Petrobras confirms US$5 billion loan from China Development Bank

The state oil firm Petrobras reported on 16 December 2016 that it signed a financing agreement with the China Development Bank (CDB) for a ten year loan of US$5 billion (Valor, Globo G1). The financing is the result of a US$10 billion agreement announced on 26 February 2016 between Petrobras and CDB. Per the agreement, Petrobras will provide a total volume of 100,000 barrels of oil per day to China National United Oil Corporation, China Zhenhua Oil, and Chemchina Petrochemical over the term of the loan, in lieu of making interest and principal payments. The company also signed agreements with these three firms.

 

The agreement is questionable on Petrobras’ end. At an average price of US$50 per barrel of crude oil, Petrobras would effectively pay a 36.5 percent interest rate based on economic cost. However, Petrobras is the most indebted company in the world, with over US$100 billion in long-term debt as of 30 September 2016 and scaling efforts to shed non-core assets to reduce its leverage (Globo G1). As such, their credit options were limited in February 2016, and the US$10 billion agreement with CDB enabled them to raise funds in February without issuing equity, when their stock price was at its nadir (Globo G1). Shares of the firm rebounded in 2016, increasing 266 percent from a low of US$2.71 in February to US$9.91 on 20 December 2016, as the Brazilian stock market rallied in anticipation of Dilma Rousseff’s impeachment and the price of Brent crude oil rebounded from a low of around US$35 in February to the mid-US$50s in December 2016 (Google Finance).