BNDES risks major loss from Odebrecht bankruptcy process
The financial troubles of disgraced Brazilian construction conglomerate Odebrecht could cause a major loss for state-run development bank BNDES.
“It's not a beautiful story. It's certainly the conglomerate that could generate the most economic damage for the bank in its history,” BNDES president Gustavo Montezano told local daily O Estado de S. Paulo.
Odebrecht, which is under bankruptcy protection and in talks with creditors to restructure its debts, could generate a loss of 14.6bn reais (US$3.51bn) for BNDES.
In June, a court accepted the bankruptcy protection request filed by Odebrecht's holding company ODB and 21 of its subsidiaries.
The process involves 98.5bn reais in debt, making it the largest bankruptcy protection case ever in Brazil, surpassing that of telco Oi, which filed a similar request in 2016 involving debt of over 64bn reais.
For years, BNDES provided large subsidized loans for major conglomerates and companies as part of a national strategy to create Brazilian multinational corporations.
Brazil's economic downturn and corruption scandals saw many of the loans under-performing and having a negative impact on the public finances since the treasury provided the funding for the BNDES financing.
THE ODEBRECHT DOWNFALL
Odebrecht's problems started in March 2014, when Brazilian authorities launched the Lava Jato corruption probe, which initially centered on alleged fraud in contracts between major construction groups and state-owned oil company Petrobras. The construction firms benefited from overpriced contracts in return for bribes paid to Petrobras executives and public sector officials.
The past few years have seen Lava Jato spread to other business sectors and countries, implicating and sending to jail a number of prominent business leaders and politicians.
After initially denying all allegations, Odebrecht admitted in December 2016 to Brazilian, US and Swiss prosecutors of having paid hundreds of millions of dollars in bribes to secure contracts across Latin America. As Odebrecht fell into disgrace, the revenues from its construction, engineering, transportation, and petrochemicals operations fell drastically - forcing the conglomerate to lay off employees and sell assets to meet its debt obligations.
Like that of other construction firms involved in the Lava Jato scandal, Odebrecht's future is uncertain.
“Some companies involved in Lava Jato are more advanced in terms of turning the page and restructuring their business, while others are more delayed. In the case of Odebrecht, maybe we can say they are in the middle of the road, not so delay nor so advanced,” Alexandre Garcia, a construction sector-focused associated director at Fitch Ratings, told BNamericas.
BRASKEM
Among the assets that Odebrecht is trying to sell to raise funds is its 38.3% stake in Brazilian petrochemical firm Braskem.
These plans suffered a setback in June when the sale of the stake to Dutch company LyondellBasell failed.
The stake is valued at around 20bn reais and its sale is considered crucial to improve liquidity and reduce Odebrecht's debt pile.
To avoid another setback, Odebrecht has hired investment bank Lazard to help with the sale of the Braskem stake.
MARCELO ODEBRECHT
Marcelo Odebrecht (pictured), the conglomerate's former president and grandson of founder Norberto Odebrecht, was sentenced in March 2016 to 19 years and four months in prison.
A plea bargain deal helped him avoid an even longer sentence and he is not expected to serve the full term since Brazilian law tends to reduce the time served for prisoners who are convicted for the first time and those who show good behavior.
Marcelo Odebrecht has been serving his sentence from home since December 2017 and began a more flexible regime in mid-September, which allows him to go out during the day.
He recently made a visit to Odebrecht’s headquarters and while shaking hands with employees, some called for this return to the company, a source familiar with the matter told BNamericas. This is unlikely to happen since the plea bargain agreement prohibits him from returning to a management role at Odebrecht.
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