Eldorado's two-year partnership dispute nearing solution
The pandemic has not delayed arbitration that will define the future of Eldorado Brasil. Valor has learned that partners J&F Investimentos and Paper Excellence (PE) have wrapped up the arguments stage. The case is now awaiting the final ruling from the judges of the arbitration process. The decision should be known by September, as initially expected, and end the R$15 billion fight dragging on for nearly two years.
Ending litigation would remove hurdles holding back the company. Before it started the process to sell a stake, Eldorado was already conducting studies to build a new production line in Três Lagoas, Mato Grosso do Sul, capable of producing over 2 million tonnes a year. The plant is currently rated to make 1.8 million tonnes a year. Following the contract between J&F and PE in September 2017, the plans were interrupted longer than expected as the parties sought to resolve litigation.
The dispute also froze large financial transactions like a $500 million bond issue. Early last year, Eldorado even brought the offer to the market, but questions from PE about the prospectus' financial disclosures halted the transaction. The money would go toward paying down debts, including a R$1 billion bond held by the Workers' Severance Fund Investment Fund (FI-FGTS), which ended up being paid with capital borrowed in bilateral transactions.
The short-term debt is still pressuring the company and led Moody's to downgrade its rating to B1 last February. Eldorado owes R$1.8 billion in trade finance debt maturing in August, which traditionally are rolled over, and another R$2 billion maturing in 2021, of which R$1.86 billion are from its first issue in the international market in 2016, according to notes in its balance sheet.
"The dispute between the company's shareholders also keeps restricting the credit rating, since it causes delays in Eldorado's strategic decisions until the arbitration process is concluded," Moody's said.
Both sides have avoided publicly clashing in the last few months, but things continued heated behind the scenes. People familiar with the matter said confrontations still mark shareholder and board meetings. The last board meeting on June 29 was no exception. The PE-appointed new board members - Mauro Guizeline and Raul Rosenthal, along with holdover João Elek - voted against some proposals, including quarterly financial disclosures. Before, PE had tried to block Eldorado's board's re-election but failed due to its minority...
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