Troubled Brazilian retailer Americanas SA released long-delayed financial reports, a key step toward reaching a debt restructuring deal and resolving one of the country’s biggest corporate blow-ups.
Americanas, which sank into bankruptcy protection early this year due to a massive accounting scandal, said the size of the fraud was 25.2 billion reais ($5.2 billion) as of the end of 2022 — more than the previously estimated. The accounting issues stemmed from supply chain financing and false advertising contracts, it said in a filing Thursday.
Filing the old earnings allows the company to move closer to negotiating a deal with creditors to rework on loans and bonds. In its most recent offer, Americanas proposed swapping bank debt for equity and getting a 12 billion-real capital injection from its largest shareholders.
“Americanas is the biggest interested party in clarifying what really happened,” the company’s management said in the statement. “The numbers of financial statements now reflect the most realistic and transparent figure of the company’s assets and liabilities.”
The retailer posted a loss of 12.9 billion reais ($2.7 billion) in 2022 and 6.2 billion reais in 2021, according to the filing. It said it won’t redo annual figures before 2021 and will re-publish quarterly reports for 2022 along with its 2023 release.
Americanas’ shareholders include some of Brazil’s most influential business executives, the billionaires Jorge Paulo Lemann, Marcel Telles and Carlos Sicupira, who bought the retailer back in 1982. Its main creditors include Banco Bradesco SA, which holds 4.8 billion reais of debt, Banco Santander SA’s Brazil unit with 3.7 billion reais and Banco BTG Pactual SA with 3.5 billion reais.
The company filed for bankruptcy protection in January after uncovering what it estimated was 20 billion reais of fraud. Its implosion also came as interest rates in Brazil were near 14% which crippled the broader credit market in the country and put a spotlight on other retailers who have struggled under tougher economic conditions.
It marked an abrupt fall for one of Brazil’s most traditional retailers with roots that date to 1929. Rio de Janeiro-based Americanas, which operates nearly 1,800 stores throughout the country, is known for its emblematic red and white signs, chocolate Easter egg displays and affordable prices for everything from toys to household appliances and books.
Of the billionaire trio, Sicupira has historically been more involved in the company and remains on the board of directors. Newspaper Folha de S. Paulo reported on Oct. 17 that he may put up half of the 12 billion reais with the remainder split between Lemann and Telles. A spokesman for the businessmen declined to comment.
In mid-2022, Americanas announced that former Banco Santander Brasil head Sergio Rial would takeover as chief executive officer on Jan. 1 which was well received by the market. The outgoing CEO, Miguel Gutierrez, had been at the helm for decades.
As the transition neared, Rial said that his access to Gutierrez and the rest of the management team was curtailed along with details of the financial situation. He abruptly resigned just days into the job after uncovering the accounting inconsistencies, which doubled the debt of the firm.
Details of how the fraud was carried out and how it was hidden for so long remain murky. Rial and the current CEO, Leonardo Coelho, have pointed fingers at Gutierrez while Gutierrez, through his lawyers, has implied the board was aware of the economic difficulties at the firm. Mid-year, Gutierrez traveled to Spain, where he holds citizenship, and is believed to still be there.
Investigations, meanwhile, have made little progress. A congressional probe ended with no real conclusions and the securities regulator and federal police have yet to make public any findings from their own investigations. Public Prosecutor Jose Maria Panoeiro, who is overseeing the case, told lawmakers that some plea bargain agreements were being worked on, without providing details.
Operationally the retailer has lost millions of clients, closed dozens of stores and cut its work force. While sales on digital platforms have plummeted, customers continue to frequent the physical stores, according to monthly reports.
The Thursday report lays out a path for recovery for the “New Americanas” with plans to cut total debt to as low as 1 billion reais by 2025 and a projected earnings before interest, taxes, depreciation, and amortization of 2.2 billion reais for the full year.
Americanas suspended the sales process to divest its Hortifruti Natural da Terra supermarket chain as part of a plan to raise cash to pay back creditors. It also called off the sale of its Uni.co subsidiary, which sells apparel, arguing bids fell short of the fair value of the business.
The market value of the retailer has sunk more than 14 billion reais in the past year and currently sits around 720 million reais. After the stock price slipped below 1 real a share in late August, regulators asked the company for a plan to keep it above that level to avoid a delisting.
Once an agreement is reached with banks, it will have to be voted on by a broader group of creditors and taken to the judge overseeing the bankruptcy protection process. It could still take several years to iron out details in order to emerge from the process, according to people involved in the discussions.
In the report, the company said within 90 days of the creditors assembly, it would proceed with payment to suppliers, issuance of new notes as part of the restructuring, recapitalization and hold a general shareholders meeting.
Company executives will speak on an earnings call at 10 a.m. local time.
--With assistance from Taís Fuoco.
(Updates with more details starting in second paragraph.)