Believers are attempting to block financial support from Braskem to Idesa.

Some Braskem creditors are attempting to stop the company from investing in its Mexican unit, Braskem Idesa, fearing that it could drain resources needed for Brazilian petrochemicals during the debt restructuring process.

The creditors requested a temporary ban from the Justice of São Paulo on Braskem and other entities involved in the Brazilian restructuring to prevent them from making new payments or taking on more obligations to finance Braskem Idesa’s Chapter 11 proceedings, as reported in court papers viewed by Bloomberg News.

The Public Prosecutor of São Paulo, summoned by the judge in the matter, advised halting payments based on the records. It is anticipated that the judge will reach a verdict on the case by the end of this week.

Braskem Idesa, a partnership with the business empire of Mexican tycoon Carlos Slim, initiated proceedings for pre-arranged Chapter 11 bankruptcy protection in the US in August. It aims to secure funding from its parent company, Braskem.

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Arguments opposing the deal

The creditors of Braskem have stated that the deal would involve around $415 million in debtor-in-possession (DIP) funding and additional obligations, potentially increasing the company’s total exposure to about $800 million. This could impact the company’s liquidity, creditor payment capabilities, financial standing, debt levels, and available guarantees.

The holders of securities claim that Brazilian debtors’ resources are being used to benefit foreign subsidiary creditors, possibly reducing assets available to Brazilian extrajudicial recovery creditors.

Braskem is currently involved in intense talks for an $11 billion debt restructuring procedure outside of court in Brazil. The top petrochemical manufacturer in Latin America has encountered significant challenges due to a decrease in cash flow following an environmental incident at one of its salt mines and a prolonged period of low prices in the petrochemical industry.

Agreement deadline between Braskem and creditors is on October 9.

The Brazilian firm, owned by Petrobras and IG4 Capital Group, is currently far from reaching a consensus with creditors regarding debt restructuring. They have a deadline until October 9 to settle on the terms of the restructuring, and until the conclusion of November to propose a final plan with backing from over half of the creditors to prevent a potential judicial recovery request in Brazil.

Braskem Idesa engaged in lengthy discussions with creditors to reorganize its debt following a failure to make interest payments on dollar-denominated securities. Ongoing financial challenges led the Mexican branch to operate below full capacity, reducing its ability to take advantage of elevated oil prices amid a prolonged downturn in the petrochemical industry.