Brazil nitrogen and chemical producer Unigel is planning to delay the restart of its Sergipe nitrogen plant for 90 days starting in June beyond its current maintenance outage, though the Bahai location will remain in operation, according to Valor International, which cited recent poor financial results that may have put the company at risk for covenant violations.
The Sergipe unit has an installed urea production capacity of 1,800 mt/d, and can sell ammonia, carbon dioxide, and ammonium sulfate, while Bahai has an installed urea production capacity of 1,300 mt/d, with the ability to sell ammonia, carbon dioxide, and automotive liquid reducing agent (Arla 32).
In a conference call with analysts earlier this month, executives also announced the reduction in investment plans to safeguard the company’s financial strength, according to Bloomberg.
Completion of the 450,000 mt/y sulfuric acid plant has been pushed back from mid-2023 to early 2024, added Valor, which noted that Unigel’s green hydrogen/ammonia project (GM July 29, 2022) is still in its early stages.
The situation reflects lower chemical, urea, and ammonia prices, while feed stock prices have not declined. Unigel is reportedly in negotiations with Petrobras for lower natural gas prices, which Valor currently estimates at $14.00/mmBtu, significantly below US prices of $3.00/mmBtu. Unigel has long-term leases with Petrobras for both of its urea plants.
The company saw adjusted EBITDA drop 82% in the first three months of 2023 from a year earlier. That sent its leverage ratio to 2.2 times, closer to a threshold of 3.5 times that, if surpassed, gives holders of local notes issued just last year the option of declaring the early maturity of debt obligations.
“Unigel signaled it expects equally weak operating performance in the second quarter, and showed less conviction on a cyclical recovery by the end of the year,” said Sebastian Hofmeister, a Senior Credit Analyst at Lucror Analytics.
The company’s “cash-preservation mode” added to concerns around earnings, and management suggested some leverage covenants may require waivers, he added.
Unigel declined to comment.
Brazil’s local-debt market had a bumpy start to the year after retailer Americanas SA and utility Light SA filed for bankruptcy protection. The turmoil led to scrapped issuances of local bonds, as well as several firms hiring financial advisers to restructure debt amid a high-rate environment.
“Given the earnings profile over the cycle, we think the logical next step would be a covenant waiver,” said Ben Hough, Director of Corporate Research at BCP Securities in Greenwich, Conn. “We think the company will likely engage with debenture holders to achieve a constructive outcome.”