Braskem Idesa Bonds Slump on Accord to End Cut-Price Gas Supply

March 3, 2021 16:38:17.661 GMT

(Bloomberg) -- Braskem Idesa SAPI bonds plunged by the most since December after the company agreed to scrap a discount on supplies of ethane gas from Mexican state oil company Petroleos Mexicanos.

The deal is the culmination of a struggle between the two companies that saw President Andres Manuel Lopez Obrador threaten to tear up the previous accord, citing unproven corruption allegations.

Under the terms of the new agreement, which was announced by Pemex CEO Octavio Romero in a Wednesday morning press briefing, Braskem Idesa will pay the international rate for ethane, and Pemex will have no obligation to sell ethane gas to the company after 2024.

Braskem Idesa bonds fell 1.9 cents on the dollar to 100.3 cents on Wednesday, the worst selloff in about three months.

The company “loses the discount it enjoyed, which some estimate to have been as high as 30% to the spot ethane price,” said Soummo Mukherjee, a senior credit analyst at Lucror Analytics. “Bonds may be falling as investors thought it would still be able to retain some discount on the ethane supply.”

In comments to reporters, Romero said that Mexico will save 13.7 billion pesos ($655 million) with the deal, and that Pemex won’t pay the $147 million in fines generated by the current administration’s refusal to supply the required ethane.

Pemex will help Braskem Idesa set up an import terminal for ethane gas, and will continue to supply 30,000 barrels of ethane gas per day until March 2024, down from 66,000 barrels per day under the previous agreement. A spokesperson for Braskem Idesa declined to comment.

Lopez Obrador took the opportunity to rehash his claims of corruption in the original contract, which was made under his predecessor Enrique Pena Nieto. Braskem Idesa -- a partnership between Odebrecht SA unit Braskem SA and Mexico’s Grupo Idesa SA de CV -- has long denied any wrongdoing.

The renegotiation of the contract is the latest in a series of moves by Lopez Obrador to reassess the projects of previous presidents, from a new airport in Mexico City to an energy reform that opened the sector to more private investment.

“We’re trying to recover everything possible so that the damage is repaired, that is why we have reviewed contracts that were made unfairly,” said Lopez Obrador on Wednesday. “They robbed all Mexicans.”

By Justin Villamil and Maya Averbuch