Latin American Construction Companies' Woes May Not Be Over

EMERGING MARKETS RESTRUCTURING JOURNAL ISSUE NO. 3 — SPRING 2017 Latin American Construction Companies’ Woes May Not Be Over, Yet

By BROCK EDGAR and DEVI RAJANI

Can Latin American construction Many regional construction companies have experienced companies survive an expected plateau or will likely be going through restructurings. In Mexico, the three largest homebuilders went through restructurings in gross fixed capital formation in a region between 2014 and 2016 and one of Mexico’s largest engineering that so desperately needs infrastructure and construction companies, Empresas ICA, S.A.B. de C.V., investment? is currently being restructured. Similarly, in a process that has been ongoing since 2015, one of Brazil’s largest engineering and construction companies, OAS S.A. is also currently being In recent years, Latin American construction companies have restructured. Looking ahead, the fallout from Odebrecht’s faced deteriorating cash flows due to overexpansion at home admission of foreign bribery will likely affect its engineering or abroad, limited financing availability due to changing and construction business, as well as its consortium partners regulations and/or government investigations (i.e., “Lava throughout Latin America where projects are being cancelled, Jato” in Brazil, also known as the Car Wash Investigation), triggering sureties and bank guarantees. falling commodity prices (primarily oil) and cutbacks in government spending; all of which have led to over-levered Against this backdrop, the uncertainty with respect to future financial positions. economic development makes capital investment decisions difficult. This is even truer today following the election of Brazil: Percentage GDP Change vs. Percent Cement Consumption Change

20.0%

15.0%

10.0%

5.0%

0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 -5.0%

-10.0% ?

-15.0% White NML Case GDP % Change Cement Consumption % Change Hawthorne Case

Source: World Bank, Economist Intelligence Unit, Sindicato Nacional da Indústria do Cimento -SNIC and FTI analysis. Dec. 2011 Feb. 2012 Oct. 2012 Nov. 2012 Aug. 2013 Dec. 2016

District Court District Court Second Circuit District Court Second Circuit District Court in nds breach orders injunctions: aﬃrms breach and makes a number aﬃrms amended White Hawthorne: EMERGING MARKETS RESTRUCTURING JOURNAL ISSUE NO. 3 — SPRING 2017 of pari passu Argentina injunctions of technical injunctions relying clause cannot service amendments on “extraordinary restructured debt to injunctions behavior“ of UNLESS it also Argentina pays holdouts Infrastructure Quality vs. GFCF as a % of GDP

6.5 Payment of some Unprecedented Arguably broad Narrowed scope Payment of some Payment of some creditors but not nding — Chaos interpretation of injunctions creditors but not creditors but not Japan UAE others is a pari in sovereign debt becomes federal others continues others is NOT a Debt/EBITDA for Select Latin American Construction Companies (2015/2016) Germany Swizterland 6.0 United Kingdom South Korea passu breach market law in New York to be a violation of pari passu United States pari passu BUT violation (UNLESS Empresa ICA, S.A.B. de C.V. Canada ruling premised on the debtor is Australia OAS S.A. 5.5 extraordinary “recalcitrant”) Italy Empresa Constructora Moller y Pérez Cotapos S.A. behavior of debtor Somague-Engenharia, S.A. Saudi Arabia 5.0 IDEAL,S.A.B. de C.V. Russia Panama Cyrela Brazil Realty S.A. Trinidad Chile China Andrade Gutierrez S.A. 4.5 & Tobago Uruguay Turkey Construcciones el Condor S.A. South Africa Mexico Indonesia Salfacorp S.A. Costa Rica Ecuador 4.0 El Salvador Brazil India Construtora Queiroz Galvão S.A. Jamaica Score (2016/2017) Guatemala Odinsa S.A. Colombia Peru Socovesa S.A. 3.5 C/R Almeida S.A. Honduras Constructora Conconcreto S.A. Bolivia Nicaragua Graña y Montero S.A.A. 3.0 Dominican Republic World Economic Forum Infrastructure Besalco S.A. Construções e Comércio Camargo Corrêa S.A. Paraguay 2.5 Arteris S.A. Arendal, S. de R.L. de C.V. 10% 15% 20% 25% 30% 35% 40% 45% Cosapi S.A. Echeverría Izquierdo S.A. 2015 GFCF as a % of GDP Ingevec S.A. Obras de Ingeniería S.A. Source: World Economic Forum, “The Global Competitiveness Report 2016–2017”, World Bank national accounts data, and OECD National Accounts data les, FTI Analysis MRV Engenharia e Participações S.A. Odebrecht Engenharia e Construção S.A. Mexico Grupo Mexicano de Desarrollo, S.A.B. (GMD) Peru Carso Infraestructura y Construcción y Filiales, S.A. de C.V. (CICSA) Chile Timeline of the Mexican Proceeding THP-Triunfo Holding de Participações S.A. Colombia Toniolo, Busnello S.A. Brazil OHL México, S.A.B. de C.V. Promotora y Operadora de Infraestructura, S. A. B. de C. V. (PINFRA) November 2015 Default on local short-term bonds 0.0x 1.5x 3.0x 4.5x 6.0x 7.5x 9.0x 10.5x 12.0x 13.5x 15.0x 16.5x 18.0x19.5x Mexico: Latin America’s GFCF (% of GDP) and Oil Prices (Brent) Percentage GDP Change vs. Source: FTI Analysis based on latest public information from Capital IQ and company websites. Leverage ratios vary from 2015 to 2016. Odebrecht E&C’s leverage is based on a Fitch Percent Construction Change 2016 estimate. 21.5% $140.00 Court accepted Banco Base’s July 15, 2016 10.00% 6.0% request for involuntary insolvency $120.00 8.00% 4.0% 6.00% President Trump in the United States and the potential impact $100.00 20.5% 4.00% 2.0% on global trade (particularly for its neighbors to the south), the July 2016 IFECOM appointed visitador $80.00 2.00% 0.0% strengthening dollar, flattish oil prices and the moderating — 0.00% $60.00

