RIO DE JANEIRO—Moody's Investors Service warned on Saturday of
potential ratings downgrades to Brazil's two biggest construction
companies, after federal police arrested their top executives.
Moody's placed the debt of Odebrecht Engenharia e Construç ã o
SA and Construtora Andrade Gutierrez SA on review for possible
downgrade. The companies didn't immediately respond to requests for
comment about the Moody's move.
The ratings firm cited the arrests on Friday of the two
companies' top executives as part of a widening investigation into
alleged price-fixing by contractors at state-run oil company Petró
leo Brasileiro SA for billions of dollars in contracts.
Federal Police detained Marcelo Odebrecht and Otá vio Azevedo,
chief executives of Odebrecht and Andrade Gutierrez, respectively,
along with nine other suspects. Those arrested on Friday haven't
yet been charged.
Authorities said the two men had knowledge of their companies'
alleged participation in the Petrobras scheme and are investigating
them for corruption, money laundering and fraud in public
contracts, among other crimes.
Andrade Gutierrez denied wrongdoing on Friday, while Odebrecht
Engenharia said the arrests were unnecessary and that it was
cooperating with the investigation. Representatives of the two CEOs
couldn't be reached on Saturday.
Moody's said the arrests caused a "perception of increased
credit risk" for the two companies, whose ratings already had a
negative outlook. The firm previously had downgraded Andrade
Gutierrez in January amid the burgeoning scandal.
Petrobras has banned more than two-dozen companies named in the
investigation from future contracts, including Andrade and
Odebracht, sending shock waves through Brazil's oil-and-gas and
construction industries while the broader economy is likely in
recession. Around five of the companies caught up in prosecutors'
dragnet have filed for bankruptcy protection.
In the case of Odebrecht and Andrade Gutierrez, Moody's noted
that both companies' operations are diversified among scores of
projects, many of them outside Brazil, and that they have enough
cash on hand to cover coming debt maturities.
But Moody's also said it is hard to predict the timing and
outcome of the investigations. "On top of potential monetary
penalties, companies under investigation also risk reputational
damage and weakening investor sentiment, reducing their access to
funding from public and private capital markets, developing banks
and multilateral financing agencies," Moody's said.
Write to Paul Kiernan at paul.kiernan@wsj.com
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