Petrobras Scandal Widening as Braskem Named in Morass

Petrobras Scandal Widening as Braskem Named in Morass

By Filipe Pacheco Gerson Freitas Jr

8:00 PM BRT
March 15, 2015

(Bloomberg) – The staggering reach of Petroleo Brasileiro SA’s corruption scandal is getting even bigger.

Braskem SA, Latin America’s biggest petrochemicals maker by sales, became the latest company implicated in testimony alleging it paid bribes to the state-controlled oil producer in return for contracts. While Braskem denied the accusations, its $750 million of bonds due 2024 plummeted 7.9 percent last week, the most among high-grade emerging-market debt.

The allegations against Braskem underscore how pervasive the alleged kickbacks were in Brazil. The federal investigation has already embroiled the nation’s biggest builders and rig makers while fueling losses in the bonds of banks, the government and even a state pension fund.

“The whole scandal is damaging more and more Brazilian companies from all segments, and Braskem can be seen as the latest example,” Leonardo Kestelman, a money manager at Dinosaur Securities, said by telephone from Sao Paulo. “People just prefer to hit the sell button instead of waiting.”

Sao Paulo-based Braskem denied any irregularities in its dealings with Petrobras in e-mail to Bloomberg News on March 11.

‘Transparent Manner’

“All the payments and contracts between Braskem and Petrobras followed the legal requirements and were approved in a transparent manner in accordance with the governance rules of both companies,” Braskem said.

Braskem’s 6 billion reais ($1.8 billion) in cash and revolving credit facilities are enough to cover debt payments for the next 47 months, the company said in a separate e-mail on March 13 in response to questions about its bond performance.

“Braskem understands that the oscillation of its securities doesn’t reflect its credit quality,” the company said. Braskem also said that most of its revenue is tied to the dollar, which has surged against the real.

Braskem paid annual bribes, initially set at $5 million, to buy crude derivatives such as naphtha and propylene at low prices from 2006 to 2012, ex-Petrobras executive Paulo Roberto Costa and admitted money launderer Alberto Youssef said in testimony published on the Supreme Court’s website on March 6.

Costa’s and Youssef’s sentence-reduction agreements forbid them and their lawyers from commenting on the investigations into alleged kickbacks at Petrobras.

Petrobras didn’t respond to an e-mail seeking comment on the allegations against Braskem.

Braskem buys naphtha, which accounts for half of its production costs and is the main ingredient for making petrochemicals in Brazil, from Petrobras under long-term agreements. The oil producer provides about 70 percent of Braskem’s naphtha needs.

Braskem Shareholders

Braskem’s largest shareholders are Petrobras, state development bank BNDES and Odebrecht SA, Brazil’s largest infrastructure company. Odebrecht itself is one of 16 builders being investigated by federal police and prosecutors for participating in an alleged cartel to overcharge Petrobras for contracts.

Odebrecht’s press office said in an e-mailed statement that it denies the “calumny allegations” made by the Petrobras former director, especially regarding improper payments to any executive, former executives or people related to the state-company.

The statement says that Odebrecht doesn’t and has never participated in any kind of cartel.

No Telling

“Braskem has a big concentration in share ownership by Odebrecht, BNDES and Petrobras,” Michael Roche, a strategist at Seaport Global Holdings LLC, said by telephone from New York. “These revelations lead to a quick shedding of this type of risk.”

Braskem’s 2024 bonds plunged to 93.32 cents on the dollar on Friday, the lowest since they were issued in January 2014, pushing the yield on the notes to 7.49 percent, data compiled by Bloomberg show.

That’s 2.7 percentage points more than the average for emerging-market companies that are rated investment grade.

“The concerns regarding Petrobras and corruption have swallowed many companies, and we can clearly see Braskem is another one of them at this moment,” Klaus Spielkamp, the head of fixed-income sales at Bulltick LLC in Miami, said by telephone. “People do not know what might come next.”

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