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Odebrecht spillover on bonds market as investors skeptic



Petroleumworld.com 03 06 2017

Bonds of Odebrecht SA on Friday hit their lowest level in more than six months as investors feared the spillover of the Brazilian engineering conglomerate's involvement in a bribery scandal could hamper planned asset sales and the procurement of new contracts across Latin America.

Investors have grown concerned about Odebrecht since Feb. 22, when Reuters reported that the company wants to settle graft-related fines with several Latin American countries before June to prevent a flurry of upcoming elections across the region from putting the brakes on a recovery plan.

The price of Odebrecht Finance Ltd's 7.5 percent dollar-denominated perpetual bond shed 5 cents on the dollar to 37.5 cents, the biggest intraday decline in 11 months. At that price, yields hit 19 percent, according to prices compiled by Thomson Reuters.

Bonds guaranteed by Odebrecht's construction unit, Odebrecht Construção & Engenharia OEC SA, have also suffered in the past week, along with those from the group's oil drilling unit. Odebrecht's 4.375 percent bond due in April 2025 fell more than 5 cents on Friday, extending their losses to about 8 cents in the past week.

In a client note, strategists at Cantor Fitzgerald LP said such concerns, coupled with investor disappointment following a meeting with OEC executives this week in Miami, could be behind the recent bond price declines.

"Further, among the many things that investors are telling us - and which we wholeheartedly agree - is that at this point, the company needs more than just new lines of credits and a couple of major projects to be added to its backlog," the note said.

A spokesman for Odebrecht did not have an immediate comment on the Miami meeting.

At this point, the fate of pending asset sales and refinancing efforts seems increasingly dependent on how quickly governments decide on penalties for Odebrecht, which admitted to paying bribes to win projects in recent years.

People familiar with Odebrecht's strategy told Reuters last week that the company could sell some 6.5 billion reais ($2.1 billion) in project stakes and operating licenses in the region and Angola by year-end. So far, it has sold about 5 billion reais in assets out of a total goal of 12 billion reais.

Odebrecht is the largest of the Brazilian engineering companies accused of colluding to overcharge Petróleo Brasileiro SA and other state firms for contracts, then using part of that to channel donations and bribes into Brazil's former ruling Workers Party and domestic and international allies.

The bribes also reached other Latin American countries where Odebrecht sought to expand, as part of a strategy to reduce exposure to home turf Brazil. Prosecutors from 10 Latin American countries last month formed a task force to share evidence on how the scheme operated.

Settling plea deals in those countries rapidly is key to help Odebrecht mitigate reputational and political risks for the asset plan as elections loom across the region. Of the 10 countries investigating Odebrecht, eight will hold at least one congressional, regional or presidential ballot in the 18 months through December 2018.

The scandal has sparked an upheaval in countries like Peru, where authorities are seeking the arrest of a former president, or in Colombia, where the company is being accused of financing the campaign of President Juan Manuel Santos.

In addition to Brazil, Argentina, Chile, Ecuador, Mexico, the Dominican Republic, Venezuela and Panama, are investigating the Odebrecht scheme, as are prosecutors from Portugal. ($1 = 3.1370 reais)

Story by Guillermo Parra-Bernal and Bruno Federowski; Additional reporting by Tatiana Bautzer in São Paulo; Editing by Jonathan Oatis from Reuters

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