Why the coronavirus could spell trouble for Brazil's Odebrecht

Disgraced Brazilian construction and engineering group Odebrecht could be negatively impacted by the coronavirus as it drags down asset prices. 

Odebrecht owns 38.3% of Brazilian petrochemical firm Braskem and has put up this stake as a guarantee to its banking creditors, Itaú Unibanco, Bradesco, Banco do Brasil and Banco Santander Brasil.

The troubled Odebrecht has negotiated with the banks to sell the stake in order to pay off a debt worth 12.7bn reais (US$2.55bn).

The coronavirus has, however, hit the Brazilian stock market hard in recent days and the Braskem stake is now worth about 7bn reais, down from around 12bn reais at the end of last year. 

Odebrecht was disgraced by the massive Lava Jato corruption scandal, where the company admitted to having paid millions of dollars in bribes in various Latin American countries to secure public works contracts.

The resulting fallout triggered a collapse in revenue at Odebrecht and forced the group to sell assets to service its financial obligations.

Braskem is considered one of most valuable assets of the conglomerate, especially as Odebrecht is facing challenges to obtain new service contracts.

In June 2019, Odebrecht holding company ODB and 21 of its subsidiaries filed a request for a record bankruptcy protection, having accumulated debts totaling 98.5bn reais.

Odebrecht tried to avoid bankruptcy protection by selling the Braskem stake to Dutch firm LyondellBasell, but the sale fell through.

PETROBRAS HEADWINDS 

Today's adverse capital market conditions also represent a major headwind for Brazilian state-owned oil giant Petrobras as it seeks to advance with a disinvestment plan for non-core assets. 

As part of the plan, Petrobras is looking to sell its 36.1% stake in Braskem. With no short-term solution in sight for the coronavirus problem, Petrobras is widely expected to delay the sale of the Braskem shares.