Rewards of performance and communication
The success of Braskem’s IPO exceeds expectations
written by ◦ Nelson Letaif

Bolstering a company’s competitiveness can be a long and arduous process, but it can also be done by leaps and bounds of quality. In Braskem’s case, the most recent leap in quality, carefully rehearsed for eight months, took nearly four weeks to execute and there were several stops on the way. It began in São Paulo, and passed through Brasilia, Rio de Janeiro, Milan, Paris, Geneva, Edinburgh, London, Zurich and Rotterdam before going on to New York, Boston, San Diego, Los Angeles, San Francisco, Chicago and back to New York.

That was the itinerary of the roadshow Braskem’s leaders carried out prior to the company’s IPO. They took part in over 100 meetings with some 200 financial analysts representing the leading institutional investors in Brazil and worldwide. This marathon of presentations came to an end on a Wednesday evening, September 22, when Braskem and representatives of Credit Suisse First Boston (CSFB) and Unibanco held a Pricing Meeting at CSFB’s New York headquarters.

>> Braskem shareholders and shareholdings

At the beginning of the roadshow process, Braskem had planned to sell a number of shares in Brazil and abroad corresponding to 11.7 million ADRs, valued at about USD 300 million. However, interest among institutional investors was so great that the total demand reached nearly USD 1.9 billion, six times the original figure. Furthermore, the petrochemical company’s share values rose throughout the roadshow period, surpassing the possible impacts of share dilution, which in international IPOs generally has the effect of reducing stock prices, rather than raising them during the period leading up to a new share offering.

The demand was so great that it led to the use of the green shoe option, a kind of strategic reserve granting a total of 15% of the offering to the banks – which made it possible to sell an additional 1.755 million ADRs. The shares were priced at their valuation date market value – BRL 90.00 per lot of 1,000 shares in Brazil and USD 31.84 per ADR in the USA.

In the final allocation, international sales corresponded to two-thirds of the total of 13.455 billion new shares, and the remaining third was sold in Brazil. All told, the new capital raised reached a total of USD 420 million or BRL 1.2 billion, which entered the company’s coffers on September 28. The result of the IPO was a watershed in Braskem’s history.

“The success of this stock issue was largely due to the fact that we convinced the market of the consistency of the company’s adopted business model and the disciplined way its internal teams are implementing that model, which gives Braskem outstanding operational and entrepreneurial performance,” says José Carlos Grubisich, Entrepreneurial Leader (CEO) of Braskem.

In the assessment of Paul Altit, Braskem’s officer responsible for Finance and Investor Relations, the results of the global IPO represent a new era in the company’s relationship with the capital market. “This stock issue was a unique opportunity to position Braskem in the market of major global petrochemicals investors and companies with potential for outstanding growth, while including a highly significant number of qualified investors from the Brazilian market among the organization’s stockholders,” he says.

Paul adds, “The initiative makes it possible to further quality Braskem’s equity structure and increase its strategic, operational and financial flexibility by quickly and significantly reducing the company’s leveraging activity and consequently lowering the cost of capital, which will strengthen Braskem’s competitive advantage and enable it to harness the growth potential of the regional resin market in Latin America.” Furthermore, it has given a major boost to the liquidity of Braskem shares traded in the capital market, which now represent about 45% of the company’s total shares, with daily liquidity of approximately BRL 27 million on the São Paulo stock exchange (BOVESPA) and USD 7 million on Wall Street.

>> Braskem shares

Approved in April by Braskem’s Board of Directors, the global IPO coincided with a highly positive situation for the petrochemical sector, as well as on the macroeconomic level. This means that there is an increased demand for the company’s products, and resin prices on the international market are rising, which is making Brazil more attractive for the international capital markets and improving the country’s risk rating, even as its currency strengthens, giving a major boost to Braskem’s stock prices. In the cheerful assessment of José Marcos Treiger, Braskem’s officer responsible for Investor Relations, “This fortunate coincidence involved a little luck, but as the wise old saying goes, ‘luck is hard work’.”

Treiger observes that the work done in partnership with the banks - Unibanco and Credit Suisse First Boston (CSFB), respectively the coordinators of the Brazilian and international IPOs, as well as ABNAmro Bank, Bradesco, UBS and Banco do Brasil, as contracted coordinators – resulted in the allocation of over 80% of shares sold among major, long-term investors, which makes Braskem’s new and expanded shareholder base even more highly qualified.

“From now on, the challenge for us will be maintaining a strong and active presence in the markets, particularly the global market, in order to maintain our high degree of transparency and the quality of the information we disseminate, which are already recognized by many analysts,” Treiger adds.

The team formed to represent Braskem at these meetings – made up of Grubisich, Altit, Treiger, and Jayme Fonseca, the company’s comptroller – had another powerful trump card for sensitizing investors: the favorable business environment in which the company operates. The prospects for consumption of thermoplastic resins in Brazil will remain high in the next few years due to a period of sustainable economic growth in that country. Together with the increasing profitability generated by a high price cycle and excellent profit margins that has already begun for the international petrochemicals industry, all indications are that Braskem shares have additional growth potential, which has also had a decisive impact on investors’ purchasing decisions.

As a result, the formula that guaranteed the success of this operation strategically depended on creating the opportunity to confidently, efficiently and credibly present all these arguments to the right interlocutors, together with the solid consolidation of Braskem. The expertise of the banks coordinating the stock issue made all the difference. “The team headed by Ricardo Stern at Unibanco and José Olympio at CSFB made our work much easier, because they put Braskem’s administrators face to face with the most important investors in Brazil and the world,” says Treiger. The leading pension fund managers opened their doors to Braskem and expressed interest in investing, which indicates promising prospects for future relations.

“I have never taken part in such a successful IPO in terms of volume, price, book quality and excellent share performance for a company at every stage of the process,” says José Olympio, who is in charge of Investment Banking at CSFB in Brazil. To have an idea of what Olympio means, suffice it to say that the face value of preferred shares rose from BRL 40.02 on May 24, shortly after the offering, to BRL 90.00 on pricing day, September 22, rising by 125% during that period.

Ricardo Stern, Investment Banking Products Director at Unibanco, believes that the direct involvement of the company’s top management during every stage of the process played in important role in the IPO’s success. The smallest details were analyzed and previously agreed: scrutinizing every page of the presentation; checking to see if any important analysts had been left out of their meeting schedule; setting standards to guide the distribution of shares, and so forth. “Clients usually delegate all that to the bank. Not so with Braskem. They double checked every procedure and strategy,” says Stern.

The company began reaping the greatest benefits shortly after the IPO ended. “Braskem’s Q3 (third quarter) results already showed the market an important improvement in its annualized EBITDA, as well as a reduction in gross debt and a significant improvement in its net debt/EBITDA ratio, which was 2, and is expected to fall even further if growth prospects for EBITDA in the next twelve months are realized,” says Paul Altit.

This means that, in terms of competitiveness and entrepreneurial strategy, Braskem is beginning to write the first chapter in a new stage of its successful history – definitively established as a world-class Brazilian petrochemical company.