Mine Flood Under Sinking City Stokes New Slump in Braskem Bonds

Published 11 December 2023, 16:29:39.887 GMT

(Bloomberg) -- Bonds of Latin America’s largest petrochemical company Braskem SA extended losses Monday after water poured into a rock-salt mine it operates in northeastern Brazil, potentially fueling subsidence in a city of one million people above.

The notes due 2030 slid 3 cents to 74.7 cents on the dollar, while debt maturing in 2031 fell 2.75 cents. Bonds of Braskem and its subsidiary, Braskem Idesa, are the worst performers among Latin America corporate debt this month. 

The rupture was discovered Sunday afternoon in a gallery of the mine near the Mundau lagoon by the Mutange neighborhood of Maceio city. Civil Defense said the surrounding areas had already been evacuated due to previous subsidence caused by the mine and that the latest breach didn’t pose a risk to people, according to a statement Sunday on the website of the mayor’s office.

Ratings Warnings

Maceio Mayor Joao Henrique Caldas said the area is now stable and that Civil Defense will continue to monitor for any furthers risks.

The rupture is the latest development of an deepening environmental crisis that threatens to collapse entire neighborhoods of Maceio into the cluster of mines built deep under the city. The announcement of a 1 billion reais ($205 million) civil lawsuit for potential damages in Maceio, Alagoas state, sent Braskem bonds tumbling last week on concern it was just the start of financial actions in the case.

“We see mounting risks of Braskem having to increase financial compensation for the Alagoas event,” Lucror Analytics’ Filipe Botelho wrote in a note Monday. “Amid the streak of negative developments that could abruptly cause Braskem’s liquidity position to deteriorate, as well as high net leverage that is not commensurate with its rating, we expect the company to be downgraded to high-yield shortly.”

Braskem and the government of Alagoas state are in talks about compensation as residents of 14,454 properties have been forced to leave their homes to date, according to Braskem’s numbers.

Shares of Braskem have tumbled nearly 14% since the company informed investors about the civil action.

The company is also facing other claims for compensation. Maceio has requested Braskem reopen negotiations on an 1.7 billion reais agreement reached in July to compensate the city.

The company on Dec. 8 also confirmed a 72 million reais fine from the Environmental Institute of Alagoas (IMA). The company reported that 14.4 billion reais had been set aside for compensation.

Maceio Mayor Caldas traveled to Brazil’s capital Brasilia Monday to have meetings with policymakers in light of the environmental crisis in the city. 

By Leda Alvim

--With assistance from Barbara Nascimento and Giovanna Bellotti Azevedo