A Miami Broker Pitches a 1,900% Profit on 1-Cent Bonds in Brazil

  • OAS creditors received a 24% stake in airport operator Invepar
  • The notes may be worth up to 20 cents if stake is sold: Gribel

Carlos Gribel, a Miami-based broker at Andorra’s biggest bank, has something of a hot hand when it comes to picking winners in Brazil’s bond market.

This year, he’s told clients to pile into slumping notes from Banco do Brasil SA, as well of those of steelmakers Usiminas SA and Gerdau SA. Those who took his advice were rewarded with returns of at least 34 percent.

Now, the 54-year-old native of Brazil is making his most audacious call yet: a recommendation to buy the $1.8 billion of bonds issued by bankrupt construction company OAS SA. As of Friday, the notes traded around 1 cent on the dollar, a reflection of just how worthless the securities are perceived to be. To Gribel, bondholders are badly underestimating the debt’s value. By his calculations, the bonds may actually be worth as much as 20 cents if creditors sell the 24 percent stake in an airport operator known as Invepar they got in an ongoing debt restructuring.

“OAS is indeed a risky bet, but any success with an Invepar sale is all upside at this point,” Gribel, who has worked at Andbanc Brokerage for the past two years, said from Sao Paulo. “I think this is just too cheap and too good to ignore.”

The brokerage is a unit of Andbank, which manages $26 billion globally. Gribel joined the firm -- which was founded in the 181-square-mile Catalan-speaking microstate in the eastern Pyrenees in 1930 -- after a two-year stint at INTL FC Stone. Last year, he started the brokerage business, which is aimed at wealthy individuals who invest in Latin America.

The stake in Investimentos e Participacoes em Infraestrutura SA, which operates Sao Paulo’s main international airport, is worth between 1 billion reais ($324 million) and 2.5 billion reais, according to calculations made by Gribel. Brookfield Asset Management Inc. had offered 1.35 billion reais ($420 million) for the Invepar stake, before withdrawing its bid in February citing failed attempts to reach an agreement with shareholders. The creditors who will own it include hedge funds Aurelius Capital Management and King Street Capital Management as well as three Brazilian public pension funds.

OAS’s $875 million of bonds due in 2019 surged Monday to 3.95 cents on the dollar as of 3:07 p.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. It was the notes highest price since January.

To Maglan Capital’s co-founder David Tawil, there are too many unanswered questions at this point to bet on OAS.

“How well will the hedge funds work with the public pension funds?” he said. “Will the pension funds be more protective of labor? Will the hedge funds be more aggressive in cost-cutting efforts? Will they be at odds? This is a lottery ticket.”

Brian Schaffer, a spokesman for New York-based Aurelius at Prosek Partners, and Abernathy MacGregor Group’s Shawn Pattison, a spokesman for King Street, declined to comment. Funcef, the pension fund for workers at state-controlled bank Caixa Economica Federal, declined to comment while the two other pension funds didn’t respond to e-mails and telephone calls seeking comment.

Gribel acknowledges these risks, but he argues that the hedge funds and pensions funds should be able to find common ground. The stake will only become more valuable as Brazil’s economy rebounds, he said.

“While this looks super risky and there are indeed challenges ahead, I can’t imagine bondholders and pension funds wouldn’t make all the effort in the world to make this partnership work,” Gribel said. “Once the Brazilian economy recovers, they can sell and cash in their efforts.”

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