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PROFILE: ODEBRECHT FAMILY BRAZIL 19 OCT 2016 | ODEBRECHT ENGENHARIA E CONSTRUÇÃO, ODEBRECHT ÓLEO E GÁS, BRASKEM

The Odebrecht family controls Latin America’s largest con-struction company, Odebrecht Engenharia & Construção (OEC), its largest petrochemical producer, Braskem and offshore driller Odebrecht Óleo e Gás (OOG).

Marcelo Odebrecht was sentenced in March to 19 years in prison for bribery, money laundering, and organized crime in connection to his role in a bid-rigging cartel for contracts with Petrobras.

OOG is in talks with holders of its bonds due 2021 and 2022, and missed a March coupon on its perpetual bond; ethanol producer Odebrecht Agroindustrial concluded a BRL 11bn restructuring in July.

Odebrecht’s entire 38% controlling stake in Braskem has been pledged as collateral for restructured bank loans, including at the holding-company level.

INTRODUCTION The fortunes of the Odebrecht Group, which includes Latin America’s largest contractor, reflect the rewards and risks of a business model that embraces corruption as a necessity. In a country where bribery and kickbacks are commonplace, the group – controlled by the Odebrecht family – has been accused of engineering a system for doling out bribes to government officials that formed the basis of an industry-wide graft network. Its privileged spot at the convergence of Brazilian business and government helped Odebrecht grow into one of Latin America’s largest conglomerates, but may also be its undoing.

Odebrecht has been the most prominent corporate target of Brazil’s Lava Jato (“Car Wash”) investigation, which has exposed a bribery and money-laundering cartel involving contractors and state-owned oil company Petrobras. The group’s head, Marcelo Odebrecht, was sen-tenced in March to 19 years in prison, while its companies struggle to win enough new contracts to service their debt. An expected plea bargain by Marcelo – known to be close to the investigation’s ultimate targets, ex-Presidents Dilma Rousseff and Luiz Inácio Lula da Silva – failed to materialize before his conviction, although there have been reports of a pending deal that could allow his early release.

This is not the first time that the Odebrecht family has been implicated in a corruption cartel. In 1993, the group was investigated for allegedly orchestrating kickbacks among companies and government officials.

Under Odebrecht SA, the group’s main constituents are Odebrecht Engenharia e Construção, Odebrecht Óleo e Gás, Odebrecht Transport, Odebrecht Agroindustrial, Odebrecht Ambiental (which is in the process of being sold), Enseada Indústria Naval, and Braskem, a petrochemical JV with Petrobras. In 2015 the group had BRL 124.1bn in revenue, BRL 109.9bn in debt and BRL 24.8bn in cash, according to Moody’s. OEC provided 46% of revenue, Braskem 38%, and other subsidiaries a total of 16%. CONTINUES

Shareholder-related risk

Succession Risk Risk associated with generational transfer of wealth and management

Moderate

While the family is relatively large, the business has been led by one person in each generation. With Marcelo Ode-brecht jailed, the family’s management resources are uncertain due to a lack of other leaders in his generation.

Political Risk Political exposure due to government relationships

High

The group’s close ties with politicians and executives of state-owned companies, most notably Petrobras, have contributed to its legal and financial problems.

Legal and Regulatory Risk Risk associated with lawsuits, prosecution and regulatory sanctions

High

Odebrecht companies have been hob-bled by prosecutions and sanctions, with its former CEO imprisoned, numerous prosecutions ongoing, and its companies banned from public contracts.

Transparency Risk Risk due to opaque corporate ownership and offshore holding structures

Moderate

The family’s main companies are held in a transparent fashion, but the group has been accused by prosecutors of using networks of offshore shell companies for laundering bribe money.

Governance Risk Risk associated with corporate governance, fraud and corruption

Moderate

Despite being exposed as the leader of a bribery cartel, the group has a generally good reputation for corporate govern-ance with respect to its treatment of minority shareholders and creditors.

Expansion Risk Risk from growth and diversification

Moderate

While the Odebrecht Group is diversi-fied and global, its main focus remains on engineering-related industries.

Credit History Risk Bankruptcy or default risk related to shareholder history

Low

Multiple Odebrecht companies are at risk of default due to business disruptions stemming from corruption investigations. However, the family’s companies do not appear to have a history of bank-ruptcy or contentious relations with creditors.

Ratings indicate the probability of business disruption or loss of investment value. High = over 50% or already occurring; Low = minimal concern in the foreseeable future.

CONTENTS PAGE

Family Structure 3

Corporate Structure (Part 1) 4

Corporate Structure (Part 2) 5

Affiliations 6

Risk factors 8

News 10


GROUP HISTORY The Odebrecht family is descended from German immigrant Emil Odebrecht, who arrived in Brazil in the 1850s, and has been involved in construction and infrastructure since the mid-19th century. The group credits Norberto Odebrecht (1920-2014) with founding its modern incarnation in 1944 after taking over an established, though indebted, family business that already had ties with government officials and banks. The Bahia-based company, which Norberto renamed after him-self, grew rapidly in the post-war period thanks to what the company’s website calls “a healthy, interdependent relationship” with politicians and lenders during a period of rapid development in the mostly poor and rural northeastern state. A key landmark for Odebrecht was the founding in 1953 of Petrobras, with which the contractor immediately developed a close relationship, according to Odebrecht Informa Online, an in-house publication.

