New York, April 10, 2017 — Moody’s Investors Service upgraded all
ratings of Petroleo Brasileiro S.A. (Petrobras)’s and ratings based on
Petrobras’ guarantee, including the company’s senior unsecured debt and
corporate family rating (CFR), to B1 from B2 given lower liquidity risk
and prospect of declining debt leverage. At the same time, Moody’s
raised the company’s baseline credit assessment (BCA) to b2 from b3. The
outlook for all ratings was changed to positive from stable.
Upgrades:
..Issuer: Petrobras Global Finance B.V.
….Backed Senior Unsecured Shelf, Upgraded to (P)B1 from (P)B2
….Backed Senior Unsecured Regular Bond/Debenture, Upgraded to B1 from
B2
..Issuer: Petrobras International Finance Company
….Backed Senior Secured Shelf, Upgraded to (P)Ba3 from (P)B1
….Backed Senior Unsecured Shelf, Upgraded to (P)B1 from (P)B2
….Backed Subordinate Shelf, Upgraded to (P)B2 from (P)B3
….Backed Senior Unsecured Regular Bond/Debenture, Upgraded to B1 from
B2
..Issuer: Petroleo Brasileiro S.A. – PETROBRAS
…. Corporate Family Rating, Upgraded to B1 from B2
….Senior Secured Shelf, Upgraded to (P)B1 from (P)B2
….Senior Unsecured Shelf, Upgraded to (P)B1 from (P)B2
….Subordinate Shelf, Upgraded to (P)B2 from (P)B3
….Preferred Shelf, Upgraded to (P)Caa1 from (P)Caa2
Outlook Actions:
..Issuer: Petrobras Global Finance B.V.
….Outlook, Changed To Positive From Stable
..Issuer: Petrobras International Finance Company
….Outlook, Changed To Positive From Stable
..Issuer: Petroleo Brasileiro S.A. – PETROBRAS
….Outlook, Changed To Positive From Stable
RATINGS RATIONALE
The actions on Petrobras’ ratings, BCA and outlook reflect Moody’s
expectation of continued improvement in the company’s liquidity profile
and financial metrics over the next 12 months, which reduces Petrobras’
credit risk. Liquidity and financial metrics have improved further over
the last few quarters as a result of lower capex in 2016 than planned;
gains from disciplined operating management and local currency
appreciation, which positively affected operating costs; and the
company’s new fuel pricing policy, which increased flexibility to
sustain downstream margins and wholesale market share. These factors
helped Petrobras maintain access to the capital markets and refinance
debt: so far in 2017 the company has tendered approximately $6 billion
in notes and issued $4 billion in new notes, which allowed it to reduce
debt and extend its debt maturity profile. The regulatory environment
has also improved in Brazil, supporting better return on investment in
the long term. Moody’s recognizes that Petrobras’ management has shown
commitment to its financial and operating targets, as shown in recent
debt refinancing transactions, disciplined use of cash, increasing crude
production and declining costs.
Despite the material improvements, liquidity risk remains a concern. As
of December 31, 2016, Petrobras’ maturing debt in 2017 and 2018 was $8.8
billion and $11.3 billion, respectively, for a total of $19 billion in
the next 2 years. Other threats to Petrobras’ liquidity, as well as to
its operating and financial performance, include execution risk related
to the 2017-21 business plan and potential delays in fully executing its
asset sales plan. It is positive, however, that the company has managed
to settle with 19 out of 27 individual investors on legal disputes
related to the Car Wash investigation, somewhat reducing uncertainty
about the amounts of additional settlements and fines, including the
ones related to the U.S. Securities Exchange Commission (SEC)’s the U.S.
Department of Justice (DoJ)’s investigations.
Petrobras’ b2 BCA, which indicates Moody’s view of the company’s
standalone credit strength, considers its high debt, low to negative
free cash flow, high refinancing risk, local currency volatility risk
and operating challenges in a difficult industry and economic
environment; for instance, debt maturing over the next five years
amounts to $75 billion. In addition, free cash flow will remain under
pressure in the next couple of years as its upstream business suffers
from low oil prices and downstream operations are hurt by still low
demand, high competition and local currency volatility, at the same time
that the fuel pricing strategy evolves.
Petrobras’ b2 BCA and B1 rating are supported by the company’s solid
reserve base and dominance in the Brazilian oil industry, and its
importance to the Brazilian economy. Furthermore, the ratings reflect
the company’s sizeable reserves at 9,677 Mboe, its renown high
technological offshore expertise and potential for continued growth in
production over the long-term.
Petrobras’ B1 ratings also consider Moody’s joint-default analysis for
the company as a government-related issuer. Petrobras’ ratings reflect
Moody’s assumption for a moderate likelihood of timely extraordinary
support from the government of Brazil. Despite its stated willingness to
stand behind Petrobras, Moody’s believes that the government’s current
fiscal situation tempers its capacity to support Petrobras sufficiently
to avoid a default. Petrobras’ rating incorporates one notch of uplift
between Petrobras’ BCA and its senior unsecured rating given the
company’s lower liquidity risk and thus lower need of support, which is
favorable in the context of government’s persistently tight fiscal
position. Moody’s continues to assume moderate default dependence
between Petrobras and the government.
Petrobras’ ratings have a positive outlook, reflecting Moody’s
expectation that, in the next 18 months, if the company’s liquidity and
overall credit risk continues to improve, further positive rating
actions could occur.
Positive rating actions could be considered if the company raises
sufficient sums through asset sales or new debt arrangements to reduce
debt and refinance upcoming maturities and significantly strengthen its
liquidity profile while also improving operating and financial
performance. In addition, for a rating upgrade to occur, Petrobras’
leverage as adjusted by Moody’s should move sustainably closer to 4
times.
Negative actions on Petrobras’ ratings could result from deterioration
in operating performance or external factors that increase liquidity
risk or debt leverage from current levels. Downgrades could also be
prompted if negative developments from the corruption investigations or
litigation against the company appear to have the potential to
significantly worsen the company’s liquidity or financial profile.
The principal methodology used in these ratings was Global Integrated
Oil & Gas Industry published in October 2016. Other methodologies used
include the Government-Related Issuers methodology published in October
2014. Please see the Rating Methodologies page on www.moodys.com for a
copy of these methodologies.
Petrobras is an integrated energy company, with total assets of $247
billion as of December 31, 2016. Petrobras dominates Brazil’s oil and
natural gas production, as well as downstream refining and marketing.
The company also holds a significant stake in petrochemicals and a
position in sugar-based ethanol production and distribution. The
Brazilian government directly and indirectly owns about 46% of
Petrobras’ outstanding capital stock and 60.5% of its voting shares.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this
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rating of a subsequently issued bond or note of the same series or
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For any affected securities or rated entities receiving direct credit
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