|Results of a winning drive
|As Odebrecht marks 25 years of operations in
the petrochemical sector, Braskem is Latin America’s
market leader in thermoplastic resins, and ranks among
the top ten publicly traded Brazilian companies
|written by ◦ Eliana Simonetti
photos by ◦ Roberto Rosa and Odebrecht Archive
Braskem celebrated another milestone in September: adding some USD 420 million to its capital through a market transaction in which it did not need to offer discounts on securities, and the company could cherry-pick the investors best-suited to its characteristics. A little over two years after its inception, the company ranks ninth among the largest publicly traded Brazilian companies, according to a survey conducted by the Getúlio Vargas Foundation based on revenues and assets, published in September.
Latin America’s leading thermoplastic resin producer, Braskem exports its products to 50 countries. In terms of innovation, it has built up a highly successful track record, with over 100 patents pending. Its net revenue is expected to exceed BRL 10 billion in 2004, which is close to the earnings of industry giants like Basf and Hoechst of Germany.
“We are carrying out our vision at high speed with a high degree of success,” says the company’s Entrepreneurial Leader (CEO) José Carlos Grubisich. “Braskem has a winning future. Of course there will be obstacles along the way, but we have a top-quality team that can surmount them and make things happen.”
This team is looking to the future as it negotiates two new projects: a manufacturing plant in Paulínia, São Paulo, that will produce 300,000 tonnes/year of polypropylene, and a gas-chemical complex near the Brazil-Bolivia border in the Brazilian state of Mato Grosso, connected to a plant capable of producing up to 600,000 tonnes of polyethylene.
Braskem is controlled by the Odebrecht Group, and its shareholders also include Norquisa, Petroquisa, the Previ Foundation and the Petros Pension Fund. Over 45% of its shares are publicly traded (see chart of shareholders and shareholdings). Braskem’s success is largely due to the entrepreneurial culture built up during the Odebrecht Group’s 60-year history and the strategic vision of the people who realized back in the 1970s that it was essential to diversify the organization’s businesses, and put their chips on Chemicals & Petrochemicals, a sector that was still in its infancy in Brazil.
Brazil’s petrochemical sector started developing in the 1970s, at a time when worldwide consumption of plastics was booming due to their use in the production of consumer goods. Prices on the world market were at an all-time high and Brazil felt it was time to replace imports with domestic products. However, the government could not find any private-sector companies willing to take on the challenge. Building plants to produce resins required massive investments, so it was done on the basis of a “tripartite” structure of investment including the government, represented by Petroquisa, a Petrobras subsidiary, and two other partners: private-sector Brazilian firms and foreign conglomerates that owned the technology. The government also spearheaded construction of the nation’s ethylene plants with investments from downstream manufacturers. As a result, Brazil stopped depending on imported plastics and started making them itself. Since the 1970s, the country has established what is now the largest grouping of petrochemical facilities South of the Equator.
Odebrecht was still entirely focused on Engineering & Construction in the 1970s, and growing rapidly due to extensive investments in Brazilian infrastructure. By the end of that decade, however, many of the foreign firms that made up the tripartite investment scheme in petrochemicals were beginning to lose interest. And some Brazilian groups also wanted to pull out. The government’s program was under threat, and Odebrecht, which was looking for alternative ways to diversify its operations, was called on to help. As a result, the company purchased 33.3% of Companhia Petroquímica Camaçari (CPC) in 1979. As a result, the Group also had a stake in Norquisa, the company that controlled Copene - Petroquímica do Nordeste S.A., Brazil’s largest ethylene plant and the tenth-largest in the world, responsible for nearly half the nation’s production of petrochemical feedstocks. Odebrecht’s investments in the sector took off from there, and never stopped. In the mid-1980s, the Group acquired the shareholdings of three multinationals that were leaving the Brazilian market: 31.5% of Poliolefinas from National Distillers; 20% of PPH from Himont; and 38.8% of the same company from H. Mining. It also acquired 23.2% of Salgema and another share of Unipar (13.8%) from Norquisa, and increased its holdings in Copene.
In the meantime, however, the Brazilian economy had entered a period of stagnation begun by two crises: the nation’s foreign debt and the government’s tax problems. The petrochemical sector suffered. Many plants were idle and a price war broke out. The situation worsened when the government, pressured by the international oil crisis, decided to invest more in prospecting and extraction than in petrochemicals, a capital-intensive sector that was suddenly out of money.
By that time, the scheme of investments in petrochemical companies had developed into a maze of cross-investments involving about 30 conglomerates. Due to conflicting strategic interests, this situation obstructed the process of corporate decisionmaking and made the entire industry less competitive. Then the first restructuring in the sector’s history began with a view to unraveling the Gordian knot of corporate stockholdings. Ownership by Brazilian private-sector companies increased, and Odebrecht had already become one of the leading conglomerates in the business. Nevertheless, the Gordian knot remained intact.
The 1990s saw another attempt to restructure the industry. That phase was marked by the government’s exit from the sector, leaving the State as a minority shareholder, and the consolidation of private-sector groups’ control of downstream producers and the upstream plants that supplied the feedstocks. Odebrecht shared control of Copesul, the Triunfo Petrochemical Complex ethylene plant in Rio Grande do Sul, with the Ipiranga Group, and became a majority shareholder in PPH and Poliolefinas. In 1995, these two thermoplastics producers merged to form a single company: OPP Petroquímica. The same thing happened with Salgema and CPC, which, together with CQR – Companhia Química do Recôncavo, were consolidated under Trikem the following year.
