Builder Mata Pires Becomes Brazil’s Latest Ex-Billionaire

Builder Mata Pires Becomes Brazil’s Latest Ex-Billionaire

By Blake Schmidt Sabrina Valle

11:45 AM BRT

February 24, 2015

(Bloomberg) — Cesar Mata Pires amassed one of Brazil’s biggest fortunes by building World Cup stadiums, offshore oil platforms and highways from Haiti to Angola.

At its peak in 2014, Mata Pires’s net worth stood at $7 billion, according to the Bloomberg Billionaires Index. Today, it’s less than $1 billion. The 65-year-old contractor is the latest Brazilian magnate to have his fortune fall as the biggest money laundering investigation in Brazil’s history coincides with sluggish economic growth and austerity measures from President Dilma Rousseff.

Mata Pires’s fortune turned south in November when federal police raided the Sao Paulo headquarters of his company, OAS SA, and arrested several executives, including the head of its main construction division for allegedly participating in a cartel that paid officials at state oil company Petroleo Brasileiro SA to rig the bidding process for contracts. Pires was neither implicated nor charged with any wrongdoing.

While OAS is just one of at least six construction companies whose executives were charged in the corruption probe, it has suffered the biggest blow in the bond market. Notes issued by OAS Investments GmbH due 2019 plunged 88 percent to 12 cents on the dollar since the arrests, and as the company missed payments, citing difficulty in accessing financing. To guarantee payments owed to bondholders, a judge upheld on Feb. 19 the seizure of part of OAS’s stake in Invepar, an infrastructure consortium.

Falling Fortunes

A day later, Federal prosecutors accused six companies including OAS of diverting public funds and requested they pay 4.5 billion reais ($1.6 billion) and be banned from new government contracts. It was the first time prosecutors investigating alleged kickbacks at Petrobras accused contractors of wrongdoing. OAS has denied the allegations. Petrobras didn’t immediately respond to a request for comment.

“Trading at these levels shows the bond market is thinking there’s no way out for OAS,” Klaus Spielkamp, head of fixed income sales at Bulltick LLC, said in a phone interview from Miami. “There’s stress for all the building companies but OAS was hit hardest. The investigation went higher up in OAS than in other companies.”

Pires’ decline follows that of Eike Batista, once the country’s richest man, and Janguie Diniz, who lost half his fortune in a month amid speculation that Rousseff will cut the student loan programs that his education company thrives on.

New Arenas

Pires controls 90 percent of OAS through CMP Participacoes Ltda, a Salvador, Brazil-based holding company, according to a 2013 bond prospectus. The company’s only other shareholder, Jose Adelmario Pinheiro Filho, ran OAS’ construction business before his arrest in the November police raid. He has denied any wrongdoing. Brazil police also took into custody at least three other OAS employees.

Founded in 1976 in northeastern Brazil, OAS spread its empire throughout Latin America, and into Africa and the Middle East working for both private and public clients. Among its more than 2,000 projects are the iconic cable-stayed Estaiada Octavio Frias de Oliveira bridge in Sao Paulo and more than 4,600 kilometers (2,858 miles) of highways.

The company, which is one of Brazil’s largest political donors, was a big winner in the building boom that led up to last year’s World Cup and the 2016 Olympics. In protests in June 2013, sign-wielding marchers took aim at OAS for profiting on new arenas financed by state banks at taxpayers’ expense. One of OAS’s two World Cup projects, Dunas, was among those singled out by government auditors as potential white elephants that could burden public coffers. OAS says retail shops and office space will help make the arena profitable.

Political Support

In 2010, OAS won a 15-year contract to provide five drill ships to Petrobras, Brazil’s state oil company. OAS also has contracts for work on Petrobras refineries, including Abreu e Lima in Pernambuco state. Prosecutors say Petrobras contracts involving OAS totaled $51.5 billion between 2005 and 2014.

Prosecutors allege that Pinheiro was the direct contact for OAS with former Petrobras director Paulo Roberto Costa in a cartel system.

Known as “Leo,” the former CEO was listed as a contact for OAS in Costa’s log used to keep tabs on companies from which he solicited political support, according to court documents. Prosecutors allege that Pinheiro, who stepped down as CEO after his arrest, met with other suspected cartel members to determine the winners of contracts.

Ratings Downgrade

Federal judge Sergio Moro said on Dec. 15 that because OAS executives were allegedly using a black market money changer to move cash as recently as 2014, he had to either suspend all contracts or keep executives in jail to stop the “criminal cycle.” He said the latter would cause less collateral damage.

Edward Rocha de Carvalho, a lawyer representing Pinheiro and other defendants related to OAS, said in a phone interview the arrests are “absolutely illegitimate,” and that there’s nothing illegal about Pinheiro’s contact with Costa.

He said testimony by black market money changer Alberto Youssef shows that any cash moved for OAS wasn’t related to Petrobras.

The Petrobras press office didn’t immediately respond to a request for comment.

OAS said in an e-mailed response that it denies the allegations. The company said in December that it carries out its activities with integrity, guided by ethical conduct and respect for law. A representative for Pires declined to comment on his net worth.

Share Seizure

According to Moody’s Investors Service, OAS had net debt of 7.3 billion reais on revenue of 8.3 billion reais in the fiscal year ended Sept. 30, 2014. The rating company downgraded OAS from B2 to C, the lowest-rated class of bonds, on Jan. 28, after it missed a $16 million payment on its $400 million senior unsecured notes due 2021.

Moody’s analyst Cristiane Spercel said she expects losses for creditors in a potential debt restructuring, as the leveraged company faces a combination of an economic slowdown, increased foreign currency volatility, and corruption allegations.

Creditors are going after OAS in court. Last week a judge in Sao Paulo state upheld the seizure of more than a third of OAS’s 24 percent stake in Investimentos e Participacoes em Infra-Estrutura, an infrastructure consortium. The seizure was requested by holders of OAS debt looking to guarantee payment, according to Jose Eduardo Tavanti, a lawyer for the group of creditors.

‘Camel’s Back’

OAS said it will take measures to appeal the ruling. The company denied allegations that it moved assets to reduce its holdings, and is presenting a plan to restructure debts that could include selling assets, according to an e-mailed statement.

The specter of additional lawsuits could complicate the plan. Bondholder Aurelius Investment LLC notified OAS and potential buyers of its assets that the fund is seeking debt payments, according to a Feb. 11 protest in civil court. Portuguese bank Caixa Geral also is trying to recover debt it’s owed through the courts.

“It’s natural for creditors to negotiate at this point, to execute guarantees and try to recover value, but those lawsuits make it more difficult to sell off assets,” said Moody’s analyst Cristiane Spercel. “The investigation was the straw that broke the camel’s back.”