Struggling Lupatech Gets Capital Lifeline

Brazil’s leading oil industry valve maker, Lupatech, will receive up to a BRL700m ($379.3m) capital infusion as it struggles with a cash crunch and crippling leverage. Lupatech’s top shareholders along with private equity fund GP Investments, have agreed to recapitalize the troubled oil services company as it seeks to increase profitability and pay off debt. Under the agreement, BNDES Participacoes, the holding of the BNDES development bank and Petros, the employee pension fund unit of Brazil’s oil company Petrobras, will initially put up BRL300m ($162.6m) in cash. GP will pay BRL50m also in cash, with the rest to come from other shareholders. As part of the capitalization the company will issue shares to shareholders at BRL4 per share, Lupatech says. Also as part of the deal, Lupatech will absorb the assets of San Antonio International, currently owned by GP Investments, which include drill rigs and well services divisions. Lupatech and GP have estimated an enterprise value of San Antonio Brasil at BRL150m, with BRL100m in debt and BRL50 million in equity. The shareholders are also expected to revamp the Lupatech’s administration, according to a material fact filing. Officials at Lupatech could not immediately offer additional details on the move. Lupatech, the leading oil services provider to Petrobras, has led an aggressive growth through acquisitions that have resulted in elevated levels of debt. Last October Moody’s lowered the company’s rating to Caa2 from Caa1 citing the company’s weak liquidity, high leverage and low profitability. As of June 2011, Ebitda margin for Lupatech stood at 9%, according to Standard & Poor’s. S&P reckons that the company’s BRL1.3bn in debt translated to an Ebitda interest coverage of 0.3x, and a debt to Ebitda of 22.5x at the end of September. S&P analysts expect the company to rollover its credit lines, increase its Ebitda margin to 17% and to bring total debt to Ebitda to 8x in 2012.