Corrupt Brazilian Construction Giant Odebrecht in Financial Trouble

By Contributing Reporter

SÃO PAULO, BRAZIL – Odebrecht’s failure to sell its controlling stake in petrochemical company Braskem SA to LyondellBasell Industries NV and a shortage of cash are complicating the task of restructuring R$80 (US$20.67) billion in debt owed by the conglomerate, three sources with knowledge of the matter said to Reuters.

The conglomerate, called by the British BBC “Corruption Incorporate” because of its leading involvement in corruption scandals all across Latin America, was counting on a Braskem “dividend” to service its debt.

But a court order in April relating to environmental damage by the petrochemical company’s operations in the northeastern Brazilian state of Alagoas froze dividend payments.

After a sharp decline in Braskem’s stock price in recent days, shares of the petrochemical company held by Odebrecht no longer fully cover the debt for which they were offered as collateral.

The gap amounted to R$2.3 billion on Wednesday. The group founded by the late Norberto Odebrecht in 1944 holds 38.3 percent of Braskem’s equity capital.

Since May 2018, these shares are collateral to R$12.7 billion in debts the Odebrecht group owes to Brazilian banking giants Itaú, Bradesco, BNDES, Banco do Brasil, and Santander.

Braskem’s market capitalization on Brazilian B3 exchange is R$27.2 billion, meaning that Odebrecht’s stake is worth R$10.4 billion — below the face value of the debt that the shares are supposed to cover. To fully cover the debt, Braskem shares should be trading at R$41.57 but closed on Wednesday at R$34.10, writes Brazilian newspaper “Valor”.

The president of the Banco do Brasil, Rubem Novaes, said yesterday, June 5th, that any petition for judicial restructuring by construction giant Odebrecht is a growing concern for financial institutions. However, he emphasized that the banks hold sufficient reserves to cover losses.

“There is a concern, yes, but luckily we are well provisioned and capable of facing any situation,” he said after a meeting with Economy Minister Paulo Guedes and the presidents of the National Bank for Economic and Social Development (BNDES), Joaquim Levy, and Caixa Economica Federal, Pedro Guimarães.

According to Novaes, the Odebrecht Group owes approximately R$9 (US$2.25) billion to Banco do Brasil.

Odebrecht SA is a holding company for Construtora Norberto Odebrecht SA, the biggest engineering and contracting company in Latin America, and Braskem, the largest petrochemicals producer in Latin America and one of Brazil’s five largest private-sector manufacturing companies.

Despite growing pressure, Emílio Odebrecht, patriarch of the Odebrecht group, and Luciano Guidolin, chief executive of the holding company that controls all the conglomerate’s businesses, are still not convinced that filing for protection from creditors is the best way for Odebrecht to grapple with its R$80 billion debt. Mr. Odebrecht already seems resigned to that but Mr. Guidolin still prefers trying dialogue, writes “Valor”.