Petrobras Debt Said to Swell 70 Billion Reais in Currency Rout

Petrobras Debt Said to Swell 70 Billion Reais in Currency Rout

By Sabrina Valle

10:44 AM BRT
March 25, 2015

(Bloomberg) — The oil industry’s biggest debt load just got 70 billion reais ($22 billion) heavier thanks to Brazil’s plunging currency, two people with knowledge of the matter said.

That’s the amount Petroleo Brasileiro SA’s debt has grown by in the past six months because of the real’s depreciation against the dollar, they said, asking not to be named as the number hasn’t been released. About 75 percent of the $130 billion owed is exposed to dollar fluctuations, they said. Petrobras didn’t respond to an e-mail seeking comment.

The real’s 22 percent drop since September, the biggest among major currencies tracked by Bloomberg in that span, is exacerbating a cash crunch for Petrobras, the Rio de Janeiro-based company that gets most of its revenue in reais and is being kept out of credit markets as it grapples with how to account for corruption losses in financial statements.

“Because its revenue is in reais, for the most part, it will have less cash flow and its debt will be more expensive,” said Celson Placido, a strategist at XP Investimentos in Sao Paulo. “It’s a serious problem for its investment grade.”

Some perspective: An increase of 70 billion reais in six months is equivalent to ConocoPhillips’ last-reported total debt, according to data compiled by Bloomberg.

Already the most indebted oil company, Petrobras hasn’t reported financial results since the third quarter. It has until the end of May to release audited earnings or risk an acceleration of debt payments.

Major creditors aren’t interested in an acceleration and are open to discussing other options, one of the people said.

Rating Cut

Petrobras had the outlook on its BBB- credit rating cut by Standard & Poor’s to negative from stable on Monday, a month after Moody’s Investors Service chopped its rating on the state-run oil producer by two levels to junk grade.

The average yield on Petrobras bonds due 2021 is 7.3 percent this year, compared with a 4.97 percent average in the previous two years, according to data compiled by Bloomberg.

That increase of 2.33 percentage points on $13 billion — the amount of bonds sold last year, according to data compiled by Bloomberg — would cost an extra $300 million a year to service.

In its annual report, Petrobras said 80 percent of its liabilities at the end of 2013 was denominated in currencies other than the real, noting that depreciation would increase debt service and effect income, except for the proportion of dollar debt that’s hedged.

Under new Chief Executive Officer Aldemir Bendine, Petrobras announced plans to sell $ 13.7 billion in assets this year and next to reduce debt and fund investments.

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