Braskem To Buy Domestic Rival

In a move that will allow it to stand shoulder to shoulder with the likes of Dow Chemical and ExxonMobil, Brazil's Braskem is buying a 60% stake in rival Quattor for $400 million and assuming its $4 billion in debt.

The purchase, from the local conglomerate Unipar, aims to combine Brazil's only producers of polyethylene and polypropylene into a company with about $14.1 billion in annual sales. Braskem will become the number one overall producer of polyethylene, polypropylene, and polyvinyl chloride in the Americas. It will also have a controlling interest in all four petrochemical cracker complexes in Brazil.

Antitrust authorities in Brazil will review the transaction, but Braskem's chief financial officer, Carlos Fadigas, is confident regulators will look beyond Brazil. "Although we are going to have important market share in Latin America and Brazil, Braskem will have a share of the global market of only 3 to 4%," he told investors on a conference call, adding that imports account for about 25% of plastics consumption in Brazil.

As part of the deal, Brazilian state oil company Petrobras intends to make Braskem, in which it already has a 30% stake, its main vehicle for development of Brazil's chemical industry. Petrobras will merge its 40% interest in Quattor into Braskem.

Petrobras and Braskem's major shareholder, the construction materials firm Odebrecht, will pool their Braskem stakes into a holding company. Together, these firms will inject about $2 billion of additional capital into Braskem by participating in a stock offering that Braskem hopes will raise about $2.7 billion. Braskem plans to use these funds to decrease its debt burden.

In addition, Braskem has made a commitment to participate in, and possibly even control, two Petrobras-led ventures: a purified terephthalic acid/polyethylene terephthalate joint venture under construction in Pernambuco, Brazil, and a massive petrochemical and plastics complex planned for Rio de Janeiro.