Acquisitions and JVs played a key role in Odebrecht’s expansion. In the 1980s, Odebrecht acquired two major Brazilian contractors: Companhia Brasileira de Projetos e Obras (CBPO) and Técnica Nacional de Engenharia (Tenenge). Expansion into new sectors has been facilitated by collaboration with Japanese companies, including a petrochemical JV in the 1970s with Marubeni and Ishikawajima (now IHI Corp) and cur-rent JVs with Mitsui (in urban rail transit) and Kawasaki Heavy Industries (in shipbuilding). Overseas business has accounted for a significant part of Odebrecht’s revenues since the 1980s, when domestic business diminished as Brazil suffered from recession and hyperinflation.

While the Odebrecht family is relatively large, the business has been led by a single dominant individual in each generation, with other family members maintaining low profiles. Norberto Odebrecht ran the group from 1944 to 1991, when his eldest son Emilio took over as president. From 2002 to 2009, non-family executive Pedro Novis held the top management job. Marcelo, the eldest son of Emilio, took over in 2009 and was the group’s dominant figure until he was arrested and jailed in 2015. Emilio no longer holds an executive position, and the only family member on group company boards is his daughter Mônica, who has not played a prominent public role. While the company emphasizes the decentralized management system and “entrepreneurial technology” developed by Norberto, it has never been without strong family guidance. With Marcelo imprisoned and Emilio in his 70s, the group faces a potential leadership vacuum.

IMPACT ON BUSINESS

Although the depth of Odebrecht’s involvement in bribery and money laundering has been exposed, the ultimate impact of the scandal on its business is still unclear. Corruption investigations – which despite ex-posing massive wrongdoing, also have a partisan and populist element – have continued to expand, raising the possibility of further allegations against Odebrecht companies. In addition to Marcelo, over 50 non-fam-ily executives have been implicated in the scandal. The damage will depend to a large extent on how severely authorities choose to penalize the group, and how long it takes to reach a settlement. Valor Econom-ico reported on 5 October, without citing sources, that Odebrecht was close to finalizing a leniency agreement with the Attorney General’s Office requiring the group to pay a fine of BRL 7bn over 15 years.

Debtwire reported on 4 October that OEC expected to secure a leni-ency deal by year-end. Such a deal would not only allow Odebrecht to resume bidding on government contracts in Brazil, but also reduce uncertainties that have made it difficult for the group to win private and overseas contracts. A majority of group’s revenues are generated abroad, and public works in Brazil last year represented only about 6%.

Estado de S. Paulo reported on 8 October that Emilio Odebrecht was personally leading negotiations with prosecutors. Meanwhile, the group has been negotiating with creditors and divesting assets, most notably agreeing to sell waste-treatment company Odebrecht Ambiental for a reported BRL 5.3bn. Additional cash was raised in September via an extraordinary dividend from Braskem. The ability of Odebrecht com-panies to avoid bankruptcy – and the family’s hopes of retaining control of its holdings – will depend on how courts weigh the importance of punishing corruption against the damage caused by protracted inves-tigations during a time of economic and political crisis.

Odebrecht Group bond overview

Odebrecht SA

Odebrecht SA and its subsidiaries had roughly BRL 110bn in total debt as of Dec 2015. This includes near-ly USD 4bn in bonds from OOG, USD 3bn from OEC and over USD 4bn from Braskem. The group has said that its companies do not intend to file for bankruptcy. Law firm E. Munhoz Avogados is advising Odebrecht in its talks with banks and bondholders.

Odebrecht Engenharia e Construção SA

OEC is seeking a leniency agreement with Brazilian authorities that would allow it to bid for govern-ment contracts. OEC is current on its bonds but its project backlog has shrunk and it has slowed work on existing projects to reduce cash burn. Its perpetual bonds have traded recently in the 50s, and its 2042, 2029 and 2025 bonds in the 40s and 50s.

Odebrecht Óleo e Gás SA

OOG missed a March 2016 coupon on its 7% unse-cured perpetual notes and failed to pay within the 30-day grace period. Its due-2022 bonds backed by drilling vessel contracts fell into default after one of the contracts was cancelled by Petrobras, forcing OOG to seek a forbearance. None of the bondholder groups have shown a desire to accelerate, and the company has continued to negotiate with creditors and with Petrobras. A potential exchange offer for the 2022 bonds has been discussed. OOG’s perpetual bonds recently traded at 6 its 2022 notes at around 20, and 2021 notes around 30.

Braskem SA Braskem has been relatively unaffected by the group’s troubles, and its bonds trade above par.


FAMILY STRUCTURE

Note: This chart is based on publicly available information and is not intended to be comprehensive. It includes only individuals relevant to the family business as executives or shareholders.

