Petrobras Bonds, After Slump, Find Takers

Petrobras Bonds, After Slump, Find Takers

Prices have risen in the past week amid expectations the oil company soon will resolve uncertainty over its finances

Petrobras

Petrobras headquarters in Rio de Janeiro. Some of the state-run oil company’s bonds have risen 7% in the past week. PHOTO: ANTONIO LACERDA/EUROPEAN PRESSPHOTO AGENCY

By

CAROLYN CUI/WSJ

March 25, 2015 6:54 p.m. ET

Investors are buying debt issued by Brazil’s Petroleo Brasileiro SA, reversing a long decline in the price of its bonds amid expectations the state-run oil company soon will resolve uncertainty over its financial statements.

On Wednesday, a newspaper in Brazil reported that securities regulators approved a methodology for the company, known as Petrobras, to measure losses tied to corruption investigations that have rocked the firm. A board meeting is scheduled for Thursday, and investors have been awaiting the release of audited financial statements for 2014.

If the company fails to deliver the statements by the end of April, it will trigger a technical default on its bonds, and creditors will have the right to request full repayment after a certain period. Many investors have sold the company’s bonds in recent months, fearing it wouldn’t be able to sort out its financial statements in time to avoid default.

“This is the biggest overhang in the markets,” said Siddharth Dahiya, head of emerging-market corporate debt at Aberdeen Asset Management, which has about $500 billion in assets. If Petrobras is able to release results in time, the company will be able to focus on other issues such as production, he said.

Prosecutors have said the scandal at Petrobras may have cost the company as much as $700 million.

The prices of Petrobras bonds maturing in March 2017 rose on Wednesday to 93.8 cents on the dollar from 93.2 cents, according to MarketAxess. They have risen 7% over the past week, helped by a statement last week by the Federal Reserve that suggested it may raise interest rates later this year rather than sooner and Standard & Poor’s Ratings Services decision to maintain its investment-grade credit ratings on both Brazil and Petrobras.

In March, the bonds’ average daily trading volume has been $645.8 million, up more than 90% from the average in all of last year, according to MarketAxess.

On Wednesday, Petrobras’s shares rose 4.8% in São Paulo.

But some investors remain skeptical of the company. Samy Muaddi, a portfolio manager for T. Rowe Price’s emerging-markets corporate-bond strategies, said the firm holds fewer Petrobras bonds than its market benchmark.

A corruption scandal last month forced a management shake-up at the company. Chief Executive Maria das Graças Silva Foster, who had led the company since 2012, and five other top executives stepped down.

A longtime veteran of the company, Ms. Foster hasn’t been implicated in the scandal. Still, investors appeared to have lost confidence in her leadership as the crisis deepened.

Petrobras’s problems are intertwined with those of Brazil. Until a few years ago, Brazil was a young economy powering ahead, riding on the commodities boom and ultralow interest rates in the U.S., which kept borrowing costs low.

However, Brazil has slipped into recession, as economic growth has slowed in China, a big importer of the country’s commodities.

The company is facing headwinds from a weaker currency, as it is importing crude oil—typically priced in dollars—to refine and sell domestically.

Petrobras, the largest company in Brazil by market capitalization, has borrowed tens of billions of dollars to fuel its ambition to ramp up production and become a net exporter of oil. Since 2011, the company has increased its debt load 63%, according to J.P. Morgan Chase & Co.

The heavy debt concerns many bondholders, who also are looking to see whether the company can hold to its promise of doubling oil production by 2020.

Moody’s Investors Service last month chopped the company’s credit rating by two levels into junk, citing the short-term risk with the financial statements as well as the company’s deteriorating fundamentals, including its high debt load and a weakening ability to generate cash.

Write to Carolyn Cui at carolyn.cui@wsj.com

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