Latin Finance - March/April 2012 - 39

Brazil lupatech

On the Brink
by Raúl Gallegos razil is the toast of the global oil industry. A string of massive oil discoveries over the past five years and generous capital spending by Petrobras is attracting top oil service companies in droves. But not all is well in the new oil frontier. Petrobras is missing its production targets and its project execution is falling behind schedule. The delays are hurting suppliers and have left Brazil’s leading oil services company, Lupatech, on the brink of bankruptcy. Lupatech, an energy valve manufacturer, is the poster child for the dangers of growing too fast and too soon in the Brazilian oil business. Encouraged by Brazil’s large, offshore finds in 2007, the company borrowed heavily and embarked on a string of 17 acquisitions that left it too weak to sustain the 2008 oil price drop and the resulting slowdown. Lupatech: trying to stay afloat in the offshore oil sector The company is now undergoing the equivalent of open heart surgery, a capitalization and business overhaul led by the company’s have been adjusted to keep the company current in the face of its main shareholders, state development bank BNDES and Petros non-existent liquidity. – Petrobras’ worker pension unit – as well as private equity fund In the 12 months ended in September, Lupatech saw a GP Investments. negative free cash flow of 100 million reais. Meanwhile, the As of early February, these three partners sought to inject company is on the hook for $25 million annually in debt service as much as 700 million reais ($379.3 million) into the ailing to bondholders and S&P reckons it faces 200 million reais in company and merge the business with Brazilian driller San refinancing needs during the first half of 2012 alone. Antonio International, which itself went through a debt “I wouldn’t want to make any assumptions under this kind restructuring and was acquired by GP Investments in 2007. of scenario. We’ve put the company under review pending the What may result from the corporate surgery is still anyone’s conclusion of the deal,” says Auro Rozenbaum, a Bradesco BBI guess, but the industry outlook suggests Lupatech can still analyst. “It’s not in the best interests of Petrobras, BNDES or the flounder competing against a host of stronger and more government to see this company go under.” experienced players. Lupatech’s American Depositary Shares rose 19% over As it stands, Lupatech’s prognosis is grave. The company the month of January on the back of the capitalization shouldered a 1.3 billion real debt load as of September, which announcement. But in an indication that the market fears the means equity is almost non-existent and debt holders own 95% worst, the shares have lost 80% of their value over the last year of the company’s capital, based on Standard & Poor’s estimates. and were trading at $3.15 per share on February 10. Of total debt, 350 million reais is in the form of convertible The company’s 9.875% perpetual bonds, rated Caa2/CCC- by bonds, most of which are owned by BNDES and whose covenants Moody’s and S&P respectively, had climbed back to 74 cents

B

Troubled Brazilian oil services company Lupatech may have the support of the BNDES and a backlog of orders, but can it survive in an increasingly competitive landscape?

March/April 2012

LatinFinance 39



Latin Finance - March/April 2012

Table of Contents for the Digital Edition of Latin Finance - March/April 2012

Latin Finance - March/April 2012
Contents
Man of the Year
Local Currency Debt
Brazil Private Equity
Asia Buyside
Secondary Markets
Finance Ministry Scorecards
Markets cheer the appointment of a new Petrobras CEO
Banco do Brasil breaks new ground with hybrid perp
Oil services company Lupatech faces an uphill struggle
Bankers vie for a foothold in a booming wealth management segment
Offshore assets soar in price as foreigners fight to secure oil-rich real-estate
Vitro’s restructuring raises questions over bankruptcy system
Bottling-sector consolidation is underway. More is expected
Chile fails in efforts to kick start huaso market
Can Peru meet investment needs in the face of potential social unrest?
Colombia’s banking system is enjoying its salad days amid an acquisition frenzy
Latin Finance - March/April 2012 - Latin Finance - March/April 2012
Latin Finance - March/April 2012 - Cover2
Latin Finance - March/April 2012 - Contents
Latin Finance - March/April 2012 - 2
Latin Finance - March/April 2012 - 3
Latin Finance - March/April 2012 - 4
Latin Finance - March/April 2012 - 5
Latin Finance - March/April 2012 - 6
Latin Finance - March/April 2012 - 7
Latin Finance - March/April 2012 - 8
Latin Finance - March/April 2012 - 9
Latin Finance - March/April 2012 - 10
Latin Finance - March/April 2012 - 11
Latin Finance - March/April 2012 - Man of the Year
Latin Finance - March/April 2012 - 13
Latin Finance - March/April 2012 - 14
Latin Finance - March/April 2012 - 15
Latin Finance - March/April 2012 - Local Currency Debt
Latin Finance - March/April 2012 - 17
Latin Finance - March/April 2012 - 18
Latin Finance - March/April 2012 - Brazil Private Equity
Latin Finance - March/April 2012 - 20
Latin Finance - March/April 2012 - 21
Latin Finance - March/April 2012 - Asia Buyside
Latin Finance - March/April 2012 - 23
Latin Finance - March/April 2012 - Secondary Markets
Latin Finance - March/April 2012 - 25
Latin Finance - March/April 2012 - Finance Ministry Scorecards
Latin Finance - March/April 2012 - 27
Latin Finance - March/April 2012 - 28
Latin Finance - March/April 2012 - 29
Latin Finance - March/April 2012 - 30
Latin Finance - March/April 2012 - 31
Latin Finance - March/April 2012 - Markets cheer the appointment of a new Petrobras CEO
Latin Finance - March/April 2012 - 33
Latin Finance - March/April 2012 - 34
Latin Finance - March/April 2012 - 35
Latin Finance - March/April 2012 - Banco do Brasil breaks new ground with hybrid perp
Latin Finance - March/April 2012 - 37
Latin Finance - March/April 2012 - 38
Latin Finance - March/April 2012 - Oil services company Lupatech faces an uphill struggle
Latin Finance - March/April 2012 - 40
Latin Finance - March/April 2012 - 41
Latin Finance - March/April 2012 - 42
Latin Finance - March/April 2012 - 43
Latin Finance - March/April 2012 - Bankers vie for a foothold in a booming wealth management segment
Latin Finance - March/April 2012 - 45
Latin Finance - March/April 2012 - 46
Latin Finance - March/April 2012 - Offshore assets soar in price as foreigners fight to secure oil-rich real-estate
Latin Finance - March/April 2012 - 48
Latin Finance - March/April 2012 - 49
Latin Finance - March/April 2012 - Vitro’s restructuring raises questions over bankruptcy system
Latin Finance - March/April 2012 - 51
Latin Finance - March/April 2012 - 52
Latin Finance - March/April 2012 - Bottling-sector consolidation is underway. More is expected
Latin Finance - March/April 2012 - 54
Latin Finance - March/April 2012 - 55
Latin Finance - March/April 2012 - Chile fails in efforts to kick start huaso market
Latin Finance - March/April 2012 - 57
Latin Finance - March/April 2012 - 58
Latin Finance - March/April 2012 - Can Peru meet investment needs in the face of potential social unrest?
Latin Finance - March/April 2012 - 60
Latin Finance - March/April 2012 - 61
Latin Finance - March/April 2012 - 62
Latin Finance - March/April 2012 - Colombia’s banking system is enjoying its salad days amid an acquisition frenzy
Latin Finance - March/April 2012 - 64
Latin Finance - March/April 2012 - Cover3
Latin Finance - March/April 2012 - Cover4
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