Odebrecht Family

Ilka Odebrecht Peltier QueirózHusb: Francisco Peltier Queiróz

Emilio Alves Odebrecht

b. 1945Wife: Regina Bahia

Former shareholder of Odebrecht SAHead of Odebrecht SA from 1991 to 2002

Norberto Odebrecht

1920-2014Wife: Yolanda Alves

Founded the group's flagship construction company in 1944; was head of Odebrecht

group until 1991

Martha Odebrecht QueirozEduardo Odebrecht

Wife: Maria Gloria NovisOdebrecht

Former shareholder of Odebrecht SA Former shareholder of Odebrecht SA

Marcelo Bahia Odebrechtb. 1968

Former CEO of Odebrecht; sentenced in March 2016 to 19 years in prison for

bribery, money laundering and organized crime

Mônica Bahia Odebrecht

Director of Odebrecht SA and OEC; only third-generation family member remaining

on Odebrecht boards

Marcia Bahia Odebrecht

Shareholder of Odebrecht SA

Maurício Bahia Odebrecht

Shareholder of Odebrecht SA and CEO of EAO Empreendimentos Agropecuários e

Obras SA

Francisco Peltier Queiróz Filho


Iolanda Peltier Queiróz Neves da Rocha


Emilio Odebrecht Peltier Queiroz


Eduardo Odebrecht de Queiróz

Executive president of Odebrecht Foundation; shareholder of Odebrecht SA

Paulo Odebrecht de Queiróz


Alexandre Odebrecht de Queiróz

Shareholder Odebrecht SA

Cristina Odebrecht de Queiróz

Shareholder Odebrecht SA

Juliana Novis Odebrecht


Norberto Odebrecht Neto


Solange Novis Odebrecht


Verônica Novis Odebrecht


Norberto Odebrecht Junior



CORPORATE STRUCTURE

Note: This organizational chart is based on public information. It contains key companies but is not intended to be comprehensive. Shareholders and USD-denominated bonds are indicated for each company, with family members and family companies in italics. Companies are domiciled in Brazil unless otherwise noted.

Agencia Nacional de Energia Eletrica (ANEEL) 2016 ANEEL2016 Braskem2014

ANEEL2016, Braskem2016 ANEEL2016, Braskem2015 AR2015, Braskem2016 AR2015

Holding Companies

AR2015 AR2015 AR2015 AR2015

DW

AR2015 AR2015

AR2015

DW

AR2015 AR2015

DW

DW

AR2016

DW

DW

Construction Transportation Infrastructure Waste & Water Management Oil & Gas

Infrastructure (LatAm)

Urban Rail

Highways Property Development

Odebrecht Transport SA

Odebrecht SA 59.39%FI-FGTS 30%

BNDESPar 10.61%

Odebrecht Mobilidade SA

Odebrecht Transport 100%

Odebrecht Rodovias SA

Odebrecht Transport SA 60%Mitsui & Co Ltd 40%

Odebrecht Engenharia & Construção SA 100%

Construtora Norberto Odebrecht SA

Odebrecht Engenharia & Construção SA 100%

Odebrecht Engenharia & Construção Internacional SA

Odebrecht Latinvest SA

Odebrecht Participações e Investimentos 100%

Odebrecht Realizações Imobiliárias e Participações SA

Odebrecht SA 85.5%Gávea Investimentos 14.5%

Odebrecht Ambiental SA[sale pending to Brookfield Asset

Management]

Odebrecht SA 70%FI-FGTS 30%

Odebrecht Utilities SA

Odebrecht Ambiental SA 82.76%Funcef 12.24%

Odrebrecht Óleo e Gás SA

Odebrecht SA 81.43% Temasek Holdings (via Atlantic Oil Services

BV) 13.57%; Gávea Investimentos 5%

Odrebrecht Óleo and Gás SA 100%

Odebrecht Oil & Gas Finance Ltd(Cayman Islands)

Odebrecht Oil & Gas GmbH 100%

Odebrecht Drilling Norbe VIII/IX Ltd (Cayman Islands)

Odebrecht Oil & Gas GmbH(Austria)

Subsidiary of OOG GmbH

Odebrecht Offshore Drilling Finance Ltd (Cayman Islands)

Odrebrecht Óleo and Gás SA 100%

Kieppe Patrimonial Ltda

Cape Patrimonial Ltda 15.27%;Riocon Patrimonial Ltda 21.36%; Norberto Odebrecht Jr Patrimonial Ltda 21.36%; IPQ

Patrimonial 21.36%; EAO Patrimonial 20.65%

Kieppe Serviços Ltda

Kieppe Patrimonial Ltda 100%

Cape Patrimonial Ltda – Eduardo Odebrecht de Queiróz 25%; Paulo Odebrecht de Queiróz 25%; Alexandre Odebrech de Queiróz 25%; Cristina Odebrecht de Queiróz 25%Riocon Patrimonial Ltda – Juliana Novis Odebrecht 25%; Norberto Odebrecht Neto 25%; Solange Novis Odebrecht 25%; Veronica Novis Odebrecht 25%Norberto Odebrecht Jr Patrimonial Ltda – Norberto Odebrecht Junior 100% IPQ Patrimonial Ltda – Francisco Peltier Queiróz 33.34%; Iolanda Peltier de Queiróz Neves da Rocha 33.33%; Emilio Odebrecht Peltier Queiroz 33.33%EAO Patrimonial Ltda – Marcelo Odebreecht 25%; Mônica Odebrecht 25%; Marcia Odebrecht 25%; Maurício Odebrecht 25%

