Ecovix files for Brazilian bankruptcy

February 2017 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

With outstanding debts of $2.4bn and only a “residual” amount of cash, Brazilian shipbuilder Engevix Construcoes Oceanicas (Ecovix) filed for bankruptcy protection from creditors in a federal commercial court in the southern state of Rio Grande do Sul.

Ecovix, along with its five subsidiaries, has filed for bankruptcy due to debt accumulated during a huge downturn in the global shipping industry – a decline which led to record-low growth in 2016. Indeed, early last year, Nils Anderson, chief executive of AP Moeller-Maersk, stated his belief that the industry was in crisis and conditions were tougher than after the global financial crash. Ecovix itself was forced to lay off 3800 workers just a few days before bankruptcy proceedings got underway, as it searched for a restructuring solution.

Prior to the filing, Ecovix had failed to reach an agreement with creditors over debt restructuring and was under severe pressure from low liquidity and low cash flows. This pushed the shareholders to file for bankruptcy protection. According to the newspaper Valor Economico, Ecovix’s creditors include state-run oil company Petrobras, suppliers, China’s Cosco, Norway’s NOV and also local banks Bradesco, Banco do Brasil and Caixa Economica Federal.

Ecovix has hired local bank Brasil Plural and local law firm Felsberg Advogados to provide assistance during the bankruptcy proceedings so that the shipbuilder has the opportunity to negotiate a debt restructuring and a sale of company assets to new investors.

Approximately half of Ecovix’s debt ($1.1bn) is owed to its main creditor, Tupi/BV, a consortium comprised of Petrobras, BG Group and Galp. Around $442m refers to loans held by Ecovix from the banks Caixa Econômica Federal, Bradesco and Banco do Brasil. And another $300m of the debt involves suppliers such as China’s Cosco Holdings Co Ltd and Norwegian company National Oilwell Varco (NOV). A smaller amount of the company’s debt is to labour creditors, but refers to outstanding actions and possible unpaid amounts. Overseas suppliers are believed to account for a further $1bn.

Created in March 2010 to build eight hulls for Petrobras’ Floating Production, Storage and Offloading (FPSOs), Ecovix, a subsidiary of Engevix Angenharta S/A, is based in Rio de Janeiro, operating at the Port of Rio Grande dry dock. Ecovix was also contracted to build three drillships for Brazilian corporation SETE, but a number of contracts have been cancelled, including three of the Petrobras hulls.

Historically, Brazilian shipyards have experienced boom and bust scenarios, with so-called ‘golden eras’ punctuated by periods of significant operational and financial difficulties. In the 1970s, as noted by CMS Cameron McKenna, Brazil could lay claim to the world’s fifth largest merchant marine fleet and a shipbuilding industry with the world’s second largest order book. Today, however, is a different story.

Following the approval of the filing, Ecovix has 60 days in which to submit a recovery plan. Sources in Brazil have suggested that Ecovix is looking for an investor and that there are two Chinese groups which may be interested in making a move. In the meantime, Valor Economico has reported that Ecovix’s controlling shareholders and holding company Jackson Empreendimentos are expected to take most of the shipbuilder’s assets and regroup them into a new company free of debts – a strategy designed to protect future investors from legal claims of creditors so that the new company can be sold off.

With Ecovix’s parent company Engevix embroiled in the Petrobras bribery scandal, crippling cash depletions due to the shipbuilding slump, workers being laid off, contracts being cancelled and creditors lining up, it could be that bankruptcy proceedings are something of a relief for Ecovix.

Fraser Tennant