By Kevin Allison and Neil Unmack
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
It would be hard for Brazil to let Petroleo Brasileiro go. The embattled oil company is hobbled by rising debt with bond yields pricing in a high degree of distress. The government of President Dilma Rousseff has means and motive to keep the group afloat, however. Petrobras is probably a good fixed-income bet.
Even before this year’s oil-price tumble, borrowing at Petrobras was increasing sharply because of exploration costs and an obligation to supply Brazilians with petrol at below-market rates. Falling revenue and a depreciating real have pushed debt to over 5.7 times this year’s EBITDA, as estimated by Barclays. That’s far higher than at big peers like Exxon Mobil whose ratios are closer to one time.
Deleveraging could be hard, too. Petrobras is selling assets and cutting investment at the expense of future growth. Credit-rating firm Fitch expects the company’s debt to stay above five times EBITDA “over the medium term”. Potential litigation related to a massive kickback scandal is a wildcard. The company’s five-year bonds yield almost 11 percent, and the cost of insuring against default, as indicated by its credit-default swaps, has more than doubled since the second quarter.
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