Brazil’s Unigel gets green light from creditors for debt restructuring

Jonathan Lopez

21-Feb-2024

SAO PAULO (ICIS)–Unigel has agreed a Brazilian reais (R) 3.9 billion ($791 million) debt restructuring with its creditors, which has saved the beleaguered styrenics, acrylics and fertilizer producer from filing for bankruptcy for the time being.

The agreement includes raising a new $100 million credit line that will mature in 2027, and give its shareholders “economic benefits corresponding” to 50% of the company, it said.

An intention to improve the company’s governance structure is also included, although Unigel did not disclose further details.

The restructuring will consist of the issuance of new debt securities and participatory securities in exchange for the cancellation of current debts.

One-third of Unigel’s creditors, those with earlier maturities, have agreed to the deal and will apply for 90-day protection to finalize it, which has been made possible under Brazil’s financial laws.

“The plan will allow the improvement of the company’s capital structure, with an increase in its liquidity and a significant reduction in leverage, in order to guarantee the continuity of the business plan that was severely impacted by the crisis in the global petrochemical industry,” said Unigel’s CEO, Roberto Noronha.

CFO André Gaia said the new funds will be partly directed to finalizing projects such as Unigel’s sulphuric acid plant at Camacari in the state of Bahia. Construction has been on hold since 2023 when the company’s financial position deteriorated.

The plant is 80% complete, and when fully operational it should produce around 450,000 tonnes/year.

REVIVAL
Unigel’s fortunes took a turn for the worse in 2023 on the back of high input costs – especially at its natural gas-intensive fertilizer operations – poor demand and low prices.

It has not published a financial report since Q1 2023, something contemplated under Brazilian financial law for companies under stress.

After a poor Q1, Fitch and S&P both lowered the company’s credit ratings several times and put Unigel’s debt obligations at the lowest level to indicate a high probability of default.

However, “intense negotiations” with creditors that began in October, after Unigel failed to pay a coupon on one of its bonds, appeared to bear fruit in November when it reversed its decision to shut down the Bahia fertilizers plant.

For that to take place, Unigel’s talks with its creditors were accompanied by talks with the government and its appointees to lead the state-owned energy major Petrobras, which supplies natural gas to Unigel.

President Luiz Inacio Lula da Silva has repeatedly said that Brazil needs a stronger fertilizer industry as is too dependent on imports to cover booming demand from its growing agricultural sector.  The sector has made Brazil one of the world’s breadbaskets and accounts for around a quarter of the country’s output.

Although details have not been made public, in December, the two companies agreed a tolling agreement for Unigel’s fertilizers plants in Camacari and Laranjeiras, in the state of Sergipe.

The two plants were leased from Petrobras in 2019. Capacity at the Bahia plant is 475,000 tonnes/year for ammonia and 475,000 tonnes/year for urea.

The Laranjeiras facility has a capacity of 650,000 tonnes/year of urea, 450,000 tonnes/year of ammonia, and 320,000 tonnes/year of ammonium sulphate (AS).

The Petrobras-Unigel agreement in December came just weeks after Unigel charged Petrobras for its “unbearable natural gas prices” when it explained to workers at the Camacari plant about redundancies resulting from its closure.

As part of the talks with its creditors, Unigel divested its Mexican subsidiary which produces acrylic sheet Plastiglas for an undisclosed amount in December.

With an expected improvement in chemicals and fertilizers prices and a helping hand from Petrobras and/or the Brazilian government, Unigel may have managed to avoid a bankruptcy which many had taken for granted a few months ago.

At the annual meeting of the Latin American Petrochemical and Chemical Association (APLA), held in Sao Paulo in November, one petrochemicals source foresaw this week’s events.

“Unigel has been in financial trouble many times before, and it always got through them. This time looks bad, but it may yet again save the day,” the source said.

Focus article by Jonathan Lopez

Thumbnail shows Brazilian money. Image by RHJPhtotos.

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