Braskem is urgently negotiating with creditors to restructure more than $10 billion in debt, with a critical deadline of August 24 approaching to avoid filing for bankruptcy protection. The petrochemical producer needs support from creditors holding at least one-third of its financial debt to secure a 90-day extension for negotiations through an out-of-court restructuring. Major shareholders, including IG4 and Petrobras, have yet to secure the necessary quorum, leading to intensified discussions with creditors.
Petrobras, a state-controlled oil giant and Braskem's primary naphtha supplier, is considering offering improved payment terms on contracts. Historically, Petrobras tightened naphtha supply conditions as Braskem's financial health deteriorated, reducing its supply from 70% to about 30% of Braskem's naphtha needs. Potential concessions from Petrobras could involve extending payment terms for naphtha purchases, which are currently paid upfront, to help Braskem preserve cash and address demands from international bondholders for shareholder contributions to the restructuring effort.
Creditors, particularly a group of bondholders and a large foreign bank, have shown resistance to Braskem's initial restructuring proposal. This plan does not include a haircut but offers a 2.5-year grace period for interest payments and five years for principal. While an out-of-court restructuring remains the preferred path, a significant gap exists between what creditors are demanding and what Braskem and its shareholders are willing to offer. Creditors are seeking stronger concessions and safeguards, such as bans on dividend payments and limits on M&A, to protect the company's cash and assets.
Some participants in the negotiations believe that given Braskem's over $10 billion debt and weak cash generation, a portion of the debt may eventually need to be converted into equity. This conversion might not be immediate but could include a trigger allowing creditors to convert claims into equity if Braskem fails to reduce leverage or meet financial conditions. Petrobras, however, is reportedly unwilling to increase its stake in Braskem due to concerns about consolidating the petrochemical company's $10.3 billion liabilities onto its own balance sheet.
