UPDATE – Petrobras Suppliers Thrown China Lifeline in Credit Squeeze

Petrobras Suppliers Thrown China Lifeline in Credit Squeeze

By Sabrina Valle

6:04 PM BRT
April 6, 2015

A group of Petroleo Brasileiro SA suppliers is negotiating about $3.5 billion in loans from Chinese institutions as China expands support for Brazil’s oil industry, the Brazil-China Chamber of Commerce & Industry said.

About half of the more than 20 suppliers banned from participating in new tenders with Petrobras amid a graft probe are in talks with lenders including China Development Bank Corp., Export-Import Bank of China and China Export & Credit Insurance Corp., Charles Tang, who heads the chamber, said by telephone Monday. He declined to name prospective borrowers.

The talks follow China Development Bank’s loan to Petrobras for the same amount announced April 1. The state-run producer’s shares jumped 4.9 percent that day as the deal eased concern of a looming cash crunch as delays in reporting financial results keep the company out of bond markets. Brazil’s biggest builders have been struggling to make payments to creditors as they defend themselves from allegations that they bribed the oil company to win inflated contracts.

“China thinks it is a good opportunity to invest in the country,” said Tang. “China believes Brazil’s and Petrobras’ problems are temporary and will be overcome. This excess of pessimism we see in the Western world you don’t see in China.”

The world’s biggest deep-water oil producer had its credit rating cut to junk by Moody’s in February. Fitch Ratings said last month it may follow suit if the company fails to complete offshore production equipment fast enough to accelerate output. Petrobras has until the end of May to book corruption losses in audited earnings or risk having its debt payments accelerated.

‘Huge Companies’

China’s involvement in propping up Brazil’s energy industry goes beyond lending, Tang said.

One Brazilian company found a Chinese subcontractor to finish one of its Petrobras supply jobs in China in an arrangement that may include an almost $1 billion loan, he said.

Suppliers are also negotiating partnerships with Chinese companies in Brazil and bringing in engineers from China, Tang said.

“Only this month I have seven Chinese companies having dinner at my home,” he said. “These are all huge companies, with capacity for billion-dollar investments.”

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