Petrobras

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).

Odebrecht strikes leniency deal in Petrobras scandal

Odebrecht, one of the largest construction firms implicated by Operação Lava Jato in the Petrobras corruption scandal, reached a leniency deal (essentially a plea bargain) with prosecutors on 1 December 2016 (Folha, Valor). The accompanying fine is ~US$1.9 billion, which Odebrecht will pay in annual increments over twenty years. Inclusive of interest payments over this period, the actual amount paid by the company will surpass US$2.4 billion. The company will pay the majority of the fine to the Brazilian Ministry of Justice, with smaller portions going to the Ministry's American and Swiss counterparts. Operação Lava Jato expected to begin reaching plea deals with almost 80 executives and former employees of Odebrecht, including former President Marcelo Odebrecht, as soon as 1 December 2016 in Brasília. Supreme Court Minister Teori Zavascki, who oversees the Lava Jato operation for the Court, must approve these plea bargains before they may be finalized, meaning that attorneys must find the testimonies or evidence presented by the defendants to be valuable in the case. 

Petrobras shares open up big after OPEC deal

Petrobras common shares opened up around 8 percent on 30 November 2016 after OPEC reached a deal to control oil production (Folhainvest). Brent Crude oil and WTI Crude oil prices both opened up over 7 percent, causing major oil companies around the world to see gains. Petrobras subsequently led a charge by the Ibovespa (São Paulo Stock Exchange), which opened up over 2 percent. The jump comes a day after President Michel Temer enacted a law removing requirements for the state-owned oil firm to participate in certain percentages of contracts in the Pre-Salt Oil Basin off of the coast of the states of São Paulo and Rio (Veja).

Moody’s upgrades Petrobras and changes outlook to ‘stable’

Credit rating agency Moody’s upgraded Petrobras’ debt rating from B3 to B2 on 21 October 2016, citing reduced liquidity risk as a factor (Valor, UOL). It also changed its outlook for the state-owned oil firm from “negative” to “stable.” The firm has sold US$9.1 billion of assets over the past few months to reduce its leverage in accordance with its 2017-2021 corporate plan, which foresees a reduction in net leverage (Net Debt/EBITDA) from 5.3x at the end of 2015 to ~2.5x by the end of 2018. Further, it exchanged ~US$10 billion of outstanding debt in the third quarter, extending the term and reducing the maturity of their overall debt profile.

A company is considered “investment grade” when achieves a rating of at least Baa3 from Moody’s or BBB- from Standard & Poor’s. Amidst the Lava Jato scandal, declining oil prices, and significant overleverage, Petrobras lost its investment grade rating in February 2015, when Moody’s downgraded the firm from Baa3 to Ba2. As of 30 June 2016, Petrobras, with ~US$115 billion in long-term debt, remained the world’s most indebted company (Company financials).

Petrobras considering sale of share in Guarani

It was reported on 20 October 2016, Petrobras has hired Itaú BBA to advise the state-owned oil firm on the potential sale of its 45.9 percent stake in Guarani, a sugar, ethanol, and energy producer in northwestern São Paulo state (Valor, O Globo). Tereos, the French sugar company that controls Guarani, has hired Banco do Brasil as its financial advisor. Between 2011 and 2016, Petrobras invested over US$500 million in Guarani. However, as a part of its divestiture plan, Petrobras is seeking to shed biofuel assets to reduce its debt. It is also considering the sale of its shares in Bambuí Bioenergia and Nova Fronteira.