Petrobras owns 36.15% of Braskem's total capital, compared with Novonor's stake of 38.33%.

Unipar Carbocloro had attracted the interest of the private-equity firm Apollo, as reported by Valor Economico.

Apollo declined to comment. Unipar Carbocloro did not immediately respond to a request for comment,.

Oxiteno has attracted interests from Thai surfactants producer Indorama Ventures and Advent, as reported by Valor Economico.

Indorama did not immediately respond to a request for comment. Advent declined to comment.

Oxiteno also attracted interest from the US surfactants producer Stepan, according to O Estado de Sao Paulo.

Stepan did not immediately respond to a request for comment.

In a statement Oxiteno said its parent company, Ultrapar, continues to assess its business portfolio with the goal of maximising value for its shareholders and other stakeholders. " Any divestiture decisions that may result from this practice will be communicated to the market in due time, as determined by applicable laws and regulations."

Insight by Al Greenwood

Thumbnail image shows a flag of Brazil