Lupatech Stocks, Bond Surge on Capital Increase Pact: Rio Mover

Lupatech SA shares rose the most in seven weeks and bonds surged after the Brazilian oil-services company said a plan to raise as much as 700 million reais ($383 million) of fresh capital from shareholders is moving ahead after almost two months of delays.

Lupatech stock surged 11 percent to 5.07 reais in Sao Paulo for the biggest gain since Feb. 17. The company’s perpetual bonds rose 17 cents to 70 cents on the dollar, driving yields down 451 basis points, or 4.51 percentage point, to 14.41 percent, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

“We’re very confident that the success of the operation will give us space to recover our operations and our capacity to generate cash,” Chief Executive Officer Alexandre Monteiro said in a conference call today.

The capital injection through the sale of 350 million reais to 700 million reais of new shares to the state development bank and other investors is helping bolster confidence in the Caxias do Sul-based company after it reported record losses and canceled two contracts with Petroleo Brasileiro SA, the state-run oil producer known as Petrobras. Lupatech signed an accord with investors backing the share sale last week and plans to call an extraordinary meeting by April 11 to approve the offering, according to a regulatory filing yesterday.

Lupatech bonds hit an almost four-month low last week after the company failed to fulfill a promise to carry out the planned stock sale in March. State development bank BNDES and Petrobras pension fund Petros, Lupatech’s second- and third-largest investors, plan to buy a combined 300 million reais of new shares in the private stock offering.

Lupatech shareholders will vote on the operation on May 3 and will then have 30 days to submit orders, Monteiro said.

Bond Prices

“Given Lupatech’s role in the Brazilian oil field service sector, it’s not surprising to have BNDES participation in their share sale -- for better or worse,” said Gianna Bern, president of Chicago-based risk-management adviser Brookshire Advisory and Research Inc., in a telephone interview from Buenos Aires yesterday.

Perpetual bonds sold by Lupatech sank 18 cents on April 4 to 53 cents on the dollar, the lowest since Dec. 7, driving up yields 485 basis points to 18.78 percent, according to Trace. Yields on similarly rated Latin American corporate bonds fell six basis points on April 4 to 9.45 percent, according to Credit Suisse Group AG indexes. Lupatech bonds were little changed April 5.

A BNDES press official in Rio de Janeiro declined to comment.

San Antonio

Lupatech is buying San Antonio Brasil as part of the share sale to expand into oil drilling and well services at a time demand has been weak for its anchor ropes and valves that are used on offshore production platforms. Lupatech is buying San Antonio, which is currently controlled by GP Investimentos, with 50 million reais in equity. Lupatech is assuming 100 million reais in San Antonio’s debt.

San Antonio, which owns equipment to drill, construct and repair oil wells, will more than double Lupatech’s backlog of orders to over 2 billion reais and allow it to compete with Halliburton Co., Schlumberger Ltd., Baker Hughes Inc. and Weatherford International Ltd. for contracts with Petrobras and other producers, Monteiro said in a conference call today.

The company said in an April 2 filing that it had 241 million reais in losses for 2011, triple that of the previous year, and that it canceled the offshore-services contracts with Rio de Janeiro-based Petrobras, its main client, worth $779 million. It rescheduled an April 3 earnings conference call for April 9.

Investor Agreement

The filing yesterday said an investment agreement was signed last week to formalize a December memorandum of understanding with BNDESPar, the investment arm of Brazil’s development bank, Petros and Hamilton, Bermuda-based private equity firm GP Investimentos Ltda., to increase its capital by as much as 700 million reais through a share sale.

Lupatech’s debt ratios have been climbing since its bet on a production boom stemming from Petrobras’s oil discoveries failed to materialize. The oil-services provider is also selling assets to meet debt payments and cover operating costs after Petrobras delayed orders. Even if Lupatech succeeds in raising capital, the company will have to reduce debt and increase cash flow to improve its credit ratings, Filippe Goossens, an analyst at Moody’s, said last week.

Lupatech’s bonds had rallied to 85 cents on the dollar on March 9 from a low of 36.5 cents in November after announcing the recapitalization plans.

“I suspect they wanted to make sure there was enough investors’ appetite, that they could go to the market and have a successful share sale,” Bern said.

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