Odebrecht Engenharia & Construção SA

Dir: Mônica Odebrecht

Subsidiary of Oderbrecht SA

USD 550m 7% sr unsec perp notes

USD 1.5bn 6.75% sr sec notes 2022USD 540m 6.625% sr sec notes 2022

USD 1.23bn 6.35% sr unsec notes 2021

Odebrecht SA 100%

Odebrecht Finance Ltd (Cayman Islands) [financing for construction business]

USD 73m 7% sr unsec notes 2020 USD 143m 5.125% sr unsec notes 2022

USD 102m 6% sr unsec notes 2023USD 519m 4.375% sr unsec notes 2025USD 500m 5.25% sr unsec notes 2029

USD 840m 7.125% sr unsec notes 2042USD 750m 7.5% sr unsec perp notes

Oderbrecht SADirector: Mônica Odebrecht

Odbinv SA 100%

Enseada Indústria Naval Participações SA

Odebrecht SA 50%OAS SA 25%

UTC Engenharia SA 25%

Kieppe Participações e Administração Ltda

Director: Emilio Alves Odebrecht

Kieppe Patrimonial Ltda 99.89% Kieppe Serviços Ltda 0.11%

Odbinv SADirector: Mônica Odebrecht

Kieppe Participações e Administração Ltda 55.13%; Graal Participações 20.98%

Odebrecht FamilyCorporate Structure

(Part 1)


CORPORATE STRUCTURE

Note: This organizational chart is based on public information. It contains key companies but is not intended to be comprehensive. Shareholders and USD-denominated bonds are indicated for each company, with family members and family companies in italics. Companies are domiciled in Brazil unless otherwise noted.

Agencia Natcional de Energia Eletrica (ANEEL) 2016 ANEEL2016 Braskem2014

ANEEL2016, Braskem2016 ANEEL2016, Braskem2015 AR2015, Braskem2016 AR2015

Holding Companies

Odebrecht Energia 2015 Mkt cap BRL 20.8bn AR2015, DW8Aug2016 AR2015 AR2015

Odebrecht Energia 2015 DW 8Aug2016 BraskemFilings AR2015

Odebrecht Energia 2015

Diário Oficial do Estado de São Paulo 2014

DW 8Aug2016



Energy Petrochemical Sugar & Ethanol Shipbuilding

Defense Technology

Medical Research

Braskem SA[BOVESPA: BRKM5]

Odebrecht SA 38.32% Petrobras 36.08%

Odebrecht Defesae Tecnologia SA

Odebrecht SA 100%

Odebrecht SA 100%

Odebrecht Agroindustrial SA

Odebrecht SA 100%

Odebrecht Energia SA

Enseada Indústria Naval Participações SA 70%; Kawasaki Heavy Industries Ltd 30%

Enseada Indústria Naval SA

Odebrecht Energía SA

Odebrecht Energia Participações SA


Odebrecht Energias Alternativas SA


Odebrecht Energia Renovável SA


Odebrecht Comercializadora de Energia SA

Owned by the Odebrecht family

Empreendimentos Agropecuários e Obras SA

Empreendimentos Agropecuários e Obras SA

Recepta Biopharma SA

Braskem SA 100%

Braskem Finance Ltd (Cayman Islands)

USD 234m 7.25% sr sec notes 2018USD 400m 7% sr sec notes 2020

USD 1bn 5.75% sr sec notes 2021USD 500m 5.375% sr sec notes 2022USD 750m 6.45% sr sec notes 2024USD 700m 7.375% sr sec perp notes

Braskem SA 100%

Braskem America (US)

USD 750m 7.125% sr unsec notes 2041

USD 72m 8% sr unsec notes 2017

Kieppe Patrimonial Ltda

Cape Patrimonial Ltda 15.27%;Riocon Patrimonial Ltda 21.36%; Norberto Odebrecht Jr Patrimonial Ltda 21.36%; IPQ

Patrimonial 21.36%; EAO Patrimonial 20.65%

Kieppe Serviços Ltda

Kieppe Patrimonial Ltda 100%

Cape Patrimonial Ltda – Eduardo Odebrecht de Queiróz 25%; Paulo Odebrecht de Queiróz 25%; Alexandre Odebrech de Queiróz 25%; Cristina Odebrecht de Queiróz 25%Riocon Patrimonial Ltda – Juliana Novis Odebrecht 25%; Norberto Odebrecht Neto 25%; Solange Novis Odebrecht 25%; Veronica Novis Odebrecht 25%Norberto Odebrecht Jr Patrimonial Ltda – Norberto Odebrecht Junior 100% IPQ Patrimonial Ltda – Francisco Peltier Queiróz 33.34%; Iolanda Peltier de Queiróz Neves da Rocha 33.33%; Emilio Odebrecht Peltier Queiroz 33.33%EAO Patrimonial Ltda – Marcelo Odebreecht 25%; Mônica Odebrecht 25%; Marcia Odebrecht 25%; Maurício Odebrecht 25%

