Shareholders and creditors of Braskem, Brazil's largest petrochemical company, are aiming to conclude talks on an out-of-court restructuring of nearly $11 billion of debt by Wednesday, Reuters reported on Monday, citing two people close to the negotiations.

The talks are racing against a court deadline of 22 November, by which Braskem must present an approved restructuring plan. If it misses that date, the company faces a formal judicial recovery, a form of court-supervised bankruptcy protection that all sides want to avoid.

What the deal would involve

The planned recapitalisation would combine a cash injection from Braskem's controlling shareholders with a conversion of creditors' debt into equity. The two controlling shareholders are Brazilian state oil producer Petrobras and private equity firm IG4, which became co-controllers of the company earlier this year.

One of the people who spoke to Reuters said the group is now working towards a total capitalisation of around $4 billion, roughly $1 billion less than the scale previously discussed. The other said bondholders had rejected a $3.8 billion debt-to-equity conversion after Petrobras lowered its planned cash injection from $1.7 billion to $1.4 billion.

An attempt to reach agreement with bondholders in New York failed last week, after the two sides disagreed on the size of the deal. Both people spoke on condition of anonymity because the discussions are private.

Why the talks stalled

The disagreement centres on how much fresh cash shareholders will put in, compared with how much existing debt creditors will swap for shares. Bondholders want a larger cash contribution from Petrobras and IG4, while the shareholders have been pressing for a bigger debt-to-equity conversion instead.

Petrobras and IG4 declined to comment on the negotiations. In a statement, Braskem said it maintains its market communications in compliance with applicable regulations and that relevant developments would be disclosed in due course through its official channels.

The Wednesday target is not legally binding in court. It is a flexible target agreed by both sides, and the timetable has already been pushed back from an original October deadline. It could be revised again, the sources said.

How Braskem got here

Braskem filed for an out-of-court restructuring in late August, covering close to $11 billion of unsecured financial debt. The filing did not affect its obligations to suppliers or customers.

In a clarification to the Brazilian stock exchange in October, the company confirmed that unsecured creditors representing 39.6 per cent of the claims covered by the plan had signed up to it, and said the parties had not yet reached agreement on the final terms. A milestone for agreeing the main commercial terms was extended to 30 October.

The company has faced years of severe cash pressure after an environmental disaster at one of its salt mines, compounded by a prolonged downturn in global petrochemical prices. The outcome of this week's talks will decide whether it can settle its debts outside court, or whether it is pushed into a formal judicial recovery process.