USD/bbl 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 growth outlook for China. For Latin America specifically, -2.00% -2.0% Peru Gross fixed capital formation (“GFCF”) 19.5% economic growth is further restricted by depressed commodity $40.00 -4.00% Dec. 16, 2016 Court declared Abemex bankrupt -4.0% as defined by the World Bank includes: -6.00% prices in metals and mining (gold, iron ore, copper, etc.). Indeed, $20.00 -8.00% -6.0% although Bloomberg AnalystReorganization Consensus Forecasts show flat to If disputes are INDECOPI 18.5% $0.00 Court appointed the conciliator and Plan • land improvements (fences, ditches, GDP % Change Construction % Change Dec. 26, 2017 modest price increases in these commodities from their troughs However under on a default has exclusive 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 conciliation period began Disputes on restructuring on the agreed execution or drains, and so on) jurisdiction Source: INEGI (Instituto Nacional de Estadística y Geografía), CMIC (Camara Mexicana in 2015/2016, these prices are still below the prices of 2013, payment terms GFCF Oil (USD/bbl) Creditors interpretation de Industria de la Construcción) and FTI analysis. which was a year removed fromLiquidation the peak years of 2011/2012. Source: Bloomberg, World Bank national accounts data and OECD National Accounts Meeting of plan/agreements Late A3T excluded from Mexican Agreement • plant, machinery, and equipment data les, Economist Intelligence Unit Forecasts (December 20, 2016), FTI Analysis. approve addressed through January, 2017 insolvency proceeding Arbitration or Latin America is comprised of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, However, uncertainty in gross fixed capital formationjudicial courts* purchases Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and Venezuela. (“GFCF”) and/or capital investmentPre-packaged is not something the Early Meetings between Abemex and region can afford; the lack Agof investmentreement and infrastructure • the construction of roads, railways, February, 2017 bondholders in the region further deepens the deficit the region faces, and the like impacting economic growth. * Default rule absent explicit agreement: judicial courts Feb. 14, 2017 Provisional list of creditors Illustrative Liquidation Waterfall Under Greek Law The World Economic Forum’s Global Competitiveness Report ratios of GFCF as a percentage of GDP, similar to that of China. (2016-2017) ranks the infrastructure quality of 138 countries on However, most of the Latin American region has an infrastruc- New Capital Structure March 17, 2017 Final list of creditors a scale of 1 to 7 (7 being the best). The highest ranking country ture score under 4.5 which compares unfavorably to the highest in the Latin American region is Panama at #36 (with an score of 6.7 achieved by Hong Kong SAR. Developed economies, 5% infrastructure quality score of 4.9), followed closely by Chile 5% Superpriority such as United States, Canada and Europe generally have scores April 11, 2017 Court’s creditors ruling and Uruguay at #44 (4.7) and #47 (4.5), respectively. Panama’s Chile claims arising above 5.50. from rescue/ DIP nancing ranking is not surprising given that it has one of the highest Financial investors lending new money

Financial entities providing new bonds Accessory Restructuring • General privilege April 18, 2017 50% Creditors acceding to the agreement Agreement with 71.3% of creditors Restructuring • Employees’ claims 40% Current shareholders arising within two years Bankruptcy debtor’s consent + 2/3 Arbitration Arbitrator to render before the declaration majority vote of of bankruptcy Pending Final Restructuring Plan proceedings debtor’s liabilities procedure is an award within 2 can be subject binding on all years, unless parties • Greek State tax claims to arbitration creditors agree otherwise • Social security claims

Liquidation Special Privilege claims 2/3 majority vote of (including secured creditors) veri ed claims

Unsecured creditors Brazil: Percentage GDP Change vs. Percent Cement Consumption Change

20.0%

15.0%

10.0%

5.0% Brazil: 0.0% Percentage GDP Change vs. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 -5.0% Percent Cement Consumption Change

20.0% -10.0% ?

15.0% -15.0% White NML Case GDP % Change Cement Consumption % Change 10.0% Hawthorne Case

Source: World Bank, Economist Intelligence Unit, Sindicato Nacional da Indústria do 5.0% Cimento -SNIC and FTI analysis. 0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Dec. 2011 Feb. 2012 Oct. 2012 Nov. 2012 Aug. 2013 Dec. 2016 -5.0%

-10.0% ? District Court District Court Second Circuit District Court Second Circuit District Court in -15.0% White nds breach orders injunctions: aﬃrms breach and makes a number aﬃrms amended White HawthorneNML: Case of pariGDP %passu Change Cement ConsumptionArgentina % Change injunctions of technical injunctions relying Hawthorne Case EMERGING MARKETS RESTRUCTURING JOURNAL ISSUE NO. 3 — SPRING 2017 clause cannot service amendments on “extraordinary Source: World Bank, Economist Intelligence Unit, Sindicatorestructured Nacional debt da Indústria do to injunctions behavior“ of Cimento -SNIC and FTI analysis. UNLESS it also Argentina pays holdouts Dec. 2011 Feb. 2012 Oct. 2012 Nov. 2012 Aug. 2013 Dec. 2016 Infrastructure Quality vs. GFCF as a % of GDP

