Adnoc Drops $2.1B Braskem Bid, Bonds Tumble

Key Takeaway

• Adnoc's withdrawal from the Braskem acquisition deal led to a significant drop in Braskem's bond prices, notably a nearly 4 cent decline in its 2030 dollar debt.
• The collapse of the deal shifts focus back to Braskem's standalone credit fundamentals, overshadowing previous M&A-driven valuation boosts.
• Despite market reactions, some analysts and investors remain positive on Braskem’s long-term fundamentals and potential alternative suitors.

Braskem's Deal Disruption Shakes Markets

Abu Dhabi National Oil Co. (Adnoc) recently withdrew its $2.1 billion bid to acquire a significant stake in Braskem SA, leading to a notable downturn in the petrochemical company's bond and share prices. Braskem's dollar debt due 2030 saw a nearly 4-cent decline this week, marking one of the most significant drops in the US high-yield market and among Latin American corporates. This move ended what had been one of Latin America's most impressive bond rallies of the year, spurred by the anticipation of the deal and expectations of improved earnings for Braskem.

Adnoc's Exit Raises Questions

The unexpected collapse of the deal with Adnoc has raised concerns among bondholders and analysts alike. Moody’s analyst Carolina Chimenti pointed to potential issues with Braskem's rock-salt mine in Alagoas, Brazil, which experienced a partial collapse last year, as a possible deal-breaker. This incident has led to speculation about whether bondholders might have overlooked critical factors that ultimately deterred Adnoc. Following the deal's fallout, Barclays Plc recommended selling Braskem’s bond due 2031, citing unlikely prospects of an M&A-driven valuation boost in the near future.

Novonor's Persistent Sale Endeavors

Despite Adnoc's withdrawal, Novonor (formerly Odebrecht), Braskem's controlling shareholder, remains committed to selling its stake. The company has been embroiled in Brazil's Carwash corruption scandal, which has complicated its efforts to divest. Novonor's determination to sell is part of a broader strategy to recover from its financial and reputational damages. Potential buyers, including Petrochemical Industry (PIC) and J&F Investimentos SA, have been rumored, indicating ongoing interest in Braskem's assets.

Market Reactions and Future Prospects

The market's reaction to Adnoc's exit was swift, with Braskem's shares dropping 16% in New York, signaling investor disappointment and concern over the deal's collapse. However, some market participants, like T.Rowe Price's Siby Thomas, believe the reaction may be an overreaction, emphasizing Braskem's strong fundamentals and the petrochemical sector's long-term prospects. BNP Paribas strategist Alexis Panton suggested that other avenues for Novonor's stake sale could emerge, highlighting the potential for Braskem's recovery based on its operational performance rather than M&A speculation.

Street Views

• Carolina Chimenti, Moody’s Ratings (Neutral on Braskem):

  "Now, the surprise collapse of talks with Adnoc is sparking concerns bondholders could have missed something with the Alagoas situation that spooked the Abu Dhabi-based firm."

• Ansel Tessitore and Badr El Moutawakil, Barclays (Bearish on Braskem):

  "Upside from M&A appears unlikely for the foreseeable future... Valuations in the Braskem complex should be primarily dictated by the company’s standalone credit fundamentals rather than by a potential M&A premium."

• Siby Thomas, T.Rowe Price (Bullish on Braskem's fundamentals):

  "The problem is the market has been more focused on short-term catalysts, including the M&A, while the petrochemical-spread improvement will take time to play out... But over the long-term, fundamentals should matter more than the sponsor."

• Alexis Panton, BNP Paribas (Neutral to Cautiously Optimistic on Braskem):

  "The decline in bond prices after the Adnoc news was an overreaction as there are several other avenues Novonor could pursue for its stake."

• Eduardo Ordonez, BI Asset Management (Neutral to Cautiously Pessimistic on Braskem):

  "Petrochemical spreads improved a little in the last few months, so selling could be a bit less violent. But selling nonetheless."