Petrobras Link to Sete Could Cause BTG, Santander Losses

Petrobras Link to Sete Could Cause BTG, Santander Losses

By Cristiane Lucchesi Filipe Pacheco Francisco Marcelino

3:30 PM BRST  February 12, 2015

  

(Bloomberg) — A Brazilian executive’s guilty plea on graft charges drew little global attention last week amid the wider corruption scandal at Petrobras. It didn’t escape the notice of the nation’s top banks.

Executives from banks including Grupo BTG Pactual and Banco Santander Brasil SA, as well as major pension funds, are holding daily phone conferences to assess any potential damage from the scandal after the former operating chief at rig supplier Sete Brasil Participacoes SA admitted to corruption and implicated his ex-employer and Petrobras, said a person with knowledge of the situation. BTG and Santander Brasil are among shareholders in Sete Brasil.

The accusation of corruption increases concern that national development bank BNDES will further postpone the often-delayed disbursement of a 10 billion-real ($3.5 billion) loan that Sete Brasil needs to avoid default, said four people with direct knowledge of the matter who asked not to be named because the matter isn’t public. Sete Brasil, Petrobras and the state bank are in talks to try to find a workaround to a “no-corruption clause” that’s included in most BNDES loan contracts, said one of the people.

“Everything just got a lot more complicated for Sete,” said Adriano Pires, the head of the Rio de Janeiro-based energy and infrastructure consulting firm CBIE. “It’s unlikely that BNDES at this moment will be able to disburse a large amount of money to a company that is being linked” to Brazil’s biggest-ever corruption scandal.

Far-Reaching Scandal

Without the loan, Sete Brasil investors and creditors — which also include Banco Itau BBA SA and Banco Bradesco SA — are at greater risk of losing as much as $7.4 billion in capital and outstanding loans made to Sete Brasil, said the four people.

Sete Brasil — created five years ago by Petrobras, the government, pension funds and the banks — was founded to contract for the construction of deepwater oil rigs to lease to Petrobras.

Sete Brasil’s troubles illustrate how far-reaching the scandal at state-run Petrobras has spread, affecting Brazil’s biggest builders and leading politicians. Days before resigning as Petrobras’s CEO last week, Maria das Gracas Foster said the company identified at least 4.1 billion reais in losses from a scheme in which company executives are alleged by federal prosecutors to have taken bribes from a cartel of construction companies and shared the proceeds with politicians.

Rousseff Approval

A default by Rio de Janeiro-based Sete Brasil would be damaging to Brazil’s already fragile economy and the oil industry, Pires said. President Dilma Rousseff’s approval sank to a record low in a Datafolha poll released Feb. 7, with most respondents saying they held her accountable for the escalating scandal.

Founded after Petrobras made the Western Hemisphere’s biggest oil discovery in 30 years, Sete Brasil was a cornerstone of the government’s campaign to push companies to use locally made parts and equipment. Sete Brasil said on its website it planned to spend about $25.7 billion by 2020 to make deep-water drilling platforms, creating about 150,000 jobs.

Petrobras and Sete Brasil didn’t respond to multiple requests for comment.

BNDES Delay

The release of the 10 billion-real loan, which was close to being signed last week, was delayed after Gracas Foster and some of the company’s top managers stepped down. Gracas Foster has not been accused in the criminal investigation of any wrongdoing. Petrobras’s new management and Sete Brasil executives have already met twice to discuss the “no-corruption clause,” one person said.

BNDES postponed first the approval and then the disbursement since late 2012 because of a lack of guarantees, as well as setbacks on international financing and on Sete Brasil contracts with rig operators.

Lost in the uproar over Petrobras’s management change last week was a plea bargain signed by former Petrobras manager and ex-Sete Brasil Chief Operating Officer Pedro Barusco that was one of about 50 documents posted Feb. 5 on the website of a federal court in Parana state. In testimony released with the plea bargain, in which he admits to crimes of corruption and money laundering, Barusco details how shipyards paid bribes in exchange for contracts to build oil rigs for Sete Brasil.

Bribery Payment

“There was an agreement of a 1 percent bribery payment for the contracts between Sete Brasil and each of the shipyards, but this percentage was reduced to 0.9 percent in some cases,” Barusco said.

Sete Brasil is already late in paying shipyards it contracted to build oil rigs, according to naval construction industry association President Ariovaldo Rocha said in an e-mail last month. Sete Brasil isn’t late in paying banks because the lenders are still extending credit in the form of rolling over old loans, four people said.

Brazil’s government will also take a major hit should Sete Brasil default, because a 4.3 billion-real state fund is guaranteeing the company’s loans, said one of the people. The government-owned pension funds for workers of Petrobras, Banco do Brasil and Caixa Economica Federal own about 38 percent of the company, valued at about 3 billion reais, according to public statements. Petrobras has a 10 percent stake. State-run Banco do Brasil is also a creditor.

BTG-Managed Fund

BTG manages a private-equity fund that holds a 27 percent stake in Sete Brasil and less than 1 billion reais invested in the company is the bank’s own capital, two of the people said.

BNDES, BTG, Itau, Santander, Bradesco and Banco do Brasil all declined to comment.

Banks and pension fund losses would depend on previous provisions, loan guarantees and if the loans are backing projects that generate cash flow, one of the people said. Estimated losses of 21.3 billion reais, or $7.4 billion, is based on 13 billion reais in outstanding debt as of September and 8.3 billion reais in capital, according to Sete Brasil’s website.

While banks will be on the hook for some losses, their “exposure isn’t frightening when you compare to their balance sheets,” said Joao Pedro Brugger, who helps oversee about 500 million reais as portfolio manager at Leme Investimentos Ltda. in Florianopolis, Brazil. “The impact is limited.”

Bridge Loan

A bridge loan of about 800 million reais from state-run Banco do Brasil to cover immediate cash-flow needs and a $1.5 billion loan from Caixa Economica Federal will only be made once the BNDES disbursement is approved, three of the people with knowledge of the matter said.

Marcos Vasconcelos, vice president of third-party assets at Caixa, told reporters in Sao Paulo today that Sete Brasil is a viable company and that the company is close to reaching an agreement with BNDES.

The pension funds for Banco do Brasil, Caixa Economica Federal and Petrobras said in e-mails that they are looking into the matter and will take legal steps if necessary.

“At some point, banks will have to write down losses,” consultant Pires said. “That’s becoming more and more obvious.”

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