6.5 Payment of some Unprecedented Arguably broad Narrowed scope Payment of some Payment of some creditors but not nding — Chaos interpretation of injunctionsDistrict Courtcreditors butDistrict not Court creditors butSecond not Circuit District Court Second Circuit District Court in Japan UAE others is a pari in sovereign debt becomes federal nds breach others continuesorders injunctions:othe rs is NOaﬃrmsT a breach and makes a number aﬃrms amended White Hawthorne: Debt/EBITDA for Select Latin American Construction Companies (2015/2016) Germany Swizterland 6.0 United Kingdom South Korea passu breach market law in New York of pari passuto be a violationArgentina of pari passu injunctions of technical injunctions relying United States clause pari passu BUcannotT serviceviolation (UNLESS amendments on “extraordinary Empresa ICA, S.A.B. de C.V. Canada ruling premisedrestructured on debtthe debtor is to injunctions behavior“ of Australia OAS S.A. 5.5 extraordinaryUNLESS it also “recalcitrant”) Argentina Italy Empresa Constructora Moller y Pérez Cotapos S.A. behavior of debtorpays holdouts Somague-Engenharia, S.A. Saudi Arabia 5.0 Infrastructure Quality vs. GFCF as a % of GDP IDEAL,S.A.B. de C.V. Russia Panama Cyrela Brazil Realty S.A. Trinidad Chile 6.5 China Payment of some Unprecedented Arguably broad Narrowed scope Payment of some Payment of some Andrade Gutierrez S.A. 4.5 Uruguay creditors but not nding — Chaos interpretation of injunctions creditors but not creditors but not & Tobago Turkey Japan UAE others is a pari in sovereign debt becomes federal others continues others is NOT a Construcciones el Condor S.A. Mexico Debt/EBITDA for Select Latin American Construction Companies (2015/2016) South Africa Indonesia Germany Swizterland passu breach market law in New York to be a violation of pari passu Salfacorp S.A. Costa Rica Ecuador 6.0 United Kingdom South Korea 4.0 El Salvador Brazil India United States pari passu BUT violation (UNLESS Construtora Queiroz Galvão S.A. Jamaica Odinsa S.A. Score (2016/2017) GuEmpresaatemala ICA, S.A.B. de C.V. Canada ruling premised on the debtor is Colombia Australia extraordinary “recalcitrant”) Socovesa S.A. OAS S.A. Peru 5.5 3.5 Italy behavior of debtor C/R Almeida S.A. Empresa Constructora Moller y Pérez Cotapos S.A. Honduras Somague-Engenharia, S.A. Saudi Arabia Constructora Conconcreto S.A. Bolivia 5.0 Nicaragua Graña y Montero S.A.A. IDEAL,S.A.B. de C.V. 3.0 Dominican Republic Russia Panama World Economic Forum Infrastructure Besalco S.A. Cyrela Brazil Realty S.A. Trinidad Chile China Construções e Comércio Camargo Corrêa S.A. Andrade Gutierrez S.A. Paraguay 4.5 & Tobago Uruguay 2.5 Turkey Arteris S.A. Construcciones el Condor S.A. South Africa Mexico Indonesia Arendal, S. de R.L. de C.V. Salfacorp S.A. 10% 15% 20% 25% 30% 35% 40% Costa Rica 45% Ecuador 4.0 El Salvador Brazil India Cosapi S.A. Construtora Queiroz Galvão S.A. Jamaica Score (2016/2017) Guatemala Echeverría Izquierdo S.A. Odinsa S.A. 2015 GFCF as a % of GDP Colombia Peru Ingevec S.A. Socovesa S.A. 3.5 C/R Almeida S.A. Obras de Ingeniería S.A. Source: World Economic Forum, “The Global Competitiveness Report 2016–2017”, World Bank national accounts data, and OECD National Accounts data les, FTI Analysis Honduras MRV Engenharia e Participações S.A. Constructora Conconcreto S.A. Bolivia Nicaragua Dominican Republic Odebrecht Engenharia e Construção S.A. Graña y MonteroMexico S.A.A. 3.0 World Economic Forum Infrastructure Grupo Mexicano de Desarrollo, S.A.B. (GMD) Besalco S.A. Peru Construções e Comércio Camargo Corrêa S.A. Paraguay Timeline of the Mexican Proceeding Carso Infraestructura y Construcción y Filiales, S.A. de C.V. (CICSA) Chile 2.5 Arteris S.A. One reasonable conclusion from the somewhat linear trend of The largest drop in GFCF as a percentage of GDP occurred THP-Triunfo Holding de Participações S.A. Colombia Toniolo, Busnello S.A. Arendal, S. de R.L. de C.V. 10% 15% 20% 25% 30% 35% 40% 45% Brazil the foregoing chart is that Latin American countries seem to be in 2015 and 2016, coinciding with the decline in oil prices. OHL México, S.A.B. de C.V. Cosapi S.A. Promotora y Operadora de Infraestructura, S. A. B. de C. V. (PINFRA) Echeverría Izquierdo S.A. underspending (and/or have historically underspent) on GFCF Similarly, the growth in GFCF between 2011 and 20142015 seems GFCF as a % of GDP Ingevec S.A. as a percentage of GDP compared to developed countries with to have been at least partially driven by oilMexico: prices. The outlook November 2015 Default on local short-term bonds 0.0x 1.5x 3.0x 4.5x 6.0x 7.5x 9.0x 10.5x 12.0x 13.5x 15.0xObras de 16.5xIngeniería S.A. 18.0x19.5x Source: World Economic Forum, “The Global Competitiveness Report 2016–2017”, World Bank national accounts data, and OECD National Accounts data les, FTI Analysis MRV Engenharia e Participações S.A. Latin America’s GFCF (% of GDP) and Oil Prices (Brent) Percentage GDP Change vs. higher scores. For example,Mexico Brazil (4.0), the largest economy for oil is relatively flat over the next few years, and GFCF is Source: FTI Analysis based on latest public information from Capital IQ and company websites. Leverage ratios vary from 2015Odebrecht to 2016. EngenhariaOdebrecht e E&C’s Construção leverage S.A. is based on a Fitch Percent Construction Change 2016 estimate. Grupo Mexicano de Desarrollo, S.A.B. (GMD) in Latin21.5% America, spendsPeru less than 20% of its GDP on GFCF,$140.00 expected to grow at a tempered pace, not reaching historical Court accepted Banco Base’s July 15, 2016 Carso Infraestructura y Construcción y Filiales, S.A. de C.V. (CICSA) and Mexico (4.3) fares onlyChile slightly better, spending between levels that would10.00% benefit the region. Will the low rates of GFCF 6.0% request for involuntary insolvency Timeline of the Mexican Proceeding THP-Triunfo Holding de Participações S.A. Colombia $120.00 8.00% Toniolo, Busnello S.A. 20%-25%. Similarly, it appears that Ecuador (4.0), Colombia (3.7) as a percentage of GDP last just 2-3 years as forecasted or will 4.0% Brazil 6.00% OHL México, S.A.B. de C.V. $100.00 and20.5% Nicaragua (3.2) are making heavier investments, presum- the situation be 4.00%worse than expected? 2.0% Promotora y Operadora de Infraestructura, S. A. B. de C. V. (PINFRA) July 2016 IFECOM appointed visitador ably trying to compensate for historical underspending$80.00 in an 2.00% November 2015 Default on local short-term bonds 0.0x 1.5x 3.0x 4.5x 6.0x 7.5x 9.0x 10.5x 12.0x 13.5x 15.0x 16.5x 18.0x19.5x 0.0% Mexico: 0.00% effort to improve their scores to levels of developed economies.$60.00 Latin America’s GFCF (% of GDP) and Oil Prices (Brent) Percentage GDP Change vs.

