Oceanografia Liquidator Knows Narcos’ Bikes Best: Mexico Credit

The fate of some Oceanografia SA bondholders now rests with a Mexican government agency more accustomed to selling SUVs and jewelry seized from drug dealers and tax cheats.

Mexico, which took control of the oil contractor on Feb. 28 after Citigroup Inc. alleged a $400 million loan fraud, put the company under the Finance Ministry’s Asset Transfer and Administration Service, known by its Spanish acronym SAE. The assignment is unprecedented for the agency, whose duties last year included selling 10,201 trucks, cars and motorcycles -- enough to cover 10 soccer fields, according to its website.

Oceanografia’s $335 million of defaulted bonds due in 2015 already have tumbled by more than half to 15 cents on the dollar since the seizure, as investors assign little value to their only pledged collateral, seven aging vessels. Now, those bondholders must contend with an administrative agency that has no clear mandate for resolving bondholder claims, no explicit timeline for relinquishing control of the assets and little experience in Oceanografia’s specialty of marine engineering and construction.

“These are uncharted waters,” said Jim Harper, the head of research at BCP Securities LLC in Greenwich, Connecticut. “People are really unsure what the process is going to be and what the value of their assets is. This has the potential to get messy.” Harper, who has followed Mexican markets for more than 15 years, said he couldn’t recall a similar case.

Back Pay

Oceanografia, based in Ciudad del Carmen, Mexico, had almost 70 ships and more than 11,000 employees, according to its website. It was on pace to achieve annual revenue last year of about $1 billion, based on an unaudited financial statement. Almost all of that came from contracts with the state-owned oil company, Petroleos Mexicanos, to provide offshore services.

Finance Minister Luis Videgaray told reporters March 12 that the government will help assure “an ordered recovery of financial assets of the various creditors” of Oceanografia.

SAE officials are speaking with banks, investors and employees to sort out how much they’re owed. So far the agency’s biggest move has been to promise 200 million pesos ($15 million) of back pay to employees who had held demonstrations to protest that they hadn’t been compensated.

“From a public opinion perspective, the workers are most important, but on the other side the government needs to be sensitive to investors, because their treatment could affect sentiment about Mexico,” Jorge Chabat, an analyst at the Center for Economic Research and Teaching, a Mexico City-based university, said in a phone interview.

International Waters

Fitch Ratings has said it doesn’t expect New York-based Citigroup to recover any of its losses.

Last week, Norsk Tillitsmann ASA, the Norwegian trustee for holders of Oceanografia’s $160 million of 2018 bonds, took one of Oceanografia’s most valuable ships, the OSA Goliath, claiming it as collateral. Those bonds, which had fallen as low as 83 cents on the dollar, are now trading at 108 cents, mostly because the Goliath is worth an estimated $245 million.

While Mexican government officials said March 6 that they considered the 180-meter-long vessel impounded, federal agents couldn’t locate it, and Norsk Tillitsmann said this week that it has sailed into international waters. SAE chief Hector Orozco Fernandez told Radio Formula this week that the government has taken legal steps to preserve Oceanografia’s rights to the Goliath, according to a transcript.

Officials with the agency declined to comment for this story. Jorge Betancourt, Oceanografia’s head of investor relations, also declined to comment.

Mexico’s peso appreciated 0.6 percent at 13.2078 per U.S. dollar at 1:43 p.m. in Mexico City.

‘Crime Scene’

The agency has 180 days to complete an “initial diagnostic” of seized businesses, according to federal rules. Under Mexican law, SAE remains in control until there is a definitive administrative or judicial resolution determining the destiny of the assets.

The Mexican attorney general’s office and banking and securities commission are conducting probes of the Oceanografia case, including criminal inquiries, and the Senate has set up a special commission.

“Right now it’s a crime scene,” Carlos Legaspy, who oversees about $350 million in emerging-market debt at InSight Securities Inc., said in a phone interview. “My scenario still is going to be liquidation,” and the bonds are basically worthless.

Soccer Teams

SAE also has taken control of two Mexican professional soccer teams owned by Oceanografia Chief Executive Officer Amado Yanez, according to Decio de Maria Serrano, executive president of Mexico’s professional soccer league. Yanez hasn’t been charged with any wrongdoing.

The agency was created under former President Vicente Fox in 2002 to streamline the handling of confiscated property, previously the realm of multiple government offices.

It became SAE’s task to sell off 27 unproductive sugar mills the government took over in 2001 to protect jobs and preserve the country’s sugar supply. Grupo Azucarero Mexico SA, owner of six of the mills, went bankrupt, prompting protests by sugar-cane cutters who claimed they were owed $500 million in back pay. Thirteen years later, nine of those mills are still in the government’s custody. The rest may be auctioned off in the first half of this year, Deputy Agriculture Minister Jesus Aguilar said in an interview last month.

Corruption Inquiry

The professional soccer teams Club Santos Laguna and Club Leon had a quicker turnaround when they were seized in 2004 after their owner came under investigation for corruption, according to a league spokesman. Later that year, SAE handed the team back to the league, which operated it temporarily until a buyer could be found.

Orozco, the agency’s head, was appointed by President Enrique Pena Nieto in December 2012. An accountant by training, he previously was the agency’s corporate director of businesses and financial assets and worked at Mexico’s Social Security institute.

The government probably will try to resolve the Oceanografia case quickly, said Luis Maizel, who manages about $5.5 billion of fixed-income securities as president of San Diego-based LM Capital Group LLC. Doing otherwise might deflate investor enthusiasm over Pena Nieto’s plans to open the oil industry to private investment, he said.

‘Good Guarantees’

“It’s critical right now that Mexico handle this well, because there’s going to be a lot of need for financing for the energy reform,” Maizel said in a phone interview. “The rule of law is something that for a long time has been a worry for foreign investors. If the good guarantees are worthless, you’re going to demand a much greater interest rate, and you’re going to be leery of lending to someone.”

SAE officials have participated in conference calls with Oceanografia creditors and at least one in-person meeting in Mexico City, according to Thomas Heather, a partner at law firm Ritch Mueller Heather y Nicolau SC who said he helped coordinate them.

The best option for bondholders is probably for the government to put Oceanografia in bankruptcy so that bondholders can pursue their claims in court, BCP’s Harper said.

“Winding down and liquidating Oceanografia is probably the most elegant solution,” Harper said. “You don’t know exactly how it’s going to play out, because it’s unprecedented.”

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