Billionaire loss? Braskem shares (BRKM5) jump 23% with new offer for control overshadowing weak results

As was already expected by most market analysts, Braskem (BRKM5) released weak results for the third quarter of 2023 (3Q23) last Wednesday night (8).

The petrochemical company reported a loss of R$2.418 billion in the third quarter of 2023, 119.2% higher compared to losses of R$1.103 billion in the same period of 2022. The result was higher compared to the three immediately previous months, when there was loss of R$771 million.

However, shares jumped around 20% in this Thursday’s session (9). At 10:20 am (Brasília time), the shares rose 19.04%, R$ 20.57, to later go up for auction, amid progress on the company’s long-awaited sale of Novonor’s stake. At the day’s high, the shares jumped 23.03%, to R$21.26.

Braskem confirmed InfoMoney’s findings that the Abu Dhabi oil group Adnoc made a new non-binding offer, worth R$10.5 billion, for the stake that Novonor has in the Brazilian petrochemical company.

Adnoc’s offer is equivalent to R$37.29 per share, a premium of more than 100% over the closing value of the Brazilian petrochemical company’s PN share the day before, at R$17.28, and more than 120% over the price of ON paper, R$ 16.82.

Novonor holds a 50.1% stake in Braskem’s voting capital and 38.3% in its total capital.

The Middle East group’s proposal envisages payment of 50% in cash upon signing the contract and the remainder in dollars to be paid through a debt instrument maturing in seven years and with annual interest of 7.25% and money from the fourth year onwards. Payments will be made directly to Novonor’s creditor banks that hold the shares as collateral.

Citi analysts said the main question for minority shareholders is whether Adnoc’s proposal triggers tag along rights or not. “It is too early to say, but in our opinion this would not trigger tag along rights,” they added in a note to clients

In July, the J&F group, controller of JBS (JBSS3), made an offer of around R$10 billion for Novonor’s stake in Braskem. The deadline for the proposal was 120 days.

According to Braskem, Adnoc’s offer is subject to terms that include a new shareholders’ agreement with Petrobras (PETR4)A and the investigation of “possible additional liabilities arising from the Alagoas event”, the company stated, referring to the subsidence of soil in the capital of Alagoas that houses the company’s operations.

In a separate statement, Petrobras stated that it was informed on Wednesday by Adnoc about such a proposal and added that it “will still be evaluated by the competent bodies” of the oil company.

The company reiterated that it is carrying out due diligence on Braskem, for the possible exercise of tag along or preemptive rights, in the event of the sale of shares held by Novonor in Braskem.

“It is worth highlighting that there was no decision by the executive board or the board of directors regarding the topic,” stated Petrobras in the statement to the Securities and Exchange Commission (CVM).

Regarding the quarter’s numbers, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) stood at R$921 million (+31% on a quarterly basis) due to the positive recognition of R$297 million of REIQ tax credits for the first nine months of the year.

XP highlights that, without this effect, Ebitda would be -11% compared to 2Q23, due to the weakening of spreads. Recurring free cash flow (except payments from Alagoas) was negative (R$329 million), driven by R$1.2 billion in interest payments.

In addition, there were payments of around R$1 billion relating to Alagoas. This led to an increase in reported net debt, from US$4.8 billion to R$5 billion, while the reported net debt to EBITDA ratio was 12.2 times (coming from 7.9 times in 2Q23).

“Even so, the company remains with a robust cash position (US$3.4 billion) and long-term gross debt with a high maturity period (12.3 years) and low cost (6.2% in dollar)”, he pointed out.

XP maintains a cautious view of Braskem and sees risks for those positioned in the name due to the expectation of tag-along rights arising from a potential M&A.

(with Reuters and Estadão Conteúdo)