USD/bbl 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Peru -2.00% -2.0% Source: FTI Analysis based on latest public information from Capital IQ and company websites. Leverage ratios vary fromThe 201519.5% spending to 2016. Odebrecht gap is evenE&C’s leverage more isapparent based on a whenFitch considering that, Percent Construction Change 2016 estimate. $40.00 21.5% -4.00% $140.00 Dec. 16, 2016 Court declared Abemex bankrupt Court accepted Banco Base’s -4.0% 10.00% 6.0% July 15, 2016 while developed economies seem to spend around the same -6.00% request for involuntary insolvency $20.00 $120.00 8.00% GFCF as a percentage of GDP as the average Latin American -8.00% -6.0% 4.0% Reorganization If disputes are 6.00% INDECOPI 18.5% $0.00 $100.00 Court appointed the conciliator and Plan country, they already have high infrastructure quality, thus GDP % Change Construction % Change Dec. 26, 2017 However under on a default has exclusive 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 20.5% 4.00% 2.0% conciliation period began Disputes on restructuring on the agreed July 2016 IFECOM appointed visitador execution or jurisdiction requiring less investment towards their infrastructure gap. Source: INEGI (Instituto Nacional de Estadística y Geografía$80.00), CMIC (Camara Mexicana 2.00% payment terms GFCF Oil (USD/bbl) 0.0% interpretation de Industria de la Construcción) and FTI analysis. 0.00% Creditors $60.00 Liquidation Source: Bloomberg, World Bank national accounts data and OECD National Accounts USD/bbl 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Meeting of plan/agreements -2.00% -2.0% Late A3T excluded from Mexican Agreement Peru Alongdata les,the Economist same lines, Intelligence according Unit Forecasts to (Decemberthe McKinsey 20, 2016), GlobalFTI Analysis. 19.5% approve addressed through $40.00 January, 2017 insolvency proceeding Latin America is comprised of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, -4.00% Dec. 16, 2016 Court declared Abemex bankrupt Arbitration or Institute, Mexico is expected to have a projected infrastructure -4.0% judicial courts* Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, -6.00% Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and Venezuela. $20.00 gap between actual spending and its infrastructure needs of -8.00% -6.0% Pre-packaged Reorganization Early Meetings between Abemex and USD If1.1 disputes trillion are between 2016INDECOPI and 2030. Brazil’s projected 18.5% $0.00 Court appointed the conciliator and Agreement Plan GDP % Change Construction % Change February, 2017 bondholders Dec. 26, 2017 However under on a default has exclusive 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 conciliation period began Disputes on restructuring gap overon the the agreed same period is estimated at USD 0.7 trillion. execution or jurisdiction Source: INEGI (Instituto Nacional de Estadística y Geografía), CMIC (Camara Mexicana payment terms GFCF Oil (USD/bbl) Creditors interpretation Indonesia (USD 1.3 trillion), South Africa (USD 1.2 trillion) de Industria de la Construcción) and FTI analysis. Liquidation Source: Bloomberg, World Bank national accounts data and OECD National Accounts * Default rule absent explicit agreement: judicial courts Meeting of plan/agreements and Saudi Arabia (USD 0.9 trillion) are expected to have Feb. 14, 2017 Provisional list of creditors Late A3T excluded from Mexican Agreement data les, Economist Intelligence Unit Forecasts (December 20, 2016), FTI Analysis. approve addressed through Illustrative Liquidation Waterfall Under Greek Law January, 2017 insolvency proceeding Arbitration or larger infrastructure gaps than Brazil. Yet interestingly Latin America is comprised of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, judicial courts* Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, enough, both Indonesia and Saudi Arabia spent more in GFCF Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and Venezuela. Pre-packaged as a percentage of GDPNew than Capital Mexico Structure and Brazil in 2015. March 17, 2017 Final list of creditors Early Meetings between Abemex and Agreement February, 2017 bondholders Oil’s modest outlook has far reaching implications for Brazil It is therefore concerning5% that GFCF has declined in Latin 5% Superpriority and Mexico’s economies. Brazil is already feeling the effect April 11, 2017 Court’s creditors ruling Chile * Default rule absent explicit agreement: judicial courts America since 2014 and is expected to remain at low levels claims arising Feb. 14, 2017 Provisional list of creditors with a decline in royalties, special participations and income from rescue/ with limited growth over the next few years when there is DIP nancing Illustrative Liquidation Waterfall Under Greek Law Financial investors lending new money tax revenues from oil production. Cash received from royalties clearly a need in the region for investment which drives Financial entities providing new bonds April 18, 2017 Accessory Restructuring declined 25% in 2015 and 29% in 2016, reaching similar •levels General privilege Agreement with 71.3% of creditors economic growth and prosperity.50% Creditors acceding to the agreement New Capital Structure March 17, 2017 Final list of creditors Restructuring • Employees’ claims 40% Current shareholders arising within two years Bankruptcy debtor’s consent + 2/3 Arbitration Arbitrator to render before the declaration majority vote of 5% of bankruptcy proceedings procedure is an award within 2 5% SuperpriorityPending Final Restructuring Plan debtor’s liabilities April 11, 2017 Court’s creditors ruling can be subject binding on all years, unless parties Chile • Greek State tax claims claims arising to arbitration creditors agree otherwise • Social security claims from rescue/ DIP nancing Financial investors lending new money Liquidation Financial entities providingSpecial new Privilegebonds claims April 18, 2017 Accessory Restructuring 2/3 majority vote of • General privilege Agreement with 71.3% of creditors 50% Creditors acceding to(including the agreement secured creditors) veri ed claims Restructuring • Employees’ claims 40% Current shareholders arising within two years Bankruptcy debtor’s consent + 2/3 Arbitration Arbitrator to render before the declaration majority vote of procedure is an award within 2 of bankruptcy Pending Final Restructuring Plan proceedings debtor’s liabilities Unsecured creditors can be subject binding on all years, unless parties • Greek State tax claims to arbitration creditors agree otherwise • Social security claims