Twenty-six of the 55 Brazilian companies privatized between 1990 and 1997 were petrochemical producers, and Odebrecht played an active role in the privatization process. In 1996, the Gazeta Mercantil newspaper’s annual review hailed OPP as Brazil’s largest investor in industry. The BNDES, Brazil’s national economic and social development bank, also conducted a survey after the sale of Petroquisa’s 26 stockholdings, concluding that, in terms of gross revenue, Odebrecht owned 47% of the nation’s petrochemical sector. It had become the largest Brazilian company in the business.
That privatization program signaled the end of the tripartite model, with varying outcomes in the nation’s petrochemical complexes. In the South, the Odebrecht and Ipiranga groups acquired control of Copesul, continuing its harmonious management focused on growth and technological advancement. Camaçari, in the Northeast, was not as lucky, however. The privatizations at the Bahia petrochemical complex had fragmented control of the ethylene plant among numerous stakeholders with different interests. Nine groups co-owned Copene, including two pension funds and a Petrobras subsidiary, Petroquisa. Since there were no leaders, important decisions and investments went unmade.
Brazilian companies were immensely vulnerable at a time when the country was opening its market to foreign investors in 1991. National business groups that had developed in a protected market, free from outside competition, were suddenly confronted with major international conglomerates operating with much larger production scale, and undergoing a process of worldwide consolidation that slashed costs while vastly increasing efficiency. Even worse, there was a glut on the global market that reduced the economic growth of central countries and the beginning of operations of new plants in the oil producing countries and Asia.
Petrochemical companies all over the world are vulnerable to foreign competition. This is because plastic products are easy to ship, similar anywhere on the planet, and durable, and their consumption is not dependent on each nation’s cultural characteristics. Therefore, it is not surprising that major plants operating in dynamic markets tended to dominate the petrochemical business. Global export production jumped from 13% in 1970 to 35% in 2000. In view of this situation, Brazil had a problem to solve, and the solution was giving a strong boost to its resin exports.
Brazilian companies were in an extremely shaky position, and the future of the nation’s petrochemical sector was so unclear that investments all but disappeared. This forced producers to streamline their operations. They reduced administrative and personnel expenses to make their plants more efficient. Even so, there were many other obstacles to overcome, such as the overwhelming number of overly small firms, fragmented shareholdings and limited technological expertise. To have a real chance of surviving the onslaught of international competition, it was key for petrochemical companies to simplify their ownership arrangements.
Finally, a decade-long effort ended when Brazil’s Central Bank liquidated the assets of the Econômico Group, which owned shares in the Copene ethylene plant at Camaçari, Bahia. Realizing the sale of those shares took a few more years, but the Central Bank finally auctioned off the Bahian bank’s stake in Conepar, the holding company that owned a major share of the voting stock of Norquisa, which controlled Copene.
Odebrecht was the winning bidder, and as a result, in 2001 it acquired control of Copene in partnership with the Mariani Group. The first step had been taken in the most recent – and effective – restructuring of Brazil’s petrochemical sector. The Odebrecht-Mariani consortium planned to verticalize and integrate upstream and downstream petrochemical production in Brazil, and brought its plans to fruition.
By consolidating six upstream and downstream producers in August 2002, the Odebrecht and Mariani groups created Braskem, a major company capable of harnessing important gains in synergy to make a great leap forward in competitiveness and profitability. A little over two years since its inception, Braskem has irrefutably demonstrated that it has an outstanding formula for efficiency. During that period, the gross revenue, exports, profits and productivity of the integrated companies have all increased significantly.
A number of external factors have contributed to these positive results. After being convulsed with international financial crises and intimidated by the stagnation of the Japanese and European markets in the 1990s, the global economy is growing once again. More recently, the same thing happened with the Brazilian market. To complete this virtuous cycle, the petrochemical sector – a typically cyclic industry – has entered a strong period of recovery around the world, both in terms of demand and profitability.
Petrochemical products are gradually – and advantageously – replacing wood, natural fibers, steel, paper, latex and glass, among other materials. Thousands of products now include petrochemicals among their components. Annual consumption of plastics in Brazil is still very low: one-fourth of Europe’s and one-sixth of the US’s consumption per person. Therefore, there is plenty of room for growth in the domestic market, as well as the possibility that the sector will surpass its present average growth rate, which is already three times greater than the Brazilian GDP. The increasing demand for plastics driven by the nation’s burgeoning economy, combined with improving prices and profit margins in the international petrochemicals market, also give Braskem extraordinary room for expansion.
Today, the global petrochemical industry is highly internationalized. Through strategic alliances, acquisitions, mergers and take-overs, companies are growing and embracing ever-greater markets, making competition increasingly fierce. Braskem is Brazil’s answer to the emergence of this new world order. It was created to keep pace with the changes resulting from globalization, overcoming deficiencies inherited from the time when Brazil’s petrochemical industry was created, both in terms of scope and asset integration.
The company now has the scale, competitive costs, integrated structure and R&D facilities it needs to not only develop new applications for new materials but provide support for clients who need to overcome challenges of their own and open up new fronts in the marketplace. Braskem’s presence has made the sector more secure, as well as being an important stimulus for other companies.
In the last two years, the company has invested in the expansion of its production capacity, and time has shown that this was exactly the right move – not only because it anticipated the growth of the Brazilian economy, so there has been no difficulty in meeting growing demand, but because when the company made this move, it went against the world trend of caution in light of the global recession. As a result, now that demand is exceeding supply around the world, and prices are at an all-time high, Braskem is ready and able to use these good winds to sail ahead of the competition. And the company is mobilizing its members to make it a benchmark in the world petrochemical scene. And at this precise moment, when the company has such excellent prospects, Odebrecht is also celebrating its silver anniversary in the petrochemical industry.