CG/LA Infrastructure's InfraBlog
By Blake Schmidt & Alex Cuadros – Jul 10, 2013 8:45 AM ET
Cesar Mata Pires represents everything protesters in Brazil detest.
When demonstrators across the country swarmed new World Cup soccer stadiums last month amid a haze of tear gas and rubber bullets, one placard punctuated their anger over the government’s decision to finance the arenas at the expense of taxpayers, which enriched a handful of well-connected tycoons while neglecting public services.
The sign, which said “The $ for Education Went to OAS,” took aim at the construction company owned by Mata Pires, which has emerged as one of the biggest winners in the building boom leading up to the World Cup and the 2016 Olympics. It also has made its 63-year-old chief executive a billionaire.
“Companies building the mega-projects are profiting and the bill, at the end of the day, will be passed to the taxpayer,” said Roseline Wansetto, a coordinator for Rede Jubileu Sul Brasil, a non-profit leading protests against the World Cup. “Those resources could be used to build hospitals or schools.”
With the help of subsidized loans from Brazil’s state development bank, closely held OAS SA had revenue of $3.4 billion last year. Mata Pires, who owns 90 percent of the business, has a net worth of $4.7 billion, according to the Bloomberg Billionaires Index. He does not draw attention to his fortune and has never appeared on an international wealth ranking. There are few photographs of him publicly available.
Mata Pires declined to be interviewed for this story, referring questions to Diego Barreto, OAS’s director of corporate finance and investor relations. In a two-hour meeting at OAS headquarters in Sao Paulo, Barreto provided details of the conglomerate’s finances and said Bloomberg’s calculation of its value is “very conservative.” He also said protesters’ targeting of OAS is “ignorant” and “simplistic,” and that the company obeys the law.
Former Sports Minister Orlando Silva said in 2007 that no public money would be necessary to finance the construction of new and refurbished stadiums for the World Cup. Amid delays and cost overruns, the government now expects to provide 6.4 billion reais ($2.8 billion) in financing for 12 arenas, some of which are in less populous, remote cities.
One of OAS’s two World Cup projects, Dunas, is located in the city of Natal, which has a population of less than 1 million and no top-league soccer team. It was one of four stadiums singled out by government auditors in a report on Cup spending as potential white elephants that could burden public coffers.
After the World Cup, Mata Pires plans to reduce Dunas’s 45,000 seats by about 50 percent to create room for shops and doctors’ offices. The stadium will also host concerts and events, which should help make the buildings profitable after the games are over, Barreto said.
“Our projects have become arenas; they are no longer stadiums,” he said. “An arena is a big shopping mall that happens to have a field in the middle.”
When former President Luiz Inacio Lula da Silva won the rights to hold the World Cup in 2007, he said the preparations would help Brazil develop its inadequate infrastructure. Since then, many of the proposed transportation projects were shelved or delayed — such as a bus lane in the northeastern city of Salvador and a light-rail trolley in Brasilia — while work on stadiums moved forward.
President Dilma Rousseff was booed at the opening game of last month’s Confederations Cup, a dry run for the World Cup that coincided with the protests. With half a dozen lives lost in violent clashes with police, her approval rating plunged to 30 percent from 57 percent, in the steepest drop since President Fernando Collor confiscated Brazilians’ savings in 1990 to stanch hyperinflation.
Initially sparked by outrage over a 20-centavo increase in Sao Paulo public-transit fares, protesters came to express a wide array of grievances, over corruption, poor public services and even politicians seen as anti-gay. They’ve also criticized the cozy relationship between large corporations and government officials.
Since 2008, Brazil’s state development bank, BNDES, has awarded at least 3.4 billion reais in subsidized loans to companies where Mata Pires has an interest, according to the lender’s website. Founded six decades ago in a New Deal-inspired push to finance Brazilian industry and infrastructure, BNDES saw its loans double since 2008 to 156 billion reais last year, twice the total lending of the World Bank.