Liquidation Special Privilege claims 2/3 majority vote of (including secured creditors) veri ed claims

Unsecured creditors EMERGING MARKETS RESTRUCTURING JOURNAL ISSUE NO. 3 — SPRING 2017

last seen in 2009. The combined impact in both years is over Similarly, Mexico’s capital expenditure budget for 2017 USD 5 billion in fewer funds received by all three levels of has been reduced 23% (in real terms) compared to 2016’s government (federal, state and municipal). This has directly approved budget, signaling a large contraction in investment impacted governments that are already cash strapped and/or expected by the Mexican Federal Government. Of the decline, had committed to projects assuming these sources of funds about 60% of the reduced budget affects Pemex (Petróleos would continue near historical levels. While oil production in Mexicanos, Mexico’s state owned oil company) directly. So Brazil is increasing, financial crisis has impacted Petrobras’ while Mexico has become less dependent on oil revenues to (Brazil’s semi-public multinational crown oil corporation) drive economic growth, the effects on government capital expansion plans and, as such, the pace of exploration has been expenditures are clear. Pemex’s oil production has fallen delayed. Petrobras has calculated that for the next 8 years, the from over 3 million barrels per day (pre-2007) to just 2 million government will lose out on about USD 12 billion of royalties, barrels per day in 2017, the lowest levels since 1980. The cut in special participations and income tax. oil investments, lower production and low oil prices in Mexico are having their impact on investment. Furthermore, with the current outlook for oil prices, future capital expenditures by — the Mexican and Brazilian governments may be limited. Odebrecht Engenharia e Construção So what’s in store for Mexico and Brazil, S.A. (OEC) is the largest engineering Latin America’s two largest economies? and construction company in Construction activity is not looking Latin America promising in the short term

