Odebrecht Bonds Plunge as Petrobras Cancels Rig Contract

  • Notes backed by Odebrecht ships sink to 25 cents on the dollar
  • Petrobras still leasing three ships backing the bond

Bonds of the oil services arm of Latin America’s largest construction conglomerate plunged to record lows after Brazil’s state oil company canceled a contract to rent one of its drilling rigs amid cost reductions.

Odebrecht Offshore Drill Finance’s $1.5 billion of bonds due 2022, which are backed by cash flows coming from four drilling rigs, fell 12 percent to about 26 cents on the dollar in New York on Thursday. Another $550 million in perpetual dollar bonds from Odebrecht Oil & Finance, which rely on cash flows coming from Odebrecht’s upstream oil and gas projects, also declined to a record low 20 cents.

Odebrecht Oleo & Gas SA, as the oil services venture is known, said Thursday that it received notification from Petroleo Brasileiro SA of the termination of its contract for drill ship ODN Tay IV on Sept. 22. OOG said it is analyzing the terms of the Petrobras’s decision. The charter contracts for its other three vessels backing the bonds haven’t been altered, it said.

Supplying offshore rigs to Petrobras delivers most of the revenue of OOG,
which counts Temasek Holdings Pte as a shareholder. The company also has a production vessel in the North Sea under a long-term contract with ConocoPhillips, Chief Executive Officer Roberto Simoes told Bloomberg News in an interview in May.

Petrobras, as Brazil’s flagship oil producer is know, said in an e-mailed statement the termination was in line with contractual terms.

The biggest oil producer in deep waters is intensifying spending cuts this year amid a collapse in oil prices and a mushrooming graft scandal in Brazil. The company is taking a series of operational and management cost cuts, including a voluntary plan to reduce working hours for administrative staff, Petrobras said Sept. 15. Earlier this month, it also canceled five platform-supply vessels from two separate contractors, Ultrapetrol Bahamas Ltd. and World Wide Supply AS.

The move by Petrobras underscores investor concerns about Odebrecht SA, one of Brazil’s largest closely held companies that includes the region’s biggest construction company. The company’s CEO has been jailed since June in Brazil’s biggest-ever corruption scandal after the company froze new investments in Brazil as a credit crunch tightened access to financing.

As part of the scandal, Petrobras banned more than 20 suppliers facing allegations in the case -- including Odebrecht SA, Camargo Correa SA and Andrade Gutierrez SA -- from bidding for new contracts. The decision buffeted oil industry suppliers at a time of slumping prices.

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