February 24, 2017 / 7:57 PM / 9 months ago

Exclusive: China's XCMG, Brazil's OAS in joint venture talks, source says

SAO PAULO (Reuters) - Chinese heavy machinery maker Xuzhou Construction Machinery Group Co Ltd [XCMGP.UL] is in talks with Brazilian engineering firm OAS SA [OAEP.UL] to form a joint venture for construction in Africa and Latin America, a person with direct knowledge of the matter said on Friday.

According to the person, who was briefed on the talks, the firm commonly known as XCMG would contribute capital, equipment and financing to the venture. OAS would dole out expertise in civil construction and engineering projects and a pipeline of contracts outside Brazil, the person added.

The venture would be the first major step in OAS’s efforts to rebuild itself almost three years after getting ensnared into Brazil’s biggest corruption scandal ever. In 2015, OAS became the first of Brazil’s major builders to file for bankruptcy after prosecutors accused it of bribing politicians to win lucrative contracts at state firms.

Both firms see the venture thriving in Africa, where Brazilian construction firms have a stable base of customers and strong reputation following several years of successful project execution, the person added.

Legal terms of the venture, or whether it would involve any cash investments or cross shareholdings, remain under discussion, said the person, who asked for anonymity to discuss the matter.

For XCMG, the world’s No. 5 construction machinery firm and its listed unit XCMG Construction Machinery Co Ltd 000425.SZ, teaming up with OAS would help accelerate plans to grow across developing nations at a time when the price of some commodities - the main source of revenue for most of those countries - is recovering.

São Paulo-based OAS declined to comment, while efforts to contact XCMG media representatives in São Paulo and Xuzhou, China, were not immediately successful.

OAS, which before the scandal broke in early 2014 was Brazil’s No. 4 engineering conglomerate, has shed more than 30,000 jobs, sold assets and even filed for bankruptcy protection to wrestle the impact of the scandal.

If the deal materializes, OAS would become the latest in a series of Brazilian construction companies to discuss entering into a joint venture or getting acquired by Chinese counterparts.

Last year, several local media reports said China Communications Construction Co Ltd (601800.SS) was eyeing the purchase of Construtora Camargo Correa SA, one of Brazil’s largest builders.

China Gezhouba Group Co Ltd (600068.SS) is also considering buying infrastructure assets in Brazil, through concessions, partnerships or construction projects, Reuters reported in June.

Reporting by Guillermo Parra-Bernal; Editing by Christian Plumb and Lisa Shumaker

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