Odebrecht’s operations reached far beyond its The Brazilian cement producers’ union (SNIC)’s consumption Brazilian borders and into over 10 Latin American data show the correlation between GDP and cement consump- countries during 37 years. These countries included tion. Cement consumption is closely correlated to construction Peru, Colombia, Argentina, Mexico, Ecuador, Dominican activity and economic activity and, hence, to GDP. Republic, Panama, Guatemala, etc. However, due to the Since its peak in 2010, cement consumption has been declining fallout from their admission of guilt regarding foreign rapidly despite the investment in construction for the 2014 World bribery in the United States, Brazil and Switzerland, Cup and the 2016 Summer Olympics. While 2016 appears to the company is under investigation in several of be the trough year, the tempered GDP growth forecast does these Latin American countries and, in certain cases, not signal a great improvement for cement consumption in has been excluded from participating in any other the country. projects while the investigations are ongoing. These Brazil: investigations may yield additional penalties and fines Percentage GDP Change vs. to the already staggering and historic USD 2.6-3.5 Percent Cement Consumption Change billion penalty it has already agreed to pay. The effects 20.0% on the company’s cash flows will be compounded 15.0% not only by the financial penalties but also from the 10.0% 5.0% restrictions that some foreign governments have 0.0% applied to the company and the subsequent effects 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 -5.0% on its backlog, as well as gloomy prospects at -10.0% ? home. According to Debtwire’s February 2017 OEC -15.0% White NML Case tearsheet, 77% of OEC’s backlog was located outside GDP % Change Cement Consumption % Change Hawthorne Case of Brazil (56% in Latin America, excluding Brazil). Source: World Bank, Economist Intelligence Unit, Sindicato Nacional da Indústria do Cimento -SNIC and FTI analysis. Dec. 2011 Feb. 2012 Oct. 2012 Nov. 2012 Aug. 2013 Dec. 2016

District Court District Court Second Circuit District Court Second Circuit District Court in nds breach orders injunctions: aﬃrms breach and makes a number aﬃrms amended White Hawthorne: of pari passu Argentina injunctions of technical injunctions relying clause cannot service amendments on “extraordinary restructured debt to injunctions behavior“ of UNLESS it also Argentina pays holdouts Infrastructure Quality vs. GFCF as a % of GDP

6.5 Payment of some Unprecedented Arguably broad Narrowed scope Payment of some Payment of some creditors but not nding — Chaos interpretation of injunctions creditors but not creditors but not Japan UAE others is a pari in sovereign debt becomes federal others continues others is NOT a Debt/EBITDA for Select Latin American Construction Companies (2015/2016) Germany Swizterland 6.0 United Kingdom South Korea passu breach market law in New York to be a violation of pari passu United States pari passu BUT violation (UNLESS Empresa ICA, S.A.B. de C.V. Canada ruling premised on the debtor is Australia OAS S.A. 5.5 extraordinary “recalcitrant”) Italy Empresa Constructora Moller y Pérez Cotapos S.A. behavior of debtor Somague-Engenharia, S.A. Saudi Arabia 5.0 IDEAL,S.A.B. de C.V. Russia Panama Cyrela Brazil Realty S.A. Trinidad Chile China Andrade Gutierrez S.A. 4.5 & Tobago Uruguay Turkey Construcciones el Condor S.A. South Africa Mexico Indonesia Salfacorp S.A. Costa Rica Ecuador 4.0 El Salvador Brazil India Construtora Queiroz Galvão S.A. Jamaica Score (2016/2017) Guatemala Odinsa S.A. Colombia Peru Socovesa S.A. 3.5 C/R Almeida S.A. Honduras Constructora Conconcreto S.A. Bolivia Nicaragua Graña y Montero S.A.A. 3.0 Dominican Republic World Economic Forum Infrastructure Besalco S.A. Construções e Comércio Camargo Corrêa S.A. Paraguay 2.5 Arteris S.A. Arendal, S. de R.L. de C.V. 10% 15% 20% 25% 30% 35% 40% 45% Cosapi S.A. Echeverría Izquierdo S.A. 2015 GFCF as a % of GDP Ingevec S.A. Obras de Ingeniería S.A. Source: World Economic Forum, “The Global Competitiveness Report 2016–2017”, World Bank national accounts data, and OECD National Accounts data les, FTI Analysis MRV Engenharia e Participações S.A. Odebrecht Engenharia e Construção S.A. Mexico Grupo Mexicano de Desarrollo, S.A.B. (GMD) Peru Carso Infraestructura y Construcción y Filiales, S.A. de C.V. (CICSA) Chile Timeline of the Mexican Proceeding THP-Triunfo Holding de Participações S.A. Colombia Toniolo, Busnello S.A. Brazil OHL México, S.A.B. de C.V. Promotora y Operadora de Infraestructura, S. A. B. de C. V. (PINFRA) November 2015 Default on local short-term bonds 0.0x 1.5x 3.0x 4.5x 6.0x 7.5x 9.0x 10.5x 12.0x 13.5x 15.0x 16.5x 18.0x19.5x Mexico: Latin America’s GFCF (% of GDP) and Oil Prices (Brent) Percentage GDP Change vs. Source: FTI Analysis based on latest public information from Capital IQ and company websites. Leverage ratios vary from 2015 to 2016. Odebrecht E&C’s leverage is based on a Fitch Percent Construction Change 2016 estimate. 21.5% $140.00 Court accepted Banco Base’s July 15, 2016 10.00% 6.0% request for involuntary insolvency $120.00 8.00% 4.0% 6.00% $100.00 20.5% 4.00% 2.0% July 2016 IFECOM appointed visitador $80.00 2.00% 0.0% 0.00% $60.00

