Brazilian construction giant defaults on debt amid gathering Petrobras scandal

The fall-out from Brazil’s Petrobras bribery scandal continues to ripple through the country’s construction industry as OAS, a privately-owned multinational now embroiled in the scandal, failed to meet a $16m interest payment on a $400m unsecured debt.

The company’s credit rating has now fallen from B-plus to C, according to Fitch Ratings, meaning it will have difficulty securing further lines of credit or issuing bonds.

OAS was one of a number of companies named in allegations made by a former Petrobas director, Paulo Roberto Costa. After Costa was arrested at his home in March last year, he agreed to co-operate with investigators in return for leniency. 

According to Costa’s testimony, bribes were paid by a number of construction companies that had dealings with Petrobras so that they could win overpriced contracts, with a percentage of the kickback then being passed to Brazil’s ruling Workers Party.

Costa said this was seen as a win-win deal for all involved, with the ultimate cost being born by the Brazilian state, which owns 65% of Petrobras, and the consumers who would have to pay more for their petrol.

At the end of last year, police arrested 35 individuals believed to have taken part in the scheme. As well as Costa and his close associate and former Petrobras services director Renato Duque they included executives from some of Brazil’s largest construction companies. Among them was José Adelmário Pinheiro Filho, the president of OAS, and executives from construction and civil engineer Camargo Correa, Engevix, Galvao Engineering, Mendes Jr and UTC Engenharia.

Prosecutors allege that more than $4bn of contracts were implicated. They have also set a target of recovering more than $400m from the defendants, who have been charged with corruption and money laundering.

Pinheiro is charged with overpricing construction projects on Petrobras refineries and paying politicians to secure the contracts.

OAS has also been part of a number of high-profile infrastructure projects that have encountered difficulties. One is the Yellow Line of the São Paulo Metro, which has been under way since the mid-2000s. Nearly a decade later, less than 13% of the project has been completed. 

OAS is also one of the construction teams on the Belo Monte hydroelectric dam, which is the largest water power project in the world today. The cost overrun there is currently projected at $3bn.

It is likely that firms that are found guilty could be banned from taking government contracts.

This could complicate President Dilma Rousseff’s push to expand investments in roads, bridges, rail lines and energy projects.

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