Oderbrecht SADirector: Mônica Odebrecht

Odbinv SA 100%

Enseada Indústria Naval Participações SA

Odebrecht SA 50%OAS SA 25%

UTC Engenharia 25%

Kieppe Participações e Administração Ltda

Director: Emilio Alves Odebrecht

Kieppe Patrimonial Ltda 99.89% Kieppe Serviços Ltda 0.11%

Odbinv SADirector: Mônica Odebrecht

Kieppe Participações e Administração Ltda 55.13%; Graal Participações 20.98%

Odebrecht FamilyCorporate Structure

(Part 2)


AFFILIATIONS Relationships with individuals and institutions that may have an impact on the family’s business

Affiliation Notes

Jeb Bush

A non-profit foundation established by Jeb Bush received money from Odebrecht´s Florida subsidiary in 1995, Orlando Weekly reported in 1998. The Foundation for Florida's Future was created by Bush after his unsuccessful gubernatorial campaign in 1994, and served as a vehicle for his successful 1998 campaign. Odebrecht Contractors of Florida was the foundation's largest donor in 1995, providing USD 70,000. The foundation claimed the money was used to fund a book co-authored by Bush titled "Profiles in Character". Bush's refusal to disclose the donor's identity became an issue during the 1998 campaign, and Odebrecht's donation was ultimately revealed by the media. The Miami Herald reported in 2013 that Odebrecht had won public contracts in Florida worth more than USD 4bn since 1991.

BNDES

Government-owned Brazilian National Development Bank (BNDES) has been a major source of financing for Odebrecht companies. Via its equity arm BNDESPar, it held a 10.61% stake in Odebrecht Transport as of June 2016. BNDES is currently facing a government audit of its lending practices which has yielded allegations of preferential lending causing losses to the government, according to press reports.

Hugo Chavez

Odebrecht was awarded numerous contracts in Venezuela during the presidency of Hugo Chavez from 1999 to 2013. Many of these projects were not awarded through a normal tender process, according to El Nuevo Herald. Odebrecht funded a book on Simon Bolivar that Chavez distributed, according to the Miami Herald. In 2015, Transparency International announced it was investigating Odebrecht contracts in Venezuela.

Clinton Foundation Odebrecht Overseas Ltd donated between USD 50,000 and USD 100,000 to the Clinton Foundation in 2014, according to a list of donors released by the foundation.

Luiz Inácio Lula da Silva

The former president of Brazil (2003-2011) was questioned by Brazilian police in March 2016 on suspicion of having illegally received payments and luxury real estate, including from Odebrecht, in connection with Petrobras deals. He has also been accused of illegally lobbying on behalf of Odebrecht in numerous countries. On 10 October he was charged, together with Marcelo Odebrecht, with involvement in alleged bribery related to contracts in Angola. Prosecutors claim Lula helped Odebrecht obtain financing from BNDES in return for kickbacks. Lula also faces charges in other cases, one for allegedly interfering with Petrobras corruption investigations and another for allegedly receiving bribes from construction company OAS SA. He has denied wrongdoing.

Gavea Investimentos Gavea Investimentos, which as of 2016 held a 5% stake in Odebrecht Óleo e Gás and a 14.5% stake in Odebrecht Realizações Imobiliárias, was founded by former central bank president Arminio Fraga and acquired in 2010 by JPMorgan subsidiary Highbridge Capital Management.

General Ernesto Geisel

Geisel (1907-1996) was Brazil’s president from 1974 to 1979, during a period of military dictatorship. Before that, he was the head of Petrobras. Norberto Odebrecht was “aligned” with Geisel and won major Petrobras projects under military rule, according to the Wall Street Journal.

Gradin Family

The Gradin family owns a 20.98% stake in Odbinv SA, a holding company that wholly owns Odebrecht SA. Victor Gradin was a long-time Odebrecht executive, serving as its CFO from 1974, while his sons Bernardo and Miguel headed Braskem and Odebrecht Oil & Gas. The families have been involved in a dispute since 2010, when the Odebrecht family attempted to exercise an option to buy the Gradin stake for the equivalent of USD 1.5bn, and the Gradin family refused to sell and requested court assistance to send the matter to arbitration. Odebrecht claimed the shareholding agreement's arbitration clause was vague and non-binding, but in Dec 2015 the Superior Court of Justice ruled that the clause was valid. Gradin family members have resigned from Odebrecht companies and their business is now focused on the alternative energy sector. The Gradin family’s stake is Odbinv SA is held via Graal Participações.


AFFILIATIONS Relationships with individuals and institutions that may have an impact on the family’s business

Affiliation Notes

FI-FGTS Fund FI-FGTS is an infrastructure fund managed by Brazilian state-owned bank Caixa Econômica Federal. It held a 30% stake in infrastructure contractor Odebrecht Transport and a 30% stake in Odebrecht Ambiental as of June 2016.

Funcef Funcef, one of Brazil's largest pension funds, manages assets for state-owned bank Caixa Econômica Federal. It holds a 12.24% stake in Odebrecht Utilities SA. The ongoing “Greenfield” investigation into fraud at state-owned pension funds has resulted in allegations that Funcef and other funds had acquired equity and debt of certain companies at inflated prices.

Kawasaki Heavy Industries

Tokyo-listed Kawasaki Heavy Industries Ltd owns a 30% stake in Odebrecht-controlled shipbuilder Enseada Indústria Naval SA.

