Odebrecht to Use Peru Proceeds to Pay Project Creditors

(Bloomberg) -- Bondholders of Odebrecht SA’s builder unit won’t see any of the money the troubled company is getting from a long-delayed sale in Peru, one person with direct knowledge of the matter said.

Of the $1.4 billion price tag of the Chaglla hydroelectric plant in 2017, Odebrecht will likely get about $640 million. Half of that will go to pay damages to the Peruvian government, Justice Minister Vicente Zeballos said last week. Almost all the rest will go to creditors of the project itself, the person said, asking not to be named because the matter isn’t public.

While proceeds from the Chaglla sale won’t go directly to bondholders who are already in informal talks with the company for a debt restructuring, the agreement with the Peru government will reduce Odebrecht’s future debt payments, helping to preserve cash, the person said. It also allows Odebrecht to sell other projects in the country and bid for new ones, contributing to revenue generation, according to the person.

A representative for Odebrecht declined to comment.

Odebrecht agreed in August 2017 to sell the 456-megawatt project to a group led by China Three Gorges Corp. as it sought to repay debt after becoming embroiled in a giant bribery scandal that brought Latin America’s construction industry to a halt. The deal had to be redone this year after Peru enacted new rules on asset sales by companies involved in corruption cases.

Zeballos said Peruvian prosecutors are set to finalize a plea deal with Odebrecht this week that includes an agreement on how much the company will pay Peru in damages. While Chaglla’s book value is $1.2 billion, liabilities related to tax, debt and labor reduce the transaction price by close to half, he said.

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