Cesspool of Corruption Odebrecht Files for Bankruptcy, Largest Ever in Latin American History

The Brazilian conglomerate’s rot was uncovered by Operation Car Wash that resulted in the imprisonment of political and business figures across Latin America, including Brazil’s former richest man, Eike Batista.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

After years of graft probes that have tarnished governments throughout Latin America and left a trail of economic destruction in their wake, Brazilian conglomerate Odebrecht SA announced on Monday it was filing for bankruptcy protection. The company aims to restructure debts of 51 billion reais ($13 billion). But as Bloomberg points out, it has total inter-company loans and other debts estimated to be worth 98.5 billion reais ($25.3 billion), which is enough to make Odebrecht’s bankruptcy filing the largest in Latin American history.

The debt restructuring will affect around 15 of the group’s subsidiaries, but will not include assets such as petrochemical producer Braskem SA, sugar and ethanol subsidiary Atvos Agroindustrial Participacoes SA, construction unit Odebrecht Engenharia e Construcao (OEC), oil company Ocyan, shipmaker Enseada, Odebrecht Transport or homebuilder Incorporadora OR.

The bankruptcy filing comes as financial pressures reached a tipping point for Odebrecht, the Brazilian engineering group the rotten core uncovered by Operation Car Wash, an ongoing criminal investigation that resulted in the imprisonment of senior political and business figures from across Latin America, including Brazil’s former richest man, Eike Batista. The corruption scandal has done extensive damage to Brazil’s state-owned oil behemoth Petrobras, turning its bonds from investment grade into junk virtually overnight, and has set back Odebrecht billions of dollars in fines— money it has struggled to pay without putting its own solvency in jeopardy.

By late last week, perpetual bonds guaranteed by Odebrecht’s construction unit were trading at around 6 cents on the dollar. The group’s ethanol unit Atvos SA was the first to file for bankruptcy protection, in early June. The conglomerate had hoped to raise cash through the sale of its controlling stake in its most profitable subsidiary, petrol company Braskem SA, to Lyondell Basell Industries NV, but the deal fell through after Braskem failed to file its 2017 annual report with the SEC on time.

After a sharp decline in Braskem’s stock price last week, the shares, which had served as guarantees for the R$12.7 billion of debt ($3.27 billion) Odebrecht owed to a consortium of banks, no longer fully covered the debt for which they were pledged as collateral. As a result, Odebrecht was unable to meet its commitments to the Brazilian lenders Itaú, Caixa Economica Federal, Bradesco, the National Bank for Economic and Social Development (BNDES), Banco do Brasil and Santander Brasil.

Odebrecht’s biggest creditors are the public-owned banks BNDES, Banco do Brasil and Caixa Economica Federal. Brazil’s biggest bank, Banco do Brasil, alone is owed R$9 billion ($2.25 billion).

Banco do Brasil’s president, Rubem Novaes, warned earlier this month that any petition by Odebrecht for bankruptcy protection is of cause for concern to financial institutions like his own. “There is a concern, yes, but luckily we are well provisioned,” he said after a meeting with Economy Minister Paulo Guedes and the presidents of BNDES and Caixa Economica Federal.

The private banks Bradesco, Santander and Itaú are a little less exposed to the fallout since a large chunk of the debt they are owed by Odebrecht is guaranteed by shares in Braskem. A much smaller part of the debt owed to BNDES and BB is guaranteed in this way. As for Caixa, it has much flimsier guarantees on the 6 billion reias ($1.54 billion) it is owed, which is probably why it was the first lender to force Odebrecht’s hand by executing the holding guarantees on soccer stadium Arena Corinthians, triggering a cross default.

Another group of creditors that will be watching developments closely are overseas bondholders. The bonds, which total some 12 billion reias ($3.1 billion), were issued by a company called OSL, which is linked to Obedrecht’s holding company. However, they are guaranteed by the group’s OEC construction arm, which means they will be subject to a separate negotiation.

But in all likelihood the biggest victims of Odebrecht’s bankruptcy will be its legions of workers and Latin American suppliers, many of whom have already lost their jobs or been put out of business by the domino-like succession of plant closures and project shutdowns or suspensions that followed in the wake of the largest foreign bribery case in history. Now, many more could be about to suffer the same fate. By Don Quijones.

Former Pemex CEO and former election-campaign advisor to former President of Mexico Enrique Peña Nieto is on the hot seat for his involvement in the Odebrecht scandal. His lawyer suggests if the price is too high, he may be willing to take Nieto down with him. Read…  “Largest Foreign Bribery Case in History” Claims New Scalp: Former Pemex CEO

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  21 comments for “Cesspool of Corruption Odebrecht Files for Bankruptcy, Largest Ever in Latin American History

  1. Gershon
    Jun 18, 2019 at 2:26 pm

    I’m grateful that our ever-vigilant policymakers, regulators, and enforcers, dedicated public servants that they are, have ensured that such corruption can never take root here in America.