Guido Mantega Guido Mantega was Brazil's Minister of Finance from 2006 to 2015. Folha reported in May 2015 that Marcelo Odebrecht told prosecutors that Mantega and former BNDES president Luciano Coutinho had pressured construction companies to make campaign donations to Dilma Rousseff in exchange for loans from BNDES. Mantega and Coutinho denied the accusations.

Mitsui & Co Tokyo-listed Mitsui & Co owns 40% of Odebrecht Mobilidade, a rail-focused subsidiary of infrastructure contractor Odebrecht Transport.

OAS SA OAS SA, one of Brazil's largest contractors, filed for bankruptcy in 2015 after being implicated in the Petrobras scandal. It holds a 25% stake in Enseada Indústria Naval Participações SA, which has a 70% stake in shipbuilder Enseada Indústria Naval. The other shareholders in the holding company are Odebrecht S.A. (50%) and UTC Engenharia (25%).

Antonio Palocci

Brazil's former finance minister (2003-2006) under Luiz Inácio Lula da Silva and chief of staff (2011) under Dilma Rousseff was accused by Lava Jato prosecutors of having received bribes from Odebrecht, according to press reports. He was temporarily detained in September on allegations of receiving BRL 128m from Odebrecht on behalf of the Workers’ Party, and of supporting legislation to benefit Braskem, according to O Estado de S. Paulo. Palocci denied the allegations.

Petrobras In addition to having been a major contractor of Petrobras over several decades, Odebrecht Group is also the state-owned oil company's JV partner in Braskem. Braskem was 38.32% owned by Odebrecht SA and 36.08% by Petrobras as of June 2016, with Odebrecht having 50.1% voting control.

Dilma Rousseff

The Odebrecht Group's relationship with impeached ex-president Dilma Rousseff has been under scrutiny in the Lava Jato investigation. Marcelo Odebrecht was a major campaign donor to Rousseff and predecessor Luiz Inácio Lula da Silva. According to press reports, Odebrecht was expected to detail illegal campaign donations as part of a plea bargain, but he chose not to collaborate with prosecutors. Rousseff has denied wrongdoing.

Temasek Holdings Singapore government-owned investment fund Temasek Holdings paid USD 400m for a 14.3% stake in Odebrecht Óleo e Gás in 2010. It held a 13.57% stake as of June 2016.

UTC Engenharia SA UTC Engenharia holds a 25% stake in Enseada Indústria Naval Participações, which has a 70% stake in shipbuilder Enseada Indústria Naval. The other shareholders in the holding company are Odebrecht SA (50%) and OAS SA (25%). Both UTC and OAS have been implicated in the Lava Jato scandal.


RISK FACTORS Legal issues, controversies, conflicts and other difficulties that may affect the family’s companies

Risk Factor (by country) Notes

Angola: human trafficking and bribery allegations

Brazilian prosecutors accused Odebrecht in 2014 of “human trafficking” of Brazilian workers on a biofuel plant construction project in Angola, the BBC reported. Odebrecht, which is Angola’s largest private-sector employer, allegedly kept the workers in “slave-like conditions”, and prosecutors demanded BRL 500m in compensation plus a fine of up to 20% of annual revenues, according to the report. More recently, Brazilian police have investigated possible bribery and money laundering related to Odebrecht’s contracts in Angola, according to press reports.

Antigua: money laundering allegations

Odebrecht executives allegedly acquired a controlling stake in Meinl Bank Antigua in 2010 and used the offshore lender for money-laundering purposes, Antigua’s Daily Observer reported in July 2016, citing testimony by bank employee Vinicius Borin. The bank was used by Odebrecht executives to move USD 1.6bn through more than 40 accounts, according to the report.

Argentina: bribery allegations

Brazilian prosecutors investigating Petrobras said in February 2016 that they suspected former Argentinian transport secretary Ricardo Jaime of having received bribes from Odebrecht, the Buenos Aires Herald reported in August. Prosecutors said that a document seized from Odebrecht's offices mentioned payments to Argentinian authorities via an offshore entity.

Brazil: 1993 bribery cartel allegations

In a 1993 case with parallels to the Lava Jato scandal, Odebrecht was accused of heading a cartel of contractors that channelled bribes to officials in exchange for government contracts. Investigators said they seized documents detailing a sophisticated corruption scheme from the house of an Odebrecht construction company director. The scandal sparked a stock market selloff and fears of a military coup. Odebrecht denied wrongdoing.

Brazil: Marcelo Odebrecht prison sentence in Lava Jato investigation

Marcelo Odebrecht was sentenced in March 2016 to 19 years and four months in prison for money laundering, corruption and organized crime. He is the most important executive to have been convicted in the Lava Jato investigation into corruption related to Petrobras contracts. Odebrecht was arrested in June 2015 and held in "preventive detention" during the trial. According to the court, Odebrecht was the head of a contractor cartel that rigged bids and channelled bribes through a network of offshore accounts, resulting in billions of BRL in losses to the state-owned oil company. Numerous other Odebrecht Group executives have also been charged in connection with the case. According to Folha de S. Paulo, the group has been trying to arrange plea bargains for 53 of its employees. While Marcelo Odebrecht has denied any intention to seek a plea bargain, citing his innocence and family values, there have been numerous media reports that a deal is being negotiated. Folha de S. Paulo reported that Odebrecht has met with prosecutors repeatedly and provided information on politicians including Dilma Rousseff, Luiz Inácio Lula da Silva and current president Michel Temer. Brazil’s Attorney-General’s Office (PGR) submitted a proposal to Odebrecht’s lawyers on 3 October offering a reduction of the sentence to four years, further reduced by 16 months for time already served, according to the report, which noted that Odebrecht and the PGR declined to comment.

