BTG-Backed Rig Venture Said to Mull Bankruptcy Filing in Brazil

  • Sete Brasil investors, creditors may lose up to $7.1 billion
  • Firm may decide to seek legal protection in a January meeting

Grupo BTG Pactual and other investors in a troubled drilling-rig supplier will meet this month and decide whether Sete Brasil Participacoes SA will file for bankruptcy protection after oil prices collapsed and it was cited in a sprawling corruption scandal, four people with direct knowledge of the matter said.

Shareholders may vote to seek legal protection from creditors for the venture in a Jan. 21 meeting, which would be the first step toward an eventual liquidation of the Rio de Janeiro-based company’s assets, according to the people, who asked not to be identified discussing a private matter. One of the people said a vote for a filing is unlikely this month, adding that under Brazilian law the company might also avoid liquidation through a restructuring either inside or outside the bankruptcy process.

Sete Brasil, which once boasted of ambitions to build the world’s biggest deep-water drilling fleet, joins more than a dozen companies crippled by a 22-month-old corruption investigation that has helped tip Brazil into recession and left the nation’s leaders fighting for their political survival. A possible bankruptcy filing could mark the beginning of a new wave of financial pain for Brazilian companies as key Sete shareholders that include Petroleo Brasileiro SA, Brazil’s biggest banks and pension funds would be forced to write off loans or stakes in the rig supplier. Many have already booked some of those losses.

‘Viable Restructuring’

The company fell into financial distress after it was unable to secure long-term financing from state development bank BNDES amid allegations of kickbacks and after its only client, state-run oil producer Petrobras, started slashing overall investments. Sete Brasil said in a e-mailed statement that it “continues to work to put together a viable restructuring plan, while shareholders weigh the different strategic scenarios to be pursued.”

Shareholders who invested a total of 8.25 billion reais ($2.1 billion) in capital and creditors owed a $3.6 billion short-term loan maturing in February may be forced to book losses should Sete file for bankruptcy protection, according to the people. In addition to BTG, investors include Banco Santander SA and Banco Bradesco SA among others. Creditors such as Bradesco, Banco Itau BBA SA, Banco do Brasil SA, Santander, Standard Chartered Plc and Caixa Economica Federal have repeatedly rolled over Sete Brasil’s loans since October 2014 in a bid to help the company survive, the people said. The company is also late in paying shipyards it hired to build its rigs, according to the naval construction industry association.

BTG, which invested about 1 billion reais of its own capital in Sete Brasil, already booked most of it as losses in its third-quarter results, Joao Dantas, the head of investor relations, said when results were released in November, without providing exact figures. A BTG private-equity fund, which includes the bank’s stake and investments from clients, controls 27 percent of Sete Brasil, making it the single biggest shareholder, according to a person familiar with the matter. An official at BTG declined to comment on a possible bankruptcy at Sete Brasil.

Local Push

Sete Brasil, which had planned to build 29 rigs for Petrobras, reported capital expenditures of $7.1 billion as of August, according to information on its website. When it was founded in May 2011, it was a cornerstone of the government’s campaign to push oil companies to use locally made parts and equipment after Petrobras made the Western Hemisphere’s biggest crude discovery since 1976 in deep waters of the Atlantic Ocean.

As of now, Petrobras has yet to sign changed leasing contracts as part of the company’s restructuring plan that would reduce the total number of rigs to be leased to 14 from 28, according to the people. Petrobras declined to comment.

Petrobras holds a 9.4 percent stake in Sete, while the government-owned pension funds for Petrobras, Banco do Brasil and Caixa Economica Federal employees hold a combined total of about 38 percent of the company, according to public statements. Santander controls 7 percent, and Bradesco owns 3 percent, said one person.

Provision Decisions

Bradesco hadn’t made provisions for loans given to the rig supplier as of the third quarter, Chief Executive Officer Luiz Carlos Trabuco Cappi told reporters on Dec. 10. The bank’s press office didn’t respond to a request for comment.

Sete Brasil became entangled in Brazil’s largest-ever corruption scandal after former Chief Operating Officer Pedro Barusco testified in a plea bargain that he accepted bribes in exchange for awarding contracts. Sete Brasil said it’s cooperating with authorities in the investigation.

BTG booked its losses on Sete Brasil before the bank’s then-chief executive officer, Andre Esteves, was arrested on Nov. 25 for allegedly seeking to obstruct testimony in a corruption case not related to Sete Brasil. Esteves has denied any wrongdoing through his lawyers. On Dec. 17, Brazil’s supreme court ordered his release from prison and said he must remain under house arrest.

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