Brazil Chemical Giant Boasts Teflon Bonds Amid Bribery Scandal

Brazil’s chemical giant Braskem SA is proving to be an anomaly in the bond market.

In October, a former director at Petroleo Brasileiro SA -- the state-owned oil company at the center of Brazil’s biggest corruption scandal -- said he had accepted bribes from Braskem executives in Exchange for favorable prices for naphtha, the main ingredient for making petrochemicals. The accusation has bolstered a class-action lawsuit in the U.S. against Braskem for its alleged role in paying kickbacks to Petrobras, which holds a 36 percent stake in the chemical maker. Meanwhile, majority owner Odebrecht SA saw its former CEO sentenced to 19 years in jail last week for bribing Petrobras executives.

While almost every other company dragged into the graft probe has seen its bondholders flee, Latin America’s largest petrochemical maker is in demand among debt investors. That’s in part because Braskem’s business is booming as it capitalizes on a weak currency to boost exports. The company bolstered its ability to do just that on Dec. 23, when it signed a five-year deal to buy naphtha from Petrobras. Braskem’s benchmark bonds maturing in 2021 have returned 11 percent since, almost four times the emerging-market average.

Sao Paulo-based Braskem is also benefiting from speculation its owners may be looking to sell their stakes. On Monday, newspaper Valor Economico reported that Petrobras’s Braskem stake has drawn interest from the likes of China National Offshore Oil Corp. (CNOOC), Saudi Arabian Oil Company, Dow Chemical Co. and Exxon Mobil Corp. Reuters reported last week that Odebrecht is also looking to sell its holding in Braskem.

“It’s like two ugly parents with a son who avoids the damage,” said Klaus Spielkamp, the Miami-based head of fixed income at Bulltick. “Brazil is such a mess that it seems everyone has a skeleton hidden in the closet, but Braskem is managing to stay mostly in the clear.”

Brazil’s Carwash probe, the investigation into money laundering and kickbacks at Petrobras, has now ensnared everyone from former President Luiz Inacio Lula da Silva to billionaire banker Andre Esteves.

Braskem’s press office declined to comment on the lawsuit against the company. Investors allege that Braskem paid at least $5 million annually to Petrobras between 2006 and 2012 to purchase naphtha at below market prices, according to court records. The plaintiffs are seeking reparation for $31 million of losses, or $1.80 a share.

Petrobras’s press office declined to comment on its Braskem stake or lawsuits against the company. Juliana Souza, a spokeswoman at Odebrecht, said the company isn’t negotiating a sale of its stake in Braskem and declined to comment on the bribery case.

Even as foreign giants are said to consider buying a stake in Braskem, the company is in the midst of a $5.2 billion expansion in Mexico. Its 29 facilities in Brazil already sell to markets as far away as Asia.

“Considering all the Volatility and negative macro news in Brazil, investors would view a large global player as a positive,” said John Haugh, executive director at Mizuho Securities USA Inc. “Braskem has been successfully working toward diversifying its businesses away from Brazil’s domestic markets.”

--With assistance from Paula Sambo To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Lester Pimentel

By: Ben Bartenstein

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