Petrobras Releases Audited Results With $2.1 Billion Graft Cost

Petrobras Releases Audited Results With $2.1 Billion Graft Cost

by Peter Millard Sabrina Valle/Bloomberg
7:51 PM BRT
April 22, 2015

Petrobras wrote down 6.2 billion reais ($2.1 billion) in corruption-related charges in its first audited financial results since August, a major step for Brazil’s state-run oil producer to regain bond-market access.
The charge was linked to the so-called Carwash investigation in which suppliers allegedly paid bribes to win contracts, the Rio de Janeiro-based company said in a filing Wednesday. Petrobras reported a 2014 net loss of 21.6 billion reais while total debt rose to 351 billion reais.
Ensnared by an ever-widening corruption investigation, Petrobras has been all but shut out of bond markets and had its credit rating cut to junk by Moody’s Investors Service on Feb. 24. The scandal — a decade of alleged kickbacks, bribes and inflated construction contracts — is playing out as crude trades near six-year lows. President Dilma Rousseff, whose popularity is at an all-time low, is struggling to contain the damage at the oil giant she oversaw and championed.
“The publication of results is just the kickoff for resuming other discussions in the company,” Karina Freitas, an analyst at brokerage Concordia, said by telephone from Sao Paulo before the release. “Once there’s a clear signal on leverage levels, the next step would be the operational side: production levels, fuel price policies, investments.”
A combination of missed production targets, mounting debt and gasoline subsidies eroded confidence in the biggest producer in deep waters with the market value tumbling by about $250 billion since peaking at $310 billion in 2008.
Taking Measures
The list of troubles at Petrobras, known formally as Petroleo Brasileiro SA, swelled since last year when police arrested its former head of refining, Paulo Roberto Costa, revealing a money-laundering and corruption scandal dubbed Carwash.
Petrobras has been taking measures to strengthen its corporate governance and internal controls including the establishment of a new compliance, governance and risk directory, and is seeking reimbursement for damages. The world’s most indebted oil company is slashing investments and selling $13.7 billion of assets to protect its cash position.
The stock has climbed 11 percent since April 13, when the company said it would present the delayed results to the board. This month, Petrobras obtained more than $9 billion from bank loans, credit lines and a platform sale and leaseback accord to cover funding needs for 2015, it said April 17.
Releasing earnings, that were delayed as the company grappled with a way to book graft costs, averts a potential acceleration of debt payments and may unlock Brazil’s corporate bond market. No Brazilian companies have sold debt overseas since Nov. 14, data compiled by Bloomberg show.
Rating Cut
A lack of consensus over the size of the writedowns prompted Chief Executive Officer Maria das Gracas Foster to resign. She was replaced Feb. 6 by state banker Aldemir Bendine.
Moody’s lowered Petrobras two levels to Ba2 in February, citing delays in delivering audited financial statements and difficulties to reduce its “very high” debt.
“If the company is able to conclusively address its near term liquidity risks, its ratings could be upgraded, although likely not to investment grade,” Moody’s said Feb. 24.