SAO PAULO, BRAZIL — What was supposed to be the first step in restructuring Brazil's petrochemical industry has failed.
The long-awaited unscrambling of the complex shareholding interests that characterize the sector was to begin Dec. 14, through the auction of a group of companies, including feedstock supplier Copene Petroquimica do Nordeste SA, polyethylene makers Politeno Ind£stria e Comercio SA and Polialden Petroquimica SA, and PET producer Proppet AS, among others.
However, the figures presented by both potential buyers — Ultra Group, from Brazil, and Perez Companc Group, from Argentina — did not reach the secret minimum price stipulated by the sellers, and therefore the assets were not sold.
A series of events contributed to the failure. First, on Dec. 13, the auction was suspended by an injunction under the pretext that the auction rules lacked transparency, because the minimum price, venue and time of the auction had not been disclosed.
Brazilian businessman Jose Ebram, who filed the injunction, also alleged that the auction could lead to market concentration, because Dow Chemical Co. of Midland, Mich., was considered the favorite to win the bidding.
Ebram is a retired lawyer and a member of a group of investors involved in an unrelated case against Dow regarding the sale of a property adjacent to Dow's plant in Franco da Rocha, Brazil, back in 1998.
A couple of hours after the injunction was issued, Dow announced it was no longer going to participate in the auction.
"The decision was made for strategic reasons that took into account the company's merger process with Union Carbide, which still depends on approval from regulatory authorities," said Jose Eduardo Senise, president of the Brazilian subsidiary of Dow, in an official statement.
Carbide owns a 317 million-pound-per-year low density PE plant in Cubatao, Brazil.
Roughly 100 Dow executives had participated in a due diligence process for the Brazilian auction.
"Copene was not an attractive acquisition for Dow, which was mainly interested in obtaining propylene to produce propylene oxide," said Thomas Unger, a chemical industry analyst. "The PE plants included in the package do not justify the purchase."
Observers estimate the companies up for sale are worth about $1 billion.
The injunction preventing the sale was revoked Dec. 14, and the auction started at 10:30 that evening.
The plants for sale are located in the industrial complex of Camacari, in Brazil's northeastern state of Bahia. Copene claims to be the largest petrochemical facility in Latin America, producing roughly 3.5 million tons per year of ethane, ethene, propylene, paraxylene and other raw materials.
Politeno produces 750 million pounds per year of resins, including high, low and linear low density PE and EVA copolymers.
Polialden has capacity to make 330 million pounds of HDPE annually. Proppet produces dimethyl terephtalate and PET, with its PET capacity at 132 million pounds annually.
The companies selling their shareholding interests in these companies are the Brazilian Mariani, Odebrecht, Suzano and Conepar groups, and Japan-based Itochu Corp. and Sumitomo Chemical Co.
Conepar is a joint venture controlled by Economico Empreendimentos SA, a firm owned by the Brazilian bank Economico SA, which went bankrupt in 1996 and needs to sell its assets to pay off a $5 billion debt to Brazil's Central Bank.
According to Brazil's Central Bank director Carlos Eduardo de Freitas, the sellers will review their auction model, and a new auction will take place in 2001.