“In Brazil, it isn’t about raising capital in the market, it’s about the state banks as protagonists,” said Fernando Nogueira, a former vice president of government-controlled lender Caixa Economica Federal who is now a professor at Unicamp, a university near Sao Paulo. “All the big companies are financed by BNDES and the state banks.”
Mata Pires’s backing from state-owned enterprises extends beyond BNDES. According to OAS’s website, Caixa offers financing for OAS to build low-income housing in an initiative started by Lula, and the country’s three largest pension funds — Banco do Brasil SA (BBAS3)’s Previ, Caixa’s Funcef and Petroleo Brasileiro SA (PETR3)’s Petros — participate in a joint venture with OAS. Known as Investimentos & Participacoes em Infra-Estrutura, or Invepar, the venture subcontracts construction work to OAS and, once the projects are complete, operates concessions that include toll roads, subways and Sao Paulo’s Guarulhos international airport.
Leveraging the retirement savings of state employees, OAS sold a road project in Peru to Invepar (IVPR3) in return for shares in the joint venture while the pension funds injected cash to maintain their stakes.
The funds control combined assets of 266 billion reais — twice the annual economic output of Luxembourg — and are a vital source of funding in Brazil. In the world’s second-largest emerging market, power is accumulated by those who “insert and articulate themselves in a web of corporate ties between public and private actors,” said economist Sergio Lazzarini, a professor at Insper in Sao Paulo who recently wrote a book on the subject.
Mata Pires’s own ties to government stretch back to Salvador, where he was born in 1950, the son of a wealthy cattle rancher. While studying civil engineering at the Federal University of Bahia, he landed an internship at construction company Odebrecht SA by showing up one day and pressing for a job, said Durval Olivieri, the engineer who hired him.
The two joined the local Rotary Club along with their boss Norberto Odebrecht, whom Mata Pires followed like a “disciple,” Olivieri said. In 1976, the two joined up with another colleague, Carlos Suarez, to found Olivieri, Araujo, Suarez & Engenheiros Associados Ltd. Araujo is Mata Pires’s mother’s maiden name.
Their first jobs were subcontracted from Odebrecht, today Brazil’s largest construction company. One of them was a marine outfall, a pipeline that shoots waste water deep into the sea where pathogens die off faster. The project caught the attention of Antonio Carlos Magalhaes, who was about to begin his second stint as governor of Bahia state.
“He was governor, which created a very important attraction between us,” said Olivieri, who left OAS after a few years to focus on his work at Odebrecht. “He became a friend, and that’s one of the reasons we thought we would grow.”
Mata Pires met Magalhaes’s daughter Tereza during those years, and the two married. They named one of their sons Antonio Carlos, after Magalhaes. As he rose from governor of Bahia during the military dictatorship to head of the Senate after the return of democracy, Magalhaes pushed business to his son-in-law’s company.
In one deal, Magalhaes attracted Ford Motor Co. (F) to his home state with tax breaks, and OAS joined a consortium to build the plant. Critics joked the letters in the company’s name stood for “Obrigado, Amigo Sogro,” or “Thanks, Friendly Father-in-law,” according to a 2003 article in Veja magazine. Magalhaes died in 2007.
Barreto, OAS’s corporate finance director, said the relationship between Magalhaes and Mata Pires was personal and did not influence OAS’s business. Still, the company came under scrutiny from Magalhaes’ political opponents.
As part of investigations into corruption allegations that brought the impeachment of President Collor in 1992, one of his ministers said on national television that he had received a jet ski from Mata Pires’s partner Suarez as a gift before assuming his post. Suarez left OAS five years later, selling his stake in return for some of the company’s assets.
Also in 1992, Bahia’s state legislature opened a formal inquiry into possible corruption involving OAS’s ties to Magalhaes. It didn’t lead to criminal charges. Last year, OAS donated 850,000 reais to the campaign of one of the state lawmakers who had headed the probe, according to data from Brazil’s electoral court.
