Apollo deepens its due diligence for Braskem stake

Six months after sending Novonor (formerly called Odebrecht) a BRL 13.6 billion (USD 2.6 billion) proposal to buy its stake in Brazilian petrochemical company Braskem, U.S.-based private equity manager Apollo is waiting for its board to authorize the most complex due diligence stage. 

Focusing on the company’s liabilities, this new stage would look at factors such as the geological tragedy in the state of Alagoas.

Abusive salt-mining practices led to geological alterations in the northeastern Brazilian city of Maceió — destabilizing the subterranean caves under multiple neighborhoods, leading to thousands of buildings being condemned. 

Almost 60,000 people have been forced from their homes, and around 4,500 businesses have been lost, leaving thousands out of work. In an award-winning 2021 report, The Brazilian Report showed the extent of the problem. 

Braskem is being sued by the state of Alagoas. In March, a local court accepted a request by the government to freeze BRL 1.1 billion from the company’s accounts.

Novonor has a 38.3 percent stake in Braskem and is counting on the deal with Apollo to pay BRL 14 billion to its creditor banks — the shares in the Brazilian petrochemicals producer serve as collateral for the company’s debts with these institutions.

Another point that could disrupt Apollo’s plans is the federal government’s reluctance to go ahead with Petrobras’ divestment plan for Braskem. The oil giant has a 36.1 percent stake in the company, being almost its co-controller. As such, Petrobras can exercise its preemptive right for the acquisition of Novonor’s stake. 

The oil company disclosed a plan to sell its stake in Braskem in 2021, but in early 2022 it reversed its decision. Petrobras’ new board has yet to comment on the matter.

If the proposal goes through, it would be Apollo’s second attempt to make the acquisition. The first offer, made last year, proposed a price of BRL 47 per share, over 140 percent above the current price. Following the report on Apollo’s possible buyout this Tuesday morning, Braskem’s shares rose 4.86 percent to BRL 19.41.

In Q4 2022, Braskem posted a negative quarterly Ebitda (earnings before interest, taxes, depreciation, and amortization) margin of BRL 168 million for the first time in its history, down from a positive BRL 6.32 billion result a year earlier, and caused by lower spreads between input and sales prices, as well as lower sales volumes and a cutback in Brazilian operations. 

The company also reported a net loss of BRL 1.71 billion, the third-highest for the period. Still, the company expects to resume a strong pace of growth in 2024, when global demand for chemicals and petrochemicals is expected to outpace supply.

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