The shockwaves from the long-running Petrobas scandal are set to overshadow the IADB meetings this week as the problems at the Brazilian state-controlled oil company have continued to send shivers down Latin America’s capital markets.
Once an aspiring energy giant, Petrobas has been crippled an endemic corruption scandal that has exposed the dangers of political patronage and incestuous relations with its largest contractors. Petrobras is now expected to be downsized to meet its financial obligations. It has been trying to sell assets worth $13.7bn by 2016. These include some oil fields, power stations and gas distributors.
The company is also considering raising some $2.5bn through funds of receivables from Eletrobras, the state-owned electricity company.
But its most pressing concern is to be able to issue credible and audited financial statements — something that has proved impossible since the second half of last year. Failing that, bondholders may use covenants and claim their money back, which would cripple Petrobras’ finances.
Nevertheless, the possibility of a Petrobras default on its $140bn debt — or part of it — is unlikely because the Brazilian Treasury, which controls Petrobras, would not allow it and would find a way to support the company. The problem would then become a fiscal issue, rather than a corporate one.
But the apparent incapacity of Petrobras to gauge the depth of multi-year corruption and put a precise figure on asset depreciation is causing increasing wariness in the financial markets. Standard & Poor’s has just cut the outlook of Petrobras’ BBB- rating to negative from stable as the company remains barred from the debt market and will find it increasingly difficult to finance its business plan and boost oil output.
Credit downgrades
The recent slide of the real on the foreign exchange markets — which was in itself partly caused by the Petrobras scandal — is also weighing on the company’s debt, which is mostly dollarised. Last month, Moody’s downgraded Petrobras to Ba2 and spreads on the company’s credit defaults swaps widened to all-time highs.
Standard & Poor’s also cut the company’s stand-alone credit profile, which does not take into account the support of the Treasury, to B+ from BB due to the depreciation of the real and the delay in increasing oil output.
The downgrade had a ripple effect on Odebrecht Oleo and Gas, a subsidiary of the large Odebrecht conglomerate, which is one of Latin America’s largest multinational companies. Standard & Poor’s cut its ratings to BB- from BB+. The financing companies Odebrecht Offshore Drilling Finance and Schahin II Finance Limited, which issued debt to finance Petrobras oil rigs and platforms, were also downgraded to B+ from BB.
“The corruption investigations not only squeezed financing of Petrobras’ investment plan, but also weakened its main contractors’ creditworthiness and slowed the construction of oil rigs to ramp up production,” Standard & Poor’s said. Sete, a Brazilian provider of oil rigs and platforms in ultra-deep waters, is now facing default if it fails to pay back bank loans of 12bn reals ($3.75bn) by the end of the month.