(Bloomberg) — The head of embattled Brazilian firm Ambipar Participacoes e Empreendimentos, along with a co-investor, appeared to lose their collateral in a debt issuance over the weekend when creditors’ representatives moved to seize their shares in a hydroelectric power company.
Tércio Borlenghi Junior and his business associate Nelson Tanure had pledged shares of Empresa Metropolitana de Águas e Energia SA, or Emae, as collateral in a local bond issuance. A fund called Phoenix FIP, linked to Tanure, acquired control of Emae last year using debentures backed by both men, according to Brazil’s securities regulator.
On Sunday, giant water utility Cia. de Saneamento Basico do Estado de Sao Paulo said it was acquiring the majority stake in Emae, a deal its CEO said Monday was “originated passively” when the company was approached by a lender. The company bought about 70% of Emae’s total capital in an agreement with Vórtx, the trustee representing Phoenix’s debenture holders, and with Centrais Eletricas Brasileiras SA, or Eletrobras.
The swift move reflects the compounding problems for Borlenghi and Ambipar, a global waste management company whose shares and bonds have plummeted in recent weeks after telling a Rio de Janeiro court it was at risk of financial collapse. The company recently hired advisory boutique BR Partners to help restructure its liabilities after obtaining emergency protection from creditors.
Borlenghi and Ambipar declined to comment. Tanure seeks to retain control of Emae and has filed suit in court, said people with knowledge of the matter. Brazil Journal reported earlier on the backstory of the deal, which also involved XP Inc. as Phoenix FIP’s administrator.
Tanure, well known in the world of Brazilian distressed debt for his risk-taking and tough tactics, also has a stake in Ambipar through Trustee DTVM, as previously reported by Bloomberg.
Sabesp Chief Executive Officer Carlos Piani told analysts on a conference call that the investment in Emae is “small but very strategic” to strengthen water supply security. The São Paulo metropolitan region currently has less water available per capita than the UN recommends, said the company, a former state-run utility that completed a privatization process last year.
In addition to hydroelectric plants, Emae operates a key hydrological system near Brazil’s largest city.
Sabesp expects a legal dispute over the transaction but believes it has solid documentation to complete the transaction, according to a person familiar with the matter. Even if the acquisition doesn’t deliver a material financial gain, the improvement in water security as São Paulo continues to expand could make the deal worthwhile, the person said.
“We know there will be a fight — but it’s for a good, synergistic, and operational asset,” said Ilan Arbetman, an analyst at Ativa Investimentos. “It seems like an interesting risk-return profile.”
–With assistance from Cristiane Lucchesi.
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