USD/bbl 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -2.00% -2.0% Peru 19.5% $40.00 -4.00% Dec. 16, 2016 Court declared Abemex bankrupt -4.0% -6.00% $20.00 -8.00% -6.0% Reorganization If disputes are INDECOPI 18.5% $0.00 Court appointed the conciliator and Plan GDP % Change Construction % Change Dec. 26, 2017 However under on a default has exclusive 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 conciliation period began Disputes on restructuring on the agreed execution or jurisdiction Source: INEGI (Instituto Nacional de Estadística y Geografía), CMIC (Camara Mexicana payment terms GFCF Oil (USD/bbl) Creditors interpretation de Industria de la Construcción) and FTI analysis. Liquidation Source: Bloomberg, World Bank national accounts data and OECD National Accounts Meeting of plan/agreements Late A3T excluded from Mexican Agreement data les, Economist Intelligence Unit Forecasts (December 20, 2016), FTI Analysis. approve addressed through January, 2017 insolvency proceeding Arbitration or Latin America is comprised of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, judicial courts* Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and Venezuela. Pre-packaged Early Meetings between Abemex and Agreement February, 2017 bondholders

* Default rule absent explicit agreement: judicial courts Feb. 14, 2017 Provisional list of creditors Illustrative Liquidation Waterfall Under Greek Law

New Capital Structure March 17, 2017 Final list of creditors

5% 5% Superpriority April 11, 2017 Court’s creditors ruling Chile claims arising from rescue/ DIP nancing Financial investors lending new money

Liquidation Special Privilege claims 2/3 majority vote of (including secured creditors) veri ed claims

Unsecured creditors Brazil: Percentage GDP Change vs. Percent Cement Consumption Change

20.0%

15.0%

10.0%

5.0%

0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 -5.0%

-10.0% ?

-15.0% White NML Case GDP % Change Cement Consumption % Change Hawthorne Case

Source: World Bank, Economist Intelligence Unit, Sindicato Nacional da Indústria do Cimento -SNIC and FTI analysis. Dec. 2011 Feb. 2012 Oct. 2012 Nov. 2012 Aug. 2013 Dec. 2016

District Court District Court Second Circuit District Court Second Circuit District Court in nds breach orders injunctions: aﬃrms breach and makes a number aﬃrms amended White Hawthorne: EMERGING MARKETS RESTRUCTURING JOURNAL of pari passu ArgentinaISSUE NO. 3 — SPRINGinjunctions 2017 of technical injunctions relying clause cannot service amendments on “extraordinary restructured debt to injunctions behavior“ of UNLESS it also Argentina pays holdouts Infrastructure Quality vs. GFCF as a % of GDP