Brazil: other investigations

Odebrecht has been accused in numerous ongoing corruption investigations. Marcelo Odebrecht and ex-president Luiz Inácio Lula da Silva have been charged in a Federal District court with corruption in relation to Odebrecht contracts in Angola, according to O Estado de S. Paulo. São Paulo state prosecutors are investigating allegations of corruption related to Odebrecht Group subway and bus contracts. Odebrecht’s waste-processing contracts with the city of São Paulo are the subject of a civil investigation, according to the same report.

Colombia: fines for project delays

Odebrecht began paying fines of COP 20.86m per day in June 2016 after failing to find a company to take over its USD 849.7m, 87% stake in a project to deepen the Magdalena River in Colombia, according to Reuters. Odebrecht exercised a clause allowing it to transfer the stake in extraordinary circumstances.


RISK FACTORS Legal issues, controversies, conflicts and other difficulties that may affect the family’s companies

Risk Factor (by country) Notes

Dominican Republic: power plant controversy

The awarding of a Dominican Republic power-plant project to Odebrecht in 2013 was criticized for lack of transparency and alleged lobbying by former Brazil President Luiz Inácio Lula da Silva, according to press reports. The CEO of Odebrecht’s Dominican operations was declared a fugitive after failing to report to a court hearing. The scandal is seen as potentially destabilizing for the administration of Dominican President Danilo Medina, according to press reports.

Ecuador: expulsion from country

The government of Ecuador expelled Odebrecht from the country in 2008 and sent troops to seize its projects, which included two hydroelectric plants and an airport, according to press reports. The incident led to a diplomatic dispute Ecuador and Brazil, with Brazil recalling its ambassador and freezing bilateral projects. Ecuador accused Odebrecht of fraud related to faulty construction on a dam, and threatened not to repay a Brazilian Development Bank (BNDES) loan that financed the project. Odebrecht and Ecuador reached a settlement in 2010, and the company resumed operations there.

Peru: bribery allegations

Peruvian presidents have been accused of receiving illicit donations from Odebrecht. Alejandro Toledo (president from 2001 to 2006) was charged in 2016 with money laundering in connection with the purchase of a USD 4.6m home and office in Lima that prosecutors claim was funded with bribes from Odebrecht and fellow Brazilian contractor Camargo Correa, according to Peru Reports. Toledo was also investigated, along with current president Pedro Pablo Kuczynski, for promoting a bill that favored Odebrecht. Ollanta Humala (president from 2006 to 2011) is also suspected by Brazilian investigators of having received bribes from Odebrecht, based on documents seized from Odebrecht in the Lava Jato investigation, according to Reuters. All three presidents have denied wrongdoing.

US: Florida controversy over Cuban ties

Odebrecht generated controversy in Florida because of its involvement in projects with the Cuban government, in particular the development of Mariel port near Havana. In 2012, the Florida legislature passed a law - widely seen as targeting Odebrecht - prohibiting local governments from doing business with companies that operate in Cuba or Syria. Odebrecht's US subsidiary sued the state of Florida, claiming the law was unconstitutional. According to the lawsuit, Odebrecht USA had won 35 government contracts worth USD 3.9bn in Florida since 1990. The Florida law was struck down by a federal court. However, a key Odebrecht project in Florida - the Airport City development at Miami International Airport - was stalled and eventually cancelled due in part to Cuban exile politicians' opposition to Odebrecht's involvement, according to press reports.

US: Garcon Point Bridge environmental violations

A Florida JV in which Odebrecht was a partner was fined USD 4m for environmental violations in 2000, according to the St. Augustine Record. The company pleaded guilty to dumping debris in Pensacola Bay when building the Garcon Point Bridge. The bridge, along with a bond issue financing it, had been promoted by a state legislator who was later jailed for tax evasion.

US: shareholder lawsuit against Braskem

A class action lawsuit was filed against Braskem S.A. on 1 July 2015 by investor Douglas Peters in the U.S. District Court for the Southern District of New York. Peters claimed that Braskem had made false statements about the effectiveness of its internal controls, resulting in its ADRs trading at inflated prices. Petrobras officials admitted to having received bribes from Braskem in exchange for discounts on raw materials. Former CEO Bernardo Gradin was named as a co-defendant.

Disclaimer: We have obtained the information provided in this report in good faith from sources that we consider to be reliable, but we do not independently verify the information. The information is not intended to provide tax, legal or investment advice. We shall not be liable for any mistakes, errors, inaccuracies or omissions in, or incompleteness of, any information contained in this report. All such liability is excluded to the fullest extent permitted by law. Data has been derived from corporate disclosures, regulatory announcements, government publications, media reports, press releases, presentations and Debtwire intelligence.


