Petrobras’s $4 Billion Bond Wipeout Is Just a Prelude

Petrobras’s $4 Billion Bond Wipeout Is Just a Prelude


by Julia Leite Filipe Pacheco

12:00 AM BRST  February 9, 2015



(Bloomberg) — The corruption scandal battering Petrobras has already cost bondholders $4 billion. With the oil producer facing billions of dollars in writedowns, investors are bracing for even more pain.

Petroleo Brasileiro SA’s $41 billion of dollar-denominated debt has lost 10 percent of its value since Nov. 13, the day before the federal police said they found “strong evidence” that at least seven builders formed a cartel to win public contracts, including 59 billion reais ($21 billion) in orders from the state-controlled oil company.

The bond losses could be poised to swell. That’s because Petrobras may write down as much as $32 billion stemming from Brazil’s largest-ever graft probe and lose its investment grade, said Wilbur Matthews, the chief executive officer of Vaquero Global Investment LP.

“This is a deeply troubled company, and we should see more losses coming when the final numbers for writedowns are finally out,” Matthews, who oversees more than $100 million in emerging-markets debt, said from San Antonio. “It would be a disaster seeing the company as a fallen angel and going to the junk category. And that seems not to be far from happening.”

The company’s notes sank further on Friday after President Dilma Rousseff picked a state-bank executive, Banco do Brasil SA Chief Executive Officer Aldemir Bendine, to run Petrobras. A week earlier, Moody’s Investors Service cut the company’s rating to the cusp of junk and threatened another downgrade within a month if it didn’t clarify its earnings.

Petrobras’s press office didn’t respond to a telephone call and e-mail seeking comment on its bond performance.

Bendine Tapped

Brazil’s real weakened 0.4 percent today to 2.7925 per dollar as of 7:49 a.m. in New York.

The government controls both Petrobras and Banco do Brasil with a majority of voting shares. Bendine, 51, is set to take over from Maria das Gracas Foster, who announced her resignation Feb. 4 after failing to broker a consensus on the cost of the escalating investigation.

Foster said in a Jan. 27 filing that the company found its assets were overvalued by as much as 88.6 billion reais.

The appointment of a “government person instead of an independent person is negative,” Peter Lannigan, a Stamford, Connecticut-based emerging markets strategist at CRT Capital Group LLC, said in an e-mail.


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