Odebrecht: the mother of all bankruptcies

Author

Gustavo Ribeiro
June 18, 2019 • Reading Time: 7 minutes

Odebrecht: the mother of all bankruptcies

The Bahia-based Odebrecht Group has filed for court-supervised reorganization—the last step before bankruptcy. With debts of BRL 98.5bn, the company—which was a symbol of the Brazilian economic bonanza of the 2000s—is now at the center of the biggest administration process in the country’s history. The request caps off its fall from grace, which started in 2015 with the launch of Operation Car Wash.

For the time being, the reorganization process will not include Braskem—Odebrecht’s petrochemical branch and biggest asset. Of the total debt amount, BRL 33bn can’t be renegotiated, as they are between companies of the group itself. The companies’ biggest creditors are three public banks: the BNDES (National Development Bank), Banco do Brasil, and Caixa.

For decades, bribery and corruption were the pillars of the business model at Odebrecht. So much so that Brazil’s largest construction firm had an entire department exclusively dedicated to the payment of bribes to public officials. The company was instrumental in misappropriating at least BRL 7 billion from Petrobras, according to the oil company’s own predictions.

And while many people like to point the finger at former President Lula and his Workers’ Party, the reality is that every major Brazilian political party got a piece of the action. A total of 26 parties have had their names dragged through the mud by Odebrecht.

In a post-Car Wash world where Brazil is riddled by a lasting crisis, public construction projects—once Odebrecht ‘s driving force—lost their importance. Braskem now accounts for 79% of the group’s gross revenue (from 49% in 2013). Braskem was in the process of being purchased by Dutch group LyondellBasell, but the news of the court-supervised recovery scared off the buyers.

Senate could strike down Bolsonaro’s gun decree

The Senate floor is set to vote today on President Jair Bolsonaro’s controversial decree loosening up gun control laws, with all indications showing senators will repeal the measure. Last week, the upper house’s Constitution and Justice Committee voted the decree down by a 15-9 margin. Even if the Senate does vote against the decree, though, the lower house would also have to repeal the proposal—which gives the government hope to uphold the legislation through a heavy social media campaign.

This kind of campaign has proven to be effective in the past. In February, government supporters staged a massive social media campaign against a secret-ballot vote for the Senate’s directing board, which would favor veteran (and notoriously corrupt) Senator Renan Calheiros. In the end, while the vote was through secret ballots, the convulsion created by the president’s backers allowed underdog Davi Alcolumbre to win the upper house’s presidency.

“I’ve got calls from all over the country. I believe [the government’s allies] gave our numbers to Mr. Bolsonaro’s supporters so they can harass us,” complained Senator Otto Alencar—who says he will vote against the decree.

While the president’s faithful supporters are vocal, most Brazilians are against looser gun control rules. A recent poll shows that 73% are against the right to bear guns for regular citizens. The rejection rate is particularly high among women: 71%.

A new boss for Brazil’s National Development Bank

The National Development Bank (BNDES) has a new president, just one day after Joaquim Levy resigned from the position. Economy Minister Paulo Guedes picked Gustavo Montezano, a former partner at investment bank BTG Pactual—who served as Deputy-Secretary of Privatizations. The 38-year-old was characterized by Mr. Guedes as “a young but experienced banker.” He will now have to balance the government’s wishes with the staff’s resistance to comply with them.

For one, because Mr. Guedes seems to be more interested in seeing the BNDES paying back its debts to the Department of Treasury—which would help Mr. Guedes pursuit a quick primary surplus— rather than operating as a bank to foster investments. Secondly, because President Bolsonaro seems adamant in opening up the “BNDES black box,” that is, secrets of supposedly corrupt loans given out during the Workers’ Party’s years.

The now-departed Mr. Levy believed that what the president saw as a “black box” was, in fact, already available on the bank’s public statements. And that most of the worst practices by BNDES—such as its failed policy to create “national champions” through a loan policy that fostered monopolies—was actually legal.

Mr. Montezano will also be asked to accelerate BNDES’ divestment program—the bank’s assets amount to over BRL 100bn.

Also noteworthy

Pensions. Three law enforcement agencies—the Civil Police (which investigates crimes), the Federal Highway Patrol, and the Federal Police are planning a strike next week to protest the pension reform. Today, unions will gather to decide on the exact day of the demonstration, and will talk of a national mobilization effort for September.

GDP. For the first time, GDP projections measured by the Focus Report (a weekly survey run by the Central Bank with top-rated investment firms) were below 1%. Investors now believe Brazil’s economy will grow by only 0.93%, in what was the 16th straight week of reduced expectations. Back in January, expectations were at 2.6%.

Oil. In the last 4 years, Petrobras has identified the theft of 42m liters of oil. In 2018, there were 261 such cases, a 262% jump from 2016—when Petrobras identified that organized crime may have entered the oil theft business. Authorities want to crack down on it before the Brazilian reality becomes as dramatic as the situation in Mexico, Colombia, or Nigeria. We’re still far from that, but the escalation in cases is a worry.

WhatsApp. A Spanish company called Enviawhatsapps admitted to a reporter from Folha that “companies, butchers, car wash businesses, and factories” bought their software for sending pro-Jair Bolsonaro messages to millions of people during the 2018 campaign. While that is illegal, as companies cannot contribute to campaigns, the report found no evidence the Bolsonaro campaign was involved. It could be an initiative by business owners on themselves.

Drug dealers. President Jair Bolsonaro signed a decree making it easier for the Justice system to auction assets apprehended from drug dealers. The money raised from these assets would be used to invest in social projects. During the signing of the decree, Mr. Bolsonaro once again defended Justice Minister Sergio Moro, who faces accusations of illegally conducting the criminal case against former President Lula.

Airport. Infraero, Brazil’s state-owned airport administrator, announced yesterday evening a project to revamp the main landing strip at Rio’s Santos Dumont airport, in the downtown area. The works will last between August 12 until September 12. During that time, most flights to Santos Dumont will be redirected to the farther Galeão airport.

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