State-controlled oil giant Petrobras has tightened conditions on the naphtha it supplies Braskem as the company’s financial situation deteriorated in the past few years, the people said, asking not to be named because the information is not public. That forced Braskem to seek other suppliers and to take more credit from banks, the people said. That cut Petrobras supply to about 30% of the naphtha the petrochemical company, from as much as 70% before, they added.

Now, with distressed debt investor IG4 Capital Group taking shared control of Braskem, the oil giant has more visibility of the company’s business and is mulling extending the timeline for payments, cutting interest rates and boosting how much naphtha it offers Braskem, the people said. That could shrink Braskem’s need for credit from banks and reduce leverage, the people said. No decision has been made and there is no timing for the decision, the people said. 

IG4 declined to comment. Petrobras didn’t immediatly reply messages seeking comments. The companies co-own Braskem. 

Newspaper Valor Economico said earlier on Monday that Petrobras was mulling granting commercial support to Braskem. 

Once considered the crown jewel of Novonor SA, Braskem shares were pledged as collateral on 21 billion reais of loans to five banks that went unpaid. After six years of contentious negotiations, the lenders agreed to sell the non-performing loans to a fund managed by IG4. The distressed investor won the support of Petrobras by introducing measures such as giving the government-owned firm the position of chair of the board. Petrobras also named executives such as global vice-president of logistics and global vice-president of operations. 

Braskem sought emergency protection against creditors in late June that suspended enforcement actions by creditors for 60 days. The company has seen its cash dwindle after an environmental disaster at one of its salt mines and several bruising years of depressed prices in the petrochemicals sector.

The company faces an Aug. 24 deadline to reach an out-of-court restructuring and avoid seeking judicial recovery, Brazil’s equivalent of bankruptcy protection. Negotiations are still ongoing, and the prospects of avoiding a court-supervised restructuring have improved after international bondholders presented a counterproposal for an out-of-court restructuring that Braskem and some creditors views more favorably, some of the people said last week. 

The petrochemical company needs the support of holders of at least one-third of its debt to avoid a bankruptcy filing. 

A group of Braskem creditors, including Elliott Investment Management LP and Contrarian Capital Management, want Petrobras to make a financial commitment, with some pushing for an equity contribution, working capital or junior debt, people said last week. 

The oil company has resisted to inject equity to avoid increase its ownership and risk potentially consolidating Braskem’s debt into its own balance sheet, the people said last week. 

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