S&P Cuts Petrobras’s Credit-Rating Outlook Amid Corruption Probe

S&P Cuts Petrobras’s Credit-Rating Outlook Amid Corruption Probe

By Julia Leite

8:16 PM BRT
March 23, 2015

(Bloomberg) — Petroleo Brasileiro SA had the outlook on its credit rating cut by Standard & Poor’s as the oil producer faces difficulties in financing investments amid Brazil’s largest-ever corruption probe.

S&P cut the outlook on Petrobras’s BBB- rating, the lowest investment grade, to negative from stable, according to a statement Monday. The announcement comes a month after Moody’s Investors Service chopped its rating on the state-run oil producer by two levels to junk grade.

Petrobras should have weaker cash flow and higher leverage in 2015 and 2016 as capital markets remain “restricted,” weighing on plans to increase production, S&P said. Petrobras has been shut out of debt markets after it delayed an earnings report because of difficulties deciding on the size of corruption-related writedowns.

“The ongoing corruption investigations not only squeezed financing of Petrobras’ investment plan, but also weakened its main contractors’ creditworthiness and slowed the construction of the oil rigs to ramp-up production,” S&P analysts led by Renata Lotfi wrote. “We expect that cash flows could deteriorate further.”

While S&P affirmed the oil producer’s credit grade, the ratings company chopped Petrobras’ stand-alone credit profile, which doesn’t take into account government support, to B+, four levels below investment grade. The likelihood the government would provide “timely and sufficient extraordinary support” to the company is considered “very high,” S&P said.

The plunge in the real, which has dropped 15 percent this year, is likely to have an additional negative impact, S&P said.

The ratings company also affirmed Brazil’s BBB- sovereign rating Monday, with a stable outlook.

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