Mexico Chemical Giant’s Brazilian Ambitions Win Over Investors

  • Company is studying acquisition of Petrobras polyester units
  • A deal would reduce dependence on North America, analyst says

Alpek SAB is studying a pivot toward South America with a record acquisition in Brazil -- and winning applause from investors.

Shares have advanced 4 percent since the chemical maker said July 28 that it was exploring a purchase of two Petroleo Brasileiro SA polyester units. That’s almost twice the gain in Mexico’s benchmark IPC stock index.

The potential deal would broaden Alpek’s geographic footprint by providing entry into Latin America’s largest economy. Brazil currently accounts for about 1 percent of sales at Alpek, while the U.S. and Mexico together generate more than 90 percent.

“The deal would allow the company to develop in the region and reduce its dependence” on North America, Jean-Baptiste Bruny, an analyst at Banco Bilbao Vizcaya Argentaria SA’s Mexico unit, said by telephone. “The move makes a lot of sense on a strategic level and the company has the balance sheet to finance this type of operation.”

The share gains have extended Alpek’s 42 percent advance this year through Wednesday, the fifth-biggest increase on the IPC index of 37 Mexican stocks. The San Pedro Garza Garcia, Mexico-based company has been benefiting from rising prices for polypropylene, which is used in everything from plastic containers to loudspeakers.

Enrique Flores, a spokesman for Alpek’s parent company Alfa SAB, declined to comment on the talks with Petrobras.


Exclusive Negotiations

Alpek, Mexico’s largest chemical maker by market value after Mexichem SAB, has 60 days to negotiate exclusively for the Petrobras units, which are known as Suape and Citepe, according to a statement. That period can be extended 30 days.

While no further details have been disclosed, the Suape complex has a $943 million recoverable value, an estimate of its potential market price, according to Petrobras’s annual report for last year.

A deal along those lines would be Alpek’s largest ever. Alfa agreed to a $600 million acquisition from Eastman Chemical Co. in 2010 and spent $185 million the following year for a Wellman Inc. plastic-packaging plant.

A Brazil deal would bring exposure to the nation’s grinding recession and political crisis, leading to a challenging short-term outlook, said Armelia Reyes, an analyst at Signum Research in Mexico City. On the other hand, the weak economy might also help Alpek negotiate a cheaper price, she said.

Capacity Expansion

The deal would increase Alpek’s polyester capacity by almost 30 percent, Barclays Plc analyst Gilberto Garcia wrote in a note to clients. Alpek raised its 2016 forecast for earnings before interest, taxes, depreciation and amortization by $70 million to $700 million following its quarterly results last month.

The Petrobras units operate an integrated site with a capacity of 700,000 tons a year of purified terephthalic acid, known as PTA, which is used in polyester fibers. The location can also produce 450,000 tons a year of polyethylene terephthalate, or PET, which is used in plastic bottles and packaging.

Citepe operates a polyester filament plant with a capacity of 90,000 tons a year, another potential prize for Alpek.

“The transaction would strengthen its market leader position in the polyester business in the Americas,” Vanessa Quiroga, an analyst with Credit Suisse Group AG, said in a research note. “It would constitute an important move for Alpek.”

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