6.5 Payment of some Unprecedented Arguably broad Narrowed scope Payment of some Payment of some creditors but not nding — Chaos interpretation of injunctions creditors but not creditors but not Japan UAE The President of the SNIC has recently stated that the While more restructuringsothers is a pari in the sectorin sove arereign anticipated debt becomes in the federal others continues others is NOT a Debt/EBITDA for Select Latin American Construction Companies (2015/2016) Germany Swizterland 6.0 United Kingdom South Korea passu breach market law in New York to be a violation of pari passu United States consumption of cement in Brazil for 2017 is expected to short term, particularly in Brazil, they provide an opportunity for pari passu BUT violation (UNLESS Empresa ICA, S.A.B. de C.V. Canada ruling premised on the debtor is Australia decrease 5% to 7% from 2016, implying that economic activity right-sizing the capital structure and operations of construction OAS S.A. 5.5 extraordinary “recalcitrant”) Italy Empresa Constructora Moller y Pérez Cotapos S.A. and/or construction activity will be subdued in 2017 as well. companies, allowing for survivors of this turbulent period to behavior of debtor Somague-Engenharia, S.A. Saudi Arabia 5.0 The Economist Intelligence Unit’s (EIU) latest assumptions be well positioned to capitalize on the vast but more distant IDEAL,S.A.B. de C.V. Russia Panama (February 1, 2017) are consistent with the SNIC, as they opportunities in the region. n Cyrela Brazil Realty S.A. Trinidad Chile China Andrade Gutierrez S.A. 4.5 & Tobago Uruguay Turkey expect GDP to have contracted 3.5% in 2016, with 2017’s GDP Construcciones el Condor S.A. South Africa Mexico Indonesia 1. FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is Salfacorp S.A. Costa Rica Ecuador increasing slightly by 0.5%. However, the EIU notes that the 4.0 El Salvador Brazil India not a certified public accounting firm or a law firm. Construtora Queiroz Galvão S.A. Jamaica Score (2016/2017) Guatemala weak activity in the fourth quarter of 2016 may further weaken Odinsa S.A. Colombia 2. The views expressed herein are those of the author(s) and not necessarily the views Peru Socovesa S.A. 3.5 2017’s GDP projection, and that due to a projected growth of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other C/R Almeida S.A. Honduras professionals. Constructora Conconcreto S.A. Bolivia slowdownNicaragua in China and the US, GDP growth is not expected Graña y Montero S.A.A. 3.0 Dominican Republic World Economic Forum Infrastructure to exceed 2% until 2019. Besalco S.A. t Brock Edgar is a senior managing director in Construções e Comércio Camargo Corrêa S.A. Paraguay 2.5 FTI Consulting’s Corporate Finance practice Arteris S.A. Mexico’s construction activity is not expected to fare any better. Arendal, S. de R.L. de C.V. 10% 15% 20% 25% 30% 35% 40% 45% and head of FTI’s Latin American Restructuring Cosapi S.A. The CMIC (Camara Mexicana de Industria de la Construcción) 2015 GFCF as a % of GDP Practice, based in Toronto. For the last 19 years, Echeverría Izquierdo S.A. is expecting a relatively low growth scenario for construction Ingevec S.A. Mr. Edgar has worked exclusively on large Obras de Ingeniería S.A. Source: World Economic Forum, “The Global Competitiveness Report 2016–2017”, World Bank national accountsin data, 2017, and OECDof between National Accounts 0.5% anddata les, 1% FTI due Analysis to economic uncertainty, MRV Engenharia e Participações S.A. multi-national restructuring assignments in Odebrecht Engenharia e Construção S.A. Mexico and average annual growth of 2.3% in the next few years, when Mexico, Caribbean and South America. To date, Grupo Mexicano de Desarrollo, S.A.B. (GMD) Peru the industry has potential growth of 4% to 5%. Mexico’s GDP is Carso Infraestructura y Construcción y Filiales, S.A. de C.V. (CICSA) Chile these assignments have involved the successfulTimeline of the Mexican Proceeding THP-Triunfo Holding de Participações S.A. Colombia expected to grow moderately at just approximately 2% per year Toniolo, Busnello S.A. restructuring of more than USD 100 billion of indebtedness. Recent Brazil through 2019. OHL México, S.A.B. de C.V. major Latin American restructurings include: Oi S.A. (one of Brazil’s Promotora y Operadora de Infraestructura, S. A. B. de C. V. (PINFRA) largest telecom groups), Empresas ICA (one of Latin America’sNovember largest 2015 Default on local short-term bonds 0.0x 1.5x 3.0x 4.5x 6.0x 7.5x 9.0x 10.5x 12.0x 13.5x 15.0x 16.5x 18.0x19.5x Mexico: Latin America’s GFCF (% of GDP) and Oil Prices (Brent) Percentage GDP Change vs. construction companies), the three largest homebuilders in Mexico Source: FTI Analysis based on latest public information from Capital IQ and company websites. Leverage ratios vary from 2015 to 2016. Odebrecht E&C’s leverage is based on a Fitch Percent Construction Change (GEO, Urbi and Homex), OAS S.A. (one of Brazll’s largest construction 2016 estimate. 21.5% $140.00 Court accepted Banco Base’s July 15, 2016 10.00% 6.0% companies), and Automotores Gildemeister (importer and retailer of request for involuntary insolvency $120.00 8.00% Hyundai cars). Mr. Edgar is a Chartered Professional Accountant, 4.0% 6.00% $100.00 Chartered Insolvency and Restructuring Professional and a Licensed 20.5% 4.00% 2.0% Trustee in Bankruptcy. July 2016 IFECOM appointed visitador $80.00 2.00% 0.0% 0.00% $60.00

USD/bbl 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -2.00% -2.0% t Devi Rajani is a managing director in FTI Peru 19.5% $40.00 -4.00% Dec. 16, 2016 Court declared Abemex bankrupt -4.0% Consulting’s Corporate Finance practice and is -6.00% $20.00 based in Toronto. Ms. Rajani specializes in -8.00% -6.0% Reorganization If disputes are INDECOPI 18.5% $0.00 advising on debt restructurings in Latin America, Court appointed the conciliator and Plan GDP % Change Construction % Change Dec. 26, 2017 However under on a default has exclusive 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 conciliation period began Disputes on restructuring on the agreed having been involved in restructurings totaling execution or jurisdiction Source: INEGI (Instituto Nacional de Estadística y Geografía), CMIC (Camara Mexicana payment terms GFCF Oil (USD/bbl) over USD 55 billion. Ms. Rajani’s experience Creditors interpretation de Industria de la Construcción) and FTI analysis. Liquidation Source: Bloomberg, World Bank national accounts data and OECD National Accounts Meeting of plan/agreements includes due diligence/business reviews, Late A3T excluded from Mexican Agreement data les, Economist Intelligence Unit Forecasts (December 20, 2016), FTI Analysis. approve addressed through preparing companies for US Chapter 11January, filings, 2017 insolvency proceeding Arbitration or Latin America is comprised of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Construction companies in the region have already been judicial courts* Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, financial modeling including capital structure models, integrated Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and Venezuela. negatively impacted by the decrease in GFCF with leverage Pre-packaged operational models, integrated cash flows, and other financial modelsEarly Meetings between Abemex and Agreement increases over the period. With the contraction in international used to assist stakeholders in understanding and negotiatingFebruary, 2017 bondholders construction and the less than stellar prospects at home, many complex transactions. She is a Chartered Professional Accountant construction companies have already undergone restructurings and a Certified Insolvency and Restructuring Advisor. Ms. Rajani is * Default rule absent explicit agreement: judicial courts and/or retreated from international operations, either by choice Feb. 14, 2017 Provisional list of creditors Illustrative Liquidation Waterfall Under Greek Law fluent in English and Spanish. or necessity (e.g., as the result of exclusions from countries due to foreign bribery and corruption allegations). New Capital Structure March 17, 2017 Final list of creditors

5% 5% Superpriority April 11, 2017 Court’s creditors ruling Chile claims arising from rescue/ DIP nancing Financial investors lending new money

Liquidation Special Privilege claims 2/3 majority vote of (including secured creditors) veri ed claims

Unsecured creditors