    /sarc

    • Pinto
      Jun 18, 2019 at 2:57 pm

      You people in USA are in heaven!

      A little reading of what is happening around the world, would not hurt, but I don’t condemn you!

      I live in EUssr and nowadays 95% of my reading is about USA!
      I like Brazil so I know a little and it operates as much EUssr.

      The main difference is that in USA there are ENOUGH billionaires that can prevent the rising of the likes: Elizabeth Warren, AOC, Bernie commie Sanders.

      When they were Hyping wealth taxes and other kind of thefts, Starbucks owner Howard Schultz a known left leaning person, said he would run for president and by doing it, would split Left/Democratic candidates.

      The problem is that in EUssr and Brazil most companies and few billionaires depend on government handouts, regulation, CSSP programs.

      AAPL or MSFT may trade more money than the whole EUssr stock exchanges!

      Euro billionaires said they would donate millions to recover Notredame cathedral, But hey did you not read the news ? It’s USA billionaires that are footing the bill ?

      So no one stands against evil and pernicious politics.

      from preventing the likes of Let me tell an example of what is a major difference between USA and the rest of the world.

      • Iamafan
        Jun 18, 2019 at 10:00 pm

        Well we got Manafort. Wasn’t he almost sent to Rikers Island? I met a guy who spent time there. He was innocent, I believe. It wrecked him badly.

      • Briny
        Jun 19, 2019 at 1:10 pm

        Rarely, the USA voters can give the (now) billionaire class whiplash, in re: Donald Trump, although he hasn’t done them much too much evil, yet. {Despite the fix being in for the other candidate.] I’m still trying to think of a major multinational that hasn’t been nailed for corruption, including those originating in the US, at one time or another. Seems to be a requirement to operate at that level, which makes sense if you wish to operate in all the countries of the world that operate that way. If you follow China (PRC) closely you’ll see them trying (somewhat) to come to terms with that without “corrupting” their political system (more that already extent).

      • Jun 19, 2019 at 6:26 pm

        Even in the US, a bunch of billionaires aren’t enough to prevent things like wealth taxes – we need a real middle class for that.

        What we have is a fragmented economy where the top sees amazing income growth, those in the median are feeling very squeezed, and the lower middle class is dropping out of the labor force into tent cities.

        Voters were angry enough for outsider Trump and they’ll be angry enough for a democratic outsider as well. The only real choice at the ballot box is status quo or change … We have enough people here to roll the dice for change and hope things improve. I’m interested in how the primaries go.

        That being said, much is clearly worse in other parts of the world. Voter anger in the EU is certainly at interesting levels. I say don’t fear political change, fear the temperament boiling over if you’re stuck too long with the same.

    • Morty Mc Mort
      Jun 19, 2019 at 9:13 am

      Watch Animal Farm ( the animated version) Watch it a few times.. Now Superimpose whatever “ISM” (or JISM ) as I prefer to call it… The isms and the ists, keep exchanging places.. and the dumb animals chant the latest slogan (Remember – Four legs good, Two legs Bad!! or is it Two legs good, Four legs Bad! – This week???
      And the Animals keep wondering why history washes, rinses, and repeats..
      Maybe, if we can build real Capitalism, and use transparency, to prevent Crony Capital from taking over…

  2. Paulo
    Jun 18, 2019 at 2:54 pm

    Of course the workers will get the shaft first and foremost. That’s how capitalism works.

    • 2banana
      Jun 18, 2019 at 8:06 pm

      This is not capitalism.

      This is crony capitalism.

      Where the government picks winners (for a generous donation) and crushes all competition.

    • Javert Chip
      Jun 18, 2019 at 8:44 pm

      Paulo

      So how are the workers in Venezuela holding up?

      Or cuba?

      Or the 1M+ Muslims China has in “re-education camps” (such a poetic term for concentration camp)?

      • Leser
        Jun 19, 2019 at 4:40 am

        @Javert:
        “So how are the workers in Venezuela holding up?” Max Blumenthal went there to investigate the ‘humanitarian crisis’ – except he couldn’t find one beyond the damage done by 1.5 decades of inhumane sanctions. Now Guaido’s hookers & blow excesses in Cúcuta have annoyed the Colombian gov’t – certainly no supporters of Maduro – to the point of leaking the despicable details. It seems the workers are in luck evading a coup by a corrupt puppet.

        Cuba? Compared to what? Haiti, that neighbouring paradise blessed by US favour and even the Clintons’ direct help? Or looking the other way, the hellhole that is much of central America whence hundreds of thousands want to flee at risk to their lives? Again for a fair view, subtract the effects of decades of crippling sanctions.

        Have a look around Brazilian favelas and compare how the folks there are holding up compared to the same bottom % of the Venezuelan and Cuban populations. You’ll be in a for quite a surprise. And as this article clearly illustrates, there is no basis to believe that US-approved regimes in Latin America are any less corrupt.

