Fitch Classifies Brazil’s Odebrecht Risk as Very High

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Fitch Ratings has downgraded Brazilian conglomerate Odebrecht’s Long-Term Foreign and Local Currency Issuer Default Ratings to ‘CC’ from, ‘B- ‘ and its National Long-Term Rating to ‘CC ‘, from ‘BB- ‘., making the company’s risk very high.

“The downgrades reflect the growing and substantial challenges the company will face in 2017 to restructure its activities and regain cash flow generation capacity amid ongoing cash-flaring to provide driver support,” said the press release signed by Fitch’s senior analyst in São Paulo, Alexandre Garcia.

For Fitch, the company’s ability to rebuild its portfolio ‘was further impacted after disclosure of details of the leniency agreement with the United States Department of Justice’. The published information says the ratings agency ‘increased Odebrecht’s image risk and triggered a number of investigations in countries where the company operates.

The downgrade by Fitch is just the latest negative news for Odebrecht. In addition to having more than 70 of its executives plea-bargaining with the Brazilian Federal Prosecutor’s Office, the company has agreed to pay at least US$3.5 billion in penalties due to bribes paid to government officials in Brazil, the United States and Switzerland.

Fitch’s expectations that the leniency agreement would improve the company’s situation did not materialize. Instead, the plea-bargains have has triggered further investigations into corruption cases in other Latin American countries, which according to Fitch is likely to result in discontinuation of ongoing projects, suspension of the company’s participation in new public bids, and payment of fines.

In December the government of Panama announced it would prohibit the group from obtaining any contract in future public bidding processes. The company has also agreed to return more than US$8.9 million from illicit gains to the Peruvian government.

According to local media, Odebrecht executives cooperating with Brazilian federal prosecutors have admitted paying billions in bribes to government officials in 12 different countries, including Argentina, Mexico and Venezuela for government contracts.