OAS is one of the country’s largest campaign donors, along with a handful of other construction companies that compete for public contracts. Through OAS, Mata Pires gave at least 9.9 million reais to Rousseff’s PT party in the 2012 municipal elections, or 4.5 percent of the PT’s total national donations that year.
The company also gave at least 8.2 million reais to Rousseff’s coalition ally PMDB, 6.8 percent of the total. PMDB was the party of Mata Pires’s late father-in-law. That compares to just 500,000 reais to the opposition PSDB, or 0.6 percent of their donations. Those totals don’t include smaller direct donations to candidates’ campaigns.
“They’re strong lobbies,” said Christopher Gaffney, a professor of urban studies at Fluminense Federal University in Rio de Janeiro, whose blog tracks the development of Brazil’s white elephant stadiums. “Public money is supposed to be going to the public good but all the benefits are going to these private companies.”
Barreto said campaign donations have no effect on whether OAS wins a bid.
“The company finances campaigns of all parties so they can each bring their best discourse to the street, and may the best discourse win, so this nation can happen,” he said. “For us, what would be interesting is for Brazil’s GDP to grow like China’s. For me to double my revenues, double the number of professionals I hire and generate twice the wealth.”
Working for both private and public clients, the company has spread its empire throughout Latin America, and into Africa and the Middle East. Among its more than 2,000 projects are the iconic cable-stayed Estaiada Octavio Frias de Oliveira bridge in Sao Paulo and 4,600 kilometers (2,858 miles) of highways. Last year, it won a 15-year contract to provide five drill ships to Petrobras, Brazil’s state oil company.
OAS has more than 80,000 employees and, according to Barreto, Mata Pires is the hardest-working among them. He is grooming his two sons to take over one day, Barreto said. Cesar Mata Pires Jr. is vice president of the construction division while Antonio Carlos Mata Pires holds the same post at OAS’s investment arm. An engineer at OAS since 1980, Jose Adelmario “Leo” Pinheiro, owns the other 10 percent of the company.
OAS’s construction arm accounts for three quarters of its business, generating about 800 million reais in earnings before interest, taxes, depreciation and amortization last year. Mata Pires’s 90 percent stake in the division is valued at $3.6 billion, according to data compiled by Bloomberg, based on the average enterprise value-to-Ebitda multiple of four emerging market peers: Peru’s Grana & Montero SAA, Chile’s Besalco, China State Construction International Holdings Ltd. and Dubai-based Arabtec Holding Co (ARTC).
OAS had a backlog of 18.2 billion reais at the end of last year, according to an April 2013 bond prospectus.
OAS’s real estate operations and its 24 percent stake in Invepar are valued using the enterprise value-to-sales multiples of publicly traded peers. Based on an analysis of dividends, asset sales, taxes and market performance, Mata Pires probably has at least $150 million in cash and other investable assets. He doesn’t control any other assets outside OAS, according to Barreto.
Before the stadiums built by OAS and Odebrecht became a focus of Brazil protests, demonstrators had called for the reversal of the 20-centavo increase in Sao Paulo’s public transit fares. Invepar’s 2012 earnings statement shows the value of such an increase for the companies that operate transportation concessions.
A 10-centavo increase in Rio’s subway fare last year boosted its revenues by 28.6 million reais, according to the statement. Seeking to placate those who had taken to the streets, officials reversed both fare changes.
Protesters disillusioned with a World Cup that caters to the demands of Fifa, soccer’s governing body, instead of their own should blame the government for misusing their money, not the companies that are profiting from the boom, said Romario, a former World Cup champion and now a Brazilian lawmaker.
“Obviously, the builders are beneficiaries,” he said in an e-mail. “They are private companies looking to profit. If they won the bid within the law, their profits aren’t to be questioned.”
OAS is just responding to the opportunities available in Mata Pires’s native country, according to Barreto. Allegations that OAS influences the government with its donations are unfounded, he said.
“It’s the only existing business model in Brazil,” Barreto said. “It’s a sweet illusion that we can force the government’s hand.”