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The Shock of the Lava Jato Corruption Investigations Still Haunts Odebrecht and Queiroz Galvão, Facing a Decrease in Cash Flow Generation and Forcing a New Wave of Debt Restructuring.
Odebrecht has initiated a restructuring process for a plan to pay off its debts. Initially, it is aimed at the debts related to the major national banks and the group’s secured bondholders. The amount is expected to be around R$ 40 billion. Odebrecht’s first option is still to reach an agreement with the banks, paying all international eurobonds on time. Odebrecht confirmed that it is “in constant negotiations with its relationship banks.”
Only the principal and the payment of external interest will consume all expected operational cash gains of US$ 350 million for 2018, according to S&P. The payment of this amount should not affect the operations of Braskem, the largest business of Odebrecht at present, and Ocyan. Braskem’s shares, used as collateral to restructure debts of Odebrecht’s units in recent years, rose by more than 25% last year and may be provided as additional collateral in the new loan. All dividends from Braskem paid to Odebrecht, which holds 51% of the petrochemical’s capital, now go directly to creditors.
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The company is counting on asset sales in Peru to pay debts, including the Chaglla hydroelectric plant, which it sold in September to China Three Gorges for US$ 1.4 billion, but has not yet received the funds, awaiting authorization from the Peruvian government to complete the deal, said Odebrecht.
This week a Financial Committee is expected to be set up, coordinated by João Nogueira Batista, aimed at advising the restructuring process. Marco Rabello has also been announced as the new financial director of the group.
Queiroz Galvão is also in talks with banks, and its oil and gas unit has US$ 400 million in dollar bonds and loans maturing this year, trying to negotiate with creditors to restructure the company’s debt within an extrajudicial recovery process. However, this depends on an agreement with bondholders, who have made this exit difficult for the company. If no understanding is reached with these investors, the process will likely head toward bankruptcy protection. However, a solution is expected in the coming days, as on December 10 the grace period for the payment of US$ 27 million in interest on bonds maturing in 2024 and US$ 3 million in interest on paper due in 2019, which should have been paid on November 9, expires.
Queiroz Galvão Oil and Gas has a loan of US$ 300 million in addition to US$ 100 million in bonds maturing this year, according to data compiled by Bloomberg. In total, Queiroz Galvão has about US$ 800 million in international bonds, US$ 1 billion in dollar loans, and R$ 1.2 billion in local debt.
The company does not have the cash for this payment, hence the need to renegotiate the debt with creditors. For the extrajudicial recovery to happen, approval from at least 60% of the creditors is required, which the company has not yet achieved. The local and international debt restructurings carried out in recent years were not sufficient to resolve the group’s debt situation.
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