* Lupatech pledges to inform markets of further events
* Company had already signaled payment delays on loans
By Guillermo Parra-Bernal
SAO PAULO, April 10 Brazilian oil equipment
company Lupatech SA failed to pay interest on $275
million of bonds in the latest sign of financial and operational
strains facing companies in the once-thriving sector.
The Caxias do Sul, Brazil-based company was scheduled to
deposit about $6.789 million worth of coupon payments in
bondholder accounts on Wednesday, Chief Financial Officer Thiago
Piovesan said in a securities filing. The 9.875 percent,
perpetual bond was sold by the company's Lupatech Finance Ltd
unit in June 2007.
The decision to halt payments comes even after Lupatech
received government support to weather a crisis in the country's
oil services sector. Difficulties caused by fuel subsidies,
project delays and soaring costs at state-run oil company
Petróleo Brasileiro SA have spread to the wider
economy, undermining suppliers like Lupatech and raising credit
"The company will keep investors fully informed about
potential new events," Piovesan said in the filing. The company
hired Bank of America Merrill Lynch to help advise on a
restructuring of its finances, he added.
Worries over Lupatech may also hurt other players in the
industry, which the government has for years sought to foster.
With an eye on giant new offshore oil reserves, President Dilma
Rousseff wants to keep as much as possible of the hundreds of
billions of dollars budgeted for ships, rigs and pipelines at
home to bolster economic development.
Lupatech, the country's biggest supplier of industrial
valves and anchor cables, counted on an expected flow of orders
to capture a slice of the boom created by Petrobras's $237
billion, five-year investment program. Instead, the firm has
grappled with insolvency as Petrobras orders have been slow to
materialize and skittish credit markets restricted access to
Swept up in its ambitions, Petrobras agreed to build five
refineries and a fleet of more than 300 ships, sought new oil
discoveries at record sea depths and invested in biofuels. After
a couple of years, an overstretched Petrobras fell behind on its
goals and announced more than $9 billion in cost cuts this year,
sapping revenue for Lupatech and peers.
Shares of Lupatech have shed more than 91 percent of their
value since the end of 2010 - when investors began to perceive
order delays and the company's need for shareholders' support.
The stock advanced 1.4 percent to 1.42 reais on Wednesday.
In the same period, the yield on Lupatech's perpetual bond
have almost quadrupled to 37 percent on
Wednesday from about 10 percent as creditors jumped ship in
anticipation of a default.
The non-payment comes as a shock for investors, because the
company is majority-owned by state-run entities. State
development bank BNDES is Lupatech's largest
shareholder with a 31.25 percent stake, followed by Petros, the
pension fund owned by Petrobras' workers, with 24.6 percent.
Private-equity firm GP Investments Ltd has a 15.9
Calls to BNDES, Petros and GP Investments seeking comments
were not answered after working hours.
Moody's Investors Service said on March 4 that Lupatech's
delay of interest payments on local debt notes and principal
repayment on some loans would not have an immediate impact on
the company's "Caa2" ratings.
Lupatech lost a net 151 million reais ($77 million) in the
fourth quarter of last year, compared with 62 million reais in
the third quarter, reflecting weak operations and number of
large write-offs, mostly to related to past acquisitions.
Net debt surged to 1.2 times shareholders' equity in the
quarter, compared with less than 1 time in the prior three
The company's struggles and those of its peers are shining a
harsh light on Brazilian industrial policy that puts fledgling
local suppliers at the heart of plans to double oil output and
become one of the world's top four oil producers by 2020.
Dependent on Petrobras for much of their business, project
delays have played a part in forcing some firms such as
construction company GDK SA to request bankruptcy protection. A
review of this sort led to the bankruptcy of another supplier,
Tenance Engenharia, which got 90 percent of its revenue from
Petrobras, a former Tenance executive told Reuters.