Brazil's Americanas could face up to $8 billion early debt charges after accounting scandal, court warns

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By Rodrigo Viga Gaier and Tatiana Bautzer

RIO DE JANEIRO/SAO PAULO (Reuters) -A Brazilian court said on Friday Americanas SA could be liable to repay up to 40 billion reais ($7.9 billion) in debt earlier than planned, if the retailer is found in breach of covenant after reporting "accounting inconsistencies."

A group representing minority shareholders filed a complaint with Brazil's securities regulator earlier on Friday claiming a "multi-billion fraud," after Americanas said it had uncovered inconsistencies in the order of 20 billion reais.

"Calling it 'inconsistencies' is nothing more than an attempt to use a euphemism for a multi-billion fraud that not only destroyed the assets of shareholders but also undermined the credibility of Brazil's capital markets," Abradin said in a document seen by Reuters.

The group, the Abradin association, also called for an investigation of PwC, the firm's auditor. PwC declined to comment.

The court granted an injunction protecting Americanas from creditors looking to claim back debt faster or seize company assets, as well as contracts necessary for the firm's operations - on the condition it file for bankruptcy protection or reach a deal with creditors.

If Americanas does not file within 30 days, the court document said, the injunction will lose effect.

Changes to the firm's balance sheet resulting from the purported inconsistencies, the court said, could affect its debt and minimum working-capital levels, resulting in a breach of covenant requiring the early repayment of up to $8 billion in debt.

The company had said it and its creditors were together seeking a "viable alternative" in light of its looming debts.

Americanas shares rebounded 15% on Friday after plummeting over 75% a day earlier, wiping out 8.4 billion reais in market value when Chief Executive Sergio Rial, nine days into his job, resigned over the discovery of the irregularities.

The regulator, CVM, has announced three probes into the retailer, while the company has formed an independent committee to investigate.

In revealing the irregularities on Wednesday, Americanas said it believed the cash impact was not material though more inquiries were needed.

'NOT EASY TO HIDE'

"I think this is the biggest scandal I've ever seen on the Brazilian stock exchange," James Gulbrandsen, NCH Capital's chief investment officer in Latin America, told Reuters.

Fabio Alperowitch, a manager at FAMA Investimentos, said he had sold his position in Americanas in 2019 due to the "opacity" of its financial statements. "All the evidence of misconduct was there," he tweeted.

Americanas directors sold around 215 million reais ($42 million) in shares between July and September, according to regulatory filings. The company did not report sales by controlling shareholders or members of the board.

"What draws a lot of attention is the size of the problem. It's not easy to hide 20 billion reais," said Eric Barreto, a professor at Sao Paulo's Insper. "If the operations were on the balance sheet, it was a matter of presentation. But I don't know if they were fully on the sheet."

Rial, in a meeting with investors on Thursday, attributed the inconsistencies to differences in accounting for the financial cost of bank loans and debt with suppliers. Accountants, however, are still trying to figure out details.

Rial was named in August to succeed former CEO Miguel Gutierrez after almost 30 years at the firm.

Americanas, long controlled by three Brazilian billionaires who founded 3G Capital, has a network of stores ubiquitous in the country's shopping malls. The company's e-commerce unit is one of the country's top online retailers.

"The market (including us) still does not fully comprehend what the full implications are for Americanas," analysts at JPMorgan (NYSE:JPM) said in a research note, citing a lack of consistent communication from the company.

Ratings agency Fitch downgraded the firm's long-term foreign and local currency issuer default ratings to "CC" from "BB". S&P Global (NYSE:SPGI) downgraded Americanas' credit rating to "BB," and added it to its CreditWatch list with negative implications.

($1 = 5.1436 reais)