Brazil’s Unigel plans to restart its urea plant at Sergipe in September. Unigel CEO Roberto Noronha Santos said the decision follows a slight improvement in the petrochemical cycle as a whole.
“The chemical industry scenario is still challenging, but we understand that it is time to resume activities gradually and responsibly,” he said. “We anticipate an increase in demand for urea by the end of the year due to the next winter harvest.”
In full operation, the Sergipe factory has the capacity to produce 450,000 mt/y of ammonia and 650,000 mt/y of urea. Noronha noted that the resumption is a national priority. Additionally, this week Unigel resumed production at the styrene unit located in Cubatão (SP).
“We live with a wide dependence on nitrogenous fertilizers coming from other countries,” he said. “Today 85% of demand is met by imports. Consequently, having production in Brazil is essential to ensure the reduction of the country’s vulnerability and the safety of our customers.”
Unigel’s nitrogen plant at Bahai is expected to remain offline. The company idled production in Bahai earlier this summer and delayed a restart at Sergipe as it tried to renegotiate contracts for the supply of natural gas and struggled to avoid worsening financial problems, which resulted in the company delaying payments to suppliers (GM June 30, p. 26).
Unigel said this week it is still in negotiations with Petrobras and is focused on the company’s projects on renewable energy and fertilizers. Unigel leases the Sergipe and Bahai plants from Petrobras, which is also its natural gas supplier.
In the meantime, Unigel and holders of more than 10% of the company’s outstanding local debt securities called a general meeting for Sept. 5, according to Bloomberg, which reported that the goal is to create conditions for renegotiation of local bonds, with the stipulation of new terms and deadlines “upon the receipt of real guarantees that make the renegotiation feasible, concomitantly with other creditors in the course of the financial restructuring of the issuer.”
Last month bondholders had sought a cash injection into Unigel from the company’s controlling shareholders, the billionaire Slezynger family, which owns Unigel through a holding company. Unigel was founded by Henri Slezynger, whose family fortune is valued at around $2 billion, according to calculations by the Bloomberg Billionaires Index.
Other demands presented to the company were a review of investment plans, delaying dividend payments, and selling non-core assets, sources told Bloomberg, though they said it was not clear if Unigel would meet the demands.
Unigel is poised to breach a covenant on its local bonds as high interest rates at home and lower fertilizer prices globally eroded earnings and sent its leverage ratio skyrocketing. Lending agreements for the company’s local notes require it to keep the ratio of net debt to adjusted EBITDA below or at 3.5 times, and S&P Global Ratings said it could peak at near 10 times by year’s end.
Sources expected that Unigel would likely breach the covenant with second-quarter results, which have yet to be released. They were reportedly due out Aug. 14 but were delayed.