LatAm's largest construction companies move to reduce debts

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Tuesday, November 24, 2015

As the credibility of companies is being eroded by Brazil's Lava Jato (car wash) corruption investigation, Latin America's biggest construction groups are working to strengthen their positions by carrying out strategic debt reduction plans.

ODEBRECHT

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Faced with the largest debt at some 98bn reais (US$26.5bn), Brazil's Odebrecht group is renegotiating approximately 11bn reais of its most urgent obligations. It is also planning to sell at least 4bn reais in business assets.

Company executives are currently evaluating which businesses to sell first. Among those expected to take place first is the Chaglla hydroelectric plant in Peru, from which the group hopes to raise around US$900mn.

Other businesses in line for sale are Odebrecht Transport (OTP) in Brazil and the group's water and sanitation arm Odebrecht Ambiental.

With some 110bn reais in annual revenue, the engineering group is considered the fourth largest conglomerate in Brazil and the largest construction company in Latin America.

Galeão international airport in Rio de Janeiro, operated by a consortium of which Odebrecht is part (CREDIT: Infraero).

OAS

Brazilian engineering group OAS also started its own multi-billion dollar debt recovery plan this month. Being 9.6bn reais in debt, the company also intends to sell assets and renegotiate obligations.

The largest deal in the works is the sale of its 24.4% stake in local infrastructure firm Invepar to Canada's Brookfield Asset Management. The Canadian firm has been reported to be offering up to 1.5bn reais.

The OAS group is Latin America's second largest engineering conglomerate.

CAMARGO CORRÊA

Although it has signed a leniency agreement in exchange for cooperation in the Lava Jato investigation, Brazilian construction group Camargo Corrêa has paid 804mn reais in fines, and is also renegotiating debt and selling assets. Its current debt is approximately 24bn reais.

Besides extending 2bn reais in short-term obligations to 66 months from 12 months, assets in two subsidiaries are up for sale, namely textile company São Paulo Alpargatas and part of the group's cement company InterCement. The former was announced as having been sold on Tuesday.

The group's energy firm CPFL Energia and transportation infrastructure arm CCR are not for sale, according to CEO Vitor Hallack.

Camargo Corrêa makes annual revenues of approximately 27.6bn reais

Camargo Corrêa's InterCement factory in Cubatão, São Paulo (CREDIT: InterCement)

OTHERS

Other construction companies under the Lava Jato microscope and likely to be carrying out some type of debt restructuring are Andrade Gutierrez, Engevix Engenharia, UTC, Promon, MPE, Iesa, Grupo Galvão, and Queiroz Galvão.

Grupo Galvão's construction firm Galvão Engenharia filed a request for bankruptcy protection earlier this year, as did OAS.

CORRECTION: A previous version of the story indicated incorrectly that Queiroz Galvão filed for bankruptcy protection this year. Galvão Engenharia – not Queiroz Galvão – filed the request.