Brazil Builders Said to Seek Government Accord in Petrobras Case

Brazil Builders Said to Seek Government Accord in Petrobras Case

By Christiana Sciaudone Anna Edgerton Jessica Brice

12:00 AM BRT
March 19, 2015

(Bloomberg) — Cash-strapped Brazilian builders, accused of paying kickbacks to win public contracts, are in talks to reach leniency deals to regain access to credit markets, people with knowledge of the matter said.

Engevix Engenharia SA, which federal police say took part in a cartel to inflate contracts with state-run Petroleo Brasileiro SA, and the Comptroller-General’s office are negotiating the agreement that requires an admission of wrongdoing and repayment in full of damages that resulted, said two people who asked not to be identified because the discussions are private. Builder Galvao Engenharia SA is also among companies seeking an accord on those terms, which is the first step toward allowing public banks to resume lending to the companies, a third person said.

Locked out of credit markets and banned from bidding on new contracts with Petrobras, some of the handful of builders responsible for most infrastructure work in Brazil are running low on cash to keep capital-intensive construction projects going, ratings agencies have said. Galvao Engenharia already halted an expansion of a road used to transport soybeans and fired some workers because it couldn’t get funding, one of the people said.

Engevix declined to comment. A Galvao press official declined to comment on whether talks are taking place and said the company is cooperating with the investigation.

OAS SA, another builder accused by federal police in the scandal, said in January it defaulted on some debt to preserve cash, and Engevix is exploring the sale of its interest in airport concessions, people familiar with the matter said earlier this month. OAS declined to comment by e-mail.

‘Serious Problem’

“It’s a serious problem — without these accords some of these companies will have to restructure,” Chris Garman, head of Latin America at political risk consultant Eurasia, said Tuesday in an interview at Bloomberg’s office in Sao Paulo.

“Of course, other companies could enter the sector which was closed because of the cartel, but until that happens, there will be damage to the economy, paralyzed projects and job cuts,” he said. “It’s a race against time.”

Builders accused in the scandal hold contracts for infrastructure work across Brazil, from the massive Belo Monte hydroelectric dam in the Amazon to some projects for the 2016 Olympic Games in Rio, according to public records.

As the scandal spreads, economists have cut their GDP forecasts 11 weeks in a row and now expect the economy to contract 0.78 percent this year, according to a central bank survey published March 16 in Brasilia.

Requirements

The leniency accords as outlined by the Comptroller-General require companies to admit to wrongdoing, Brazilian Attorney General Luis Inacio Adams said in a Feb. 12 interview with Bloomberg News. The agreements also require a company to cooperate with the investigation, repay some money, and take steps to ensure such violations don’t recur, he said. The Comptroller-General’s Office didn’t respond to phone calls and an e-mail seeking comment for this story.

While a new anti-corruption law grants the Comptroller-General the right to negotiate such deals, prosecutors in charge of the criminal investigation into the kickback scheme are challenging the agency’s authority in the matter. The federal court that oversees government spending — known as the TCU — has said it must also sign off on any deal.

With institutional bickering over who has responsibility for signing leniency agreements, it’s hard for companies to know how to start the process, according to Rafael Cortez, a political analyst with Tendencias Consultoria. Juridical uncertainty and macroeconomic challenges threaten to bring investment in Brazil to a halt, he said.

“It’s a terrible combination that comes right as Brazil’s economy needs to move toward making more strategic investments,” Cortez said by phone from Sao Paulo. “A bad scenario for these companies could create a more problematic situation for the financial system.”

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