SAO PAULO/RIO DE JANEIRO, Feb 23 (Reuters) - Major Brazilian banks are raising provisions to face a potential default by the construction unit of Brazilian conglomerate Odebrecht SA, three senior banking sources with knowledge of the matter said.
However, a fourth source with knowledge of the negotiation between the corruption-ensnared group and its creditors said the conglomerate is expected to present a strategy for upcoming bond payments by the end of March.
OEC said in a statement to Reuters it intends to avoid a default. “The company is working on its liquidity and on loans that may be disbursed to face its obligations related to debt.”
One of the sources, an executive at one of Brazil’s largest lenders, said the construction unit, Odebrecht Engenharia e Construção (OEC), may have no other alternative than filing for bankruptcy protection.
Another source among the largest Brazilian banks said most institutions are setting aside provisions between 30 and 50 percent of the total loan amount, the usual level for a company in bankruptcy protection.
Last Tuesday, Standard & Poor’s downgraded OEC from CCC-plus to CCC, two months before a principal payment on a 500 million reais ($153 million) bond is due on April 25.
Debt investors are waiting to see if cash-poor Odebrecht Engenharia e Construcao will make an upcoming bond payment or whether the Brazilian company will opt for a debt restructuring instead, IFR, a Thomson Reuters company, reported this week. (Additional reporting by Raquel Stenzel and Carolina Mandl; Writing by Tatiana Bautzer; Editing by Leslie Adler)