NEWS

Date Headline

14 Oct 2016 Odebrecht ex-CEO, Brazilian ex-President Lula become defendants in corruption proceeding (translated)

14 Oct 2016 OOG bondholders work on counterproposal

12 Oct 2016 Brazil’s BNDES suspended payments for 25 projects by companies implicated in Petrobras probe (translated)

11 Oct 2016 Odebrecht under investigation over bribery allegations in subway and bus contracts (translated)

11 Oct 2016 Petrobras probe: prosecutors reject Odebrecht ex-director’s plea bargain deal – report (translated)

11 Oct 2016 Petrobras probe: Odebrecht plea bargains expected to generate more than 100 new investigations – report (translated)

11 Oct 2016 Brazil's MPF charges Marcelo Odebrecht, former president Lula da Silva with corruption re Angola contracts

08 Oct 2016 Grupo NC to acquire two wind energy assets from Odebrecht subsidiary Odebrecht Energias Alternativas

07 Oct 2016 Petrobras task force proposes Marcelo Odebrecht spend four years in jail—report (translated)

05 Oct 2016 Odebrecht close to leniency agreement with Brazilian authorities, includes fine of BRL 7bn - report (translated)

05 Oct 2016 Odebrecht may be investigated for alleged bribery in Sao Paulo subway, bus and waste-collection contracts – reported rumor (translated)

04 Oct 2016 Braskem orders investigation of bribery allegations involving Brazil’s former Chief of Staff Antonio Palocci

04 Oct 2016 Petrobras probe: police oppose new plea bargain deals – report (translated)

04 Oct 2016 OEC counting on leniency agreement by year-end to renew backlog

03 Oct 2016 Odebrecht in negotiations with two bidders to sell its 30.6% stake in Rio airport - report (translated)

30 Sep 2016 OEC backlog down 8.9% in 2Q16; no new contracts added

30 Sep 2016 Odebrecht suspected of paying bribes over Sao Paulo real estate project (translated)

29 Sep 2016 Petrobras probe: Odebrecht entering final stage of cooperation agreement negotiations – report (translated)

29 Sep 2016 Brazil police start new bribery investigation into 38 Odebrecht projects (translated)

27 Sep 2016 Petrobras probe: Odebrecht accused of paying USD 39.4m in bribes to Workers’ Party in 6 years (translated)

26 Sep 2016 Petrobras probe: former Chief of Staff arrested on accusation of taking bribes from Odebrecht (translated)

25 Sep 2016 Odebrecht's real estate unit to speed up sales of assets to reduce debt (translated)

23 Sep 2016 Petrobras aims to sell stake in Braskem before December 2018

22 Sep 2016 Petrobras probe taskforce starts investigation into corruption at Comperj (translated)

21 Sep 2016 Odebrecht close to selling Odebrecht Ambiental to Brookfield for BRL 5bn - report

21 Sep 2016 Odebrecht's Navelena has until 23 November to comply with concession financing requirements

20 Sep 2016 Odebrecht to pay an average of BRL 15m to each executive providing information on Lava Jato probe - report (translated)

19 Sep 2016 OOG audit found no evidence of unlawful benefits to Petrobras employees (translated)

19 Sep 2016 Petrobras probe: Brazilian IRS to charge over USD 3.1bn from construction firms (translated)

16 Sep 2016 Odebrecht Offshore Drilling Finance downgraded to 'CCC' from 'CCC+' on expected tighter liquidity - S&P

15 Sep 2016 Odebrecht ex-CEO indicted in BNDES corruption probe (translated)

12 Sep 2016 Petrobras corruption probe expected to continue for two more years (translated)

07 Sep 2016 Odebrecht's GSP sale to Sempra-Techint consortium supported by Peruvian government

07 Sep 2016 OOG working to present proposal to bondholders within two weeks

06 Sep 2016 Odebrecht Ambiental nears sale to Brookfield - report (translated)

05 Sep 2016 Petrobras probe taskforce finds further evidence of former Odebrecht CEO’s implication in bribery (translated)

01 Sep 2016 Odebrecht: Brazilian Supreme Court lifts freeze on BRL 2.1bn of company funds (translated)

31 Aug 2016 OOG bondholders grant temporary waiver allowing capital expenditure from permit project receipts

30 Aug 2016 Odebrecht's Navelena presents timeline and plan for Magdalena River project

29 Aug 2016 OOG bondholders grant waiver allowing use of USD 10.4m to partially fund 1 September debt payment

28 Aug 2016 Odebrecht: Rio airport does not generate enough revenue to make federal government payments, consortium may lose concession (translated)

28 Aug 2016 Medina negotiates purchase of Maracana Odebrecht concession - report (translated)

27 Aug 2016 Odebrecht: Swiss court rejects company request to stop Swiss Prosecutor's Office from sending documents to Brazil authorities (translated)

26 Aug 2016 Sempra/Techint consortium seeking exclusive talks to acquire GSP 55% stake from Odebrecht - reported (translated)

22 Aug 2016 Odebrecht Finance's senior unsecured notes downgraded to B3; OEC downgraded to B3 - Moody's

18 Aug 2016 Brazilian TCU freezes BRL 2.1bn in assets of Odebrecht, OAS on overpriced works at Petrobras' refinery (translated)

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