Home' Trinidad and Tobago Guardian : January 11th 2015 Contents SBG6 | NEWS
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JANUARY 11• 2015
Finance Minister Larry Howai says the Gov-
ernment has received assurances that the
financial troubles being experienced by the
lead contractor on the highway to Point Fortin,
Construtora OAS of Brazil, will not impact
the company's ability to complete the project
that has been beset by controversy, including
a hunger strike by environmental campaigner, Wayne Kublals-
On Wednesday, the parent company of the contractor on
the $7.5 billion highway project from San Fernando to Point
Fortin was swiftly downgraded by two of the world's leading
rating agencies after the company could not pay US$16 million
interest on US$400 million bonds maturing in 2021.
Speaking in Parliament on Friday, Howai said: "There has
been a preliminary meeting between NIDCO and the contractor
in connection with that. I am told that NIDCO has received
certain assurance as far as that is concerned."
NIDCO is the National Infrastructure Development Company
Ltd, the state enterprise that is the executing agent for the
Government, which reports to the Ministry of Works and
The Finance Minister said that he has not been able to go
into the matter with the line minister for the project, Works
and Infrastructure Minister, Suruj Rambachan. But he said
that Rambachan has not signalled to him that "there is any
immediate issue that we need to attend to."
Asked whether the slow pace of Government payments to
Construtora OAS had contributed to the financial problems
that the parent company now finds itself in, Howai said: "I
can't answer that question. I am not really up to date in terms
of where we are on the status of the payments to OAS. As
far as I am aware, we have made all of the funding available
to NIDCO that they need."
Howai added: "Certainly nothing has come to me, since
the beginning of December to now, that would suggest that
we are very far in arrears of payments to OAS,"
Only on Wednesday, Howai told the Finance Standing Com-
mittee meeting in the Parliament Chamber that the Government
may have to borrow money to fund the completion of the highway
"Given what is happening now with oil prices, we may need
now to consider going into the market to borrow the funds and
if we need to do so, we will do so," Howai said, responding to
a question from Point Fortin MP Paula Gopee-Scoon.
He told Parliament on Wednesday that "up to the time when
we did this particular transaction, we were able to fund it out
of our existing cash flows," as the Government's treasury deposits
had been sufficient to meet the required costs.
Howai said when the Government started the project "there
was no need to increase government's borrowing, given the fact
that through our treasury deposits we had funding that would
have been sufficient to meet the required costs."
In the intervie on Frida , Ho ai said that
the Government had tapped the local capital
market for a $1.5 billion bond, hich ould
have closed on December 24, in order to
make pa ments to the construction compa-
n .Questioned on why the Government would be seeking to
borrow money to complete the project now, when it started
funding the project from the Treasury, Howai said: "With the
fall in oil and natural gas prices and potentially what could
happen with cashflows, I want to be careful in terms of running
down our cash now. It is important for us to ensure that we
have good cash reserves going into this particular period of
"Also, I inherited the whole issue of the treasury deposits
when I came in. For last year, I said we would go ahead with
it, but we have been looking at all of the options available to
us in the last 18 months or so.
Towards the end of last year, I decided that we should not
use treasury deposits at all, but that we go out and get the
funding for it separately."
The Finance Minister explained that a treasury deposit is a
subset of the Consolidated Fund, which is a seperate short-
term account into which funds that the Government collects
goes into. He said in Government accounting terms, withdrawals
from the Treasury Deposit Account are treated like a loan, which
accounted for the shifting of monies from other ministries to
repay the treasury deposit.
Howai said he would need to check with the Ministry of
Finance's budget director before answering a question on the
amount of money that is in the Treasury Deposit Account.
In response to an emailed Guardian query, OAS spokesperson
Milton Pazzi Jr said: "OAS S.A. informs that the recent down-
grade of its ratings is not connected to the T&T highway
project, which is performed by Construtora OAS.
"Additionally, Construtora OAS informs that the event does
not impact the performance of the company's duties on the
project, since it is self-sufficient in terms of cash-flow.
"Construtora OAS has been assured that NIDCO is com-
mitted to make all payments within the due dates, and according
to the contract terms."
Following OAS' announcement that it did not pay its bond
interest, Fitch Ratings was the first to downgrade Construtora
OAS to 'RD' from 'C,' which means the rating agency considers
the company to be lower than "junk" or "non-investment
grade," and technically "in default" of its debt payments.
Fitch said: "These downgrades follow the announcement
by OAS that it did not pay the principal and interest on its
9th debentures issuance, in the amount of 103 million Brazilian
reals, due January 5.
"On January 2, 2015, Fitch downgraded of the group's ratings
to 'C'/'C(bra) following the announcement by OAS that it did
not pay the interest on its US$400 million senior unsecured
notes due 2021 in the amount of US$16 million, issued by
OAS Finance Ltd, thus entering the 30-day cure period. This
issuance is guaranteed by OAS SA, Construtora OAS SA and
OAS Investimentos SA."
The rating agency added: "Absent a material new event,
OAS SA and its subsidiaries are likely to default on their debt
in the near future. Fitch considers the agreement of all creditors
to renegotiate their debt as unlikely," .
About an hour after Fitch, Standard & Poor's---citing the
same failure "to make a principal and interest payment, this
time on its ninth debenture issuance" - said: "As a result, we
are lowering the global scale corporate credit rating on OAS
to 'D' (for default) from 'CC'. At the same time, we are lowering
the national scale ratings on the company to 'D' from
S&P added: "We are affirming all other issue-level ratings
and keeping them on CreditWatch with negative implications
where we placed them on January 2, 2015, reflecting our expec-
tation that, although the company has not yet missed any
payment nor has it declared a formal default as a result of
acceleration clauses on this debt, default is almost certain."
S&P said: "It's highly likely the company will face a general
default, therefore, all outstanding debt would likely be subject
to an ongoing restructuring process. Additionally, we don't
expect the company to make the missed interest payment on
the 2021 notes (due January 2, 2015) within the 30-day cure
OAS SA, the parent company of the firm building the Point
Fortin Highway, is one of several Brazilian construction com-
panies that are embroiled in a corruption scandal involving
Brazil's state-operated oil producer Petrobras.
Brazilian officials allege that the construction companies
used bribery to obtain contracts from the oil producer.
Brazilian highway contractor
defaults on debt payment
Howai: It can complete project despite money woes
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