Brazil Revamps Chemical Sector

BRAZIL'S STATE oil company, Petrobras, is reshaping the country's petrochemical industry with two deals. The company is swapping some of its chemical assets in exchange for an additional 18% equity stake in Brazil's largest private chemical company, Braskem. It is also forming a new chemical company with Brazilian industrial group Unipar.

Under the first deal, Braskem will get full control of Copesul, a petrochemical complex in the southern state of Rio Grande do Sul, by acquiring Petrobras' 37.3% share. Braskem will also obtain Petrobras' 40.0% stake in polyethylene maker Ipiranga Petroquímica.

Braskem will assume full control of Petroquímica Paulínia, which is building a polypropylene plant in São Paulo, by acquiring Petrobras' 40% stake. The chemical company could also acquire Petrobras' low-density polyethylene maker Petroquímica Triunfo, if Petrobras exercises an option triggering the deal. In return for these assets, Petrobras will increase its stake in Braskem from 6.8% to 25.0%.

In the second deal, Petrobras is forming a chemical company with Unipar, the company that controls Petroquímica União, a petrochemical complex in São Paulo. The new company, Companhia Petroquímica do Sudeste, will be owned 60% by Unipar and 40% by Petrobras.

The new company will pool approximately $3 billion in assets owned by Petrobras and Unipar. It will control Petroquímica União and Rio Polímeros, a new petrochemical complex in the state of Rio de Janeiro. It will include Brazil's largest polypropylene maker, Suzano Petroquímica, and polyethylene maker Polietilenos União.

Braskem says its acquisition of Petrobras assets is a big step toward its goal of becoming a major petrochemical company. "The implementation of this agreement will enable Braskem to accelerate its strategic goal to become one of the 10 leading global petrochemical players," says CEO José Carlos Grubisich.

Tereza Mello, an equity analyst for Citigroup, views the transaction as positive for Braskem. In a recent report to clients, she wrote that Braskem faces risks to earnings growth such as the strength of Brazil's currency and the potential for a downturn in the business cycle. But she said the company will benefit from synergies created by the acquisition.