        • Javert Chip
          Jun 19, 2019 at 1:33 pm

          Gee, you’re all hot & sweaty about the US not wanting to support manifestly corrupt countries. Gosh, I plead guilty.

          With all the poverty & inequity in the world, it’d be fantastic if millennial SJWs wandered down there and helped clean things up (start with malaria). Huge government-to-government programs (including Clinton Foundation) just make corrupt politicians richer, but I’m 100% supportive of funding activities like the Peace Corps, etc.

          It’s not the obligation of the US government to clean up other nations’ shit-holes, but done with sensitivity (and modest government support), it’s a tremendous altruistic thing to do for your fellow man.

    • max
      Jun 19, 2019 at 6:07 am

      “the workers will get the shaft first and foremost”

      Of course people always get shafted by trusting political and bosses promises.

      real free market capitalism will have this:

      commodity money like gold or silver
      no central bank
      no Legal tender
      no income tax

      • Javert Chip
        Jun 19, 2019 at 1:54 pm

        I’m about as red-blooded a capitalist as they come (retired CFO), but “Capitalism” is not defined by a single thing mentioned in your post (you’re generally headed toward libertarianism).

        Capitalism is ownership and responsibility for trade and industry by private owners for profit, rather than by the state.

        Anybody thinking capitalism, or any -ism (including socialism) can run successfully without appropriate levels of regulation is just dead wrong. Russia tried it for a few years after 1987, but gangster-capitalism made Chicago’s mob days look good. Venezuela’s giving it a good shot now.

        Any human grouping (tribes, communes, governments…) requires & generally enforces “cultural” norms defining good & bad behavior (generic term: regulation).

        • max
          Jun 19, 2019 at 10:06 pm

          “Trump Regulations: Federal Register Page Count Is Lowest In Quarter Century

          The calendar year 2017 concluded with 61,950 pages in the Federal Register ( 3-column tick ), of new rules, regulations, and notices all written and passed by unelected bureaucrats.”

          “Political and economic connection between regulation and the protection of the super rich has been known for half a century. In 1963, the New Left historian Gabriel Kolko wrote a book about it: The Triumph of Conservatism. He showed how the regulatory apparatus of the federal government was promoted by the rich, who were supposed to be the targets of the regulation. But for 50 years, the Left has not figured out that this is the name of the game. Neither has the Right, except for a handful of free market economists and Rothbard libertarians.”

          “The free market’s system of profit and loss produces chaos, we are told. Government is needed to provide order, we are told. To bring order, stability, and fairness, there must be a government agent with a badge and a gun. He must point his gun at the supplier of a competitively priced service and say: “This is illegal. Don’t do this again.”

          “The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application.”

          “I call the free market economy a predictable institutional result of society’s acceptance and enforcement of these principles, all of which are mandated in the Bible: the doctrine of linear time, the doctrine of ethical progress (progressive sanctification), private property, the rule of law, civil laws against theft, taxes below ten percent of income, men’s strict legal responsibility for their actions, the rejection of envy, wealth as a confirmation of the covenant, and men’s commitment to leaving an inheritance to their grandchildren.”

    • yerfej
      Jun 19, 2019 at 7:35 am

      Funny how you equate state theft with capitalism, of course you’re simply attempting to support the idea of state intervention based on the old assumption that most people will work for the public good when the reality is the opposite. Just like you who is happy to work for cash when the opportunity arises the average person maximizes their OWN return. Latin America is full of corruption because they allow it to be out in the open and it is acceptable. In Canada it is simply a bunch of inefficient government people wandering around bleeding taxpayers dollars disguised as something of value.

  3. David Hall
    Jun 18, 2019 at 4:31 pm

    Puerto Rico is restructuring $35 billion in debt.

  4. WES
    Jun 18, 2019 at 6:42 pm

    Wonder if this is a too big to fail Brazilian Zombie company?

  5. 2banana
    Jun 18, 2019 at 8:02 pm

    Wait a second…

    We are allowed to do that?

    And not just bail them out?

    Or let them do the Jon Corzine “can’t jail me” dance?

    ####

    “an ongoing criminal investigation that resulted in the imprisonment of senior political and business figures”

  6. Jun 19, 2019 at 12:32 am

    Great article.

  7. max
    Jun 19, 2019 at 6:10 am

    small change comparing to banking problems all over the world.

    Deutsche Bank, with a market cap of under $14 billion looks to spin off $50+ billion in allegedly productive assets.

    https://moneymaven.io/mishtalk/economics/ho-ho-ho-it-s-magic-deutsche-bank-market-cap-14b-to-spin-off-50b-in-assets-pEOHpNKMv0utjToOLwA2-A/

  8. Kasadour
    Jun 19, 2019 at 8:39 am

    I would have liked to hear more details about the corruption.

Comments are closed.