(Bloomberg) — An accounting scandal involving American SA last year was deeper than the Brazilian retailer previously reported, according to a long-delayed financial report released Thursday.
Most read from Bloomberg
Americanas said the size of the fraud stood at 25.2 billion reais ($5.2 billion) by the end of last year — about 5 billion reais more than previously estimated. Accounting issues arising from supply chain financing and false advertising contracts.
The updated figures, published in a filing on Thursday, add a layer of complexity to one of Brazil’s biggest corporate meltdowns. American, one of the nation’s largest brick-and-mortar retailers, plunged into bankruptcy protection this year, shutting down credit markets and sending shock waves through corporate boardrooms.
By publishing the old earnings, it moves a step closer to negotiating a deal with creditors to restructure 42.5 billion riyals of debt. An agreement should be reached in December, Chief Financial Officer Camille Loyo Faria said in a call with analysts after the release.
In its most recent proposal, Americanas proposed swapping bank debt for equity and receiving a $12 billion-real capital injection from its largest shareholders.
“American is the party with the greatest interest in clarifying what really happened,” the company’s management said in a statement. “The financial statement numbers now reflect the most realistic and transparent data of a company’s assets and liabilities.”
The retailer reported losses of 12.9 billion riyals ($2.7 billion) in 2022 and 6.2 billion riyals in 2021, according to the filing. It said it would not restate annual data before 2021 and would republish quarterly reports for 2022, with a 2023 release due by the end of the year.
Shares in Sao Paulo rose 11% and traded at their highest level in more than two weeks.
American’s shareholders include some of Brazil’s most influential business executives, including billionaires Jorge Paulo Lemann, Marcel Telles and Carlos Sicupira, who purchased the retailer in 1982. Its main creditors include Banco Bradesco SA, which has a loan of 4.8 billion reais, the Brazilian unit of Banco Centro SA with 3.7 billion reais and Banco BTG Pactual SA with 3.5 billion reais.
The company filed for bankruptcy protection in January after the fraud was estimated at 20 billion reais at the time. Its explosion came as interest rates in Brazil hovered near 14%, crippling the broader credit market in the country and putting the spotlight on other retailers who have struggled in tough economic conditions.
It marks a sudden decline for one of Brazil’s most traditional retailers, which had its roots in 1929. Rio de Janeiro-based American, which operates about 1,800 stores across the country, is known for its symbolic red and white signs, chocolate Easter egg displays. And affordable prices on everything from toys to home 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 17 October that he might impose half of the 12 billion reais and divide the remainder between Leman and Telles. A spokesman for the businesses declined to comment.
In mid-2022, Americanos announced that former head of Banco Santander Brasil Sergio Real would take over as chief executive officer on January 1, which was well received by the market. Outgoing CEO Miguel Gutierrez had been in the position for decades.
As the transition approached, Rial said its access to details of the financial situation, as well as to Gutierrez and the rest of the management team, had been reduced. He abruptly resigned after just a few days on the job after accounting discrepancies were discovered that doubled the firm’s debt.
Since then, the retailer has lost millions of customers, closed dozens of stores and cut its workforce. According to monthly reports, while sales have declined on digital platforms, customers are continuing to flock to physical stores.
While the details of how the fraud was carried out and how it was hidden for so long remain unclear, Thursday’s report points a path to recovery for “New American,” according to CFO Loyo Faria and current CEO Leonardo Coelho.
It plans to reduce total debt to at least 1 billion riyals by 2025 and have projected earnings before interest, taxes, depreciation and amortization of 2.2 billion riyals for the full year. Loyo Faria said the company will have a “significant capitalization” of 24 billion riyals in 2024, thanks to funds received from shareholders and as part of a debt overhaul in the judicial recovery process.
Coelho said on the call that Americanas sees its fintech AME as part of the firm going forward and will continue to listen to offers for its HortiFruit Natural da Terra supermarket chain and retail subsidiary Uni.co, although the divestiture is on hold for the time being. .
Once an agreement is reached with the banks, it will have to be voted on by a broader group of creditors and taken to the judge overseeing the bankruptcy protection process. According to people involved in the discussions, it could still take years for details to emerge from the process.
In the report, the company said that within 90 days of the creditors’ meeting, it will proceed with payments to suppliers, issue new notes as part of the restructuring, proceed with a recapitalization and hold a general shareholders’ meeting.
“We have turned a page today,” Coelho said.
–With the help of Tais Foucault.
(Updated with earnings details starting in first paragraph.)
Most Read from Bloomberg Businessweek
©2023 Bloomberg LP