June 4, 2019 / 8:17 PM / 21 days ago

UPDATE 1-Braskem deal failure, dividend freeze complicate Brazil's Odebrecht restructuring -sources

(Adds source familiar with Odebrecht strategy, background)

By Tatiana Bautzer and Carolina Mandl

SAO PAULO, June 4 (Reuters) - Odebrecht SA’s failure to sell its controlling stake in petrochemical company Braskem SA to LyondellBasell Industries NV and lack of cash are complicating the task of restructuring 80 billion reais ($20.67 billion) in debt owed by the corruption-ensnared conglomerate, three sources with knowledge of the matter said.

The three people requested anonymity to disclose private discussions.

The conglomerate was counting on Braskem dividends to service its debt. But a court order in April related to environmental damages by the petrochemical company’s operation’s in the Brazilian northeastern state of Alagoas froze dividend payments.

LyondellBasell said on Tuesday it ended talks with Odebrecht SA to buy Braskem “after careful consideration” but did not elaborate further. Shares in the Brazilian petrochemical producer were down 17% in late afternoon trading in Sao Paulo.

A deal to sell its stake in Braskem could also have provided a cash windfall to the conglomerate. In a statement, the conglomerate said a bankruptcy protection filing “is not Odebrecht’s goal.”

A fourth source, familiar with Odebrecht’s strategy, said the conglomerate believes the Braskem deal failure will give an incentive to creditors to engage in a more organized way in a debt restructuring.

After concluding the restructuring, the construction group would be able to organize a new process to sell its stake in Braskem.

Odebrecht is Braskem’s controlling shareholder with a 38% stake and the majority of voting stock. Brazilian state-controlled oil company Petroleo Brasileiro SA holds a 36% stake.

Currently, Odebrecht has few streams of revenue. It relies on Braskem’s dividends, which are blocked, and asset sales.

Some creditors, specially Brazilian state banks, that have avoided going to court to give Odebrecht time to restructure in recent years are not willing to wait longer.

Odebrecht has been restructuring its debt with local banks for the last three years.

Two of Odebrecht’s units are restructuring debt with creditors. Ethanol unit Atvos filed for bankruptcy protection last week and Odebrecht construction unit OEC is in talks with bondholders after defaulting earlier this year.

The deal to sell Braskem to LyondellBasell, which had been in discussion for a year and a half, could have provided a windfall to creditors and to Odebrecht.

Initially, the conglomerate wanted to trade its full stake in Braskem, which is now pledged as collateral to some Brazilian banks, for Lyondell shares. But pressured by creditors, Odebrecht agreed to trade part of its stake for cash to repay them.

A year ago, Brazil’s two largest private banks, Banco Bradesco SA and Itau Unibanco Holding SA, reached an agreement with Odebrecht to give it a joint loan of 2.6 billion reais in what was expected to give the group a two-year relief.

At the same time, both banks improved collaterals to their debts. Currently, Odebrecht’s stake in Braskem is pledged entirely as collateral to some local banks. According to Brazilian bankruptcy law, its stake would have to be excluded from a bankruptcy protection proceeding.

If the collateral is not challenged, Braskem will be owned by the local banks if Odebrecht files for bankruptcy.

The debt finance also involved Banco do Brasil SA , Banco Santander Brasil SA and development bank BNDES, which agreed to changes to collateral but did not agree to extend new loans. Under the terms of the agreement, Odebrecht also used 100 million reais from the new loan to repay Banco do Brasil.

In the last two years, Brazilian banks have been increasing provisions to tackle problems with struggling Odebrecht, but not all banks improved their collateral. ($1 = 3.8709 reais) (Reporting by Tatiana Bautzer Editing by Phil Berlowitz)

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