Petrobras funding options run slim as scandal deepens

Wed Dec 10, 2014 10:04am EST
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By Guillermo Parra-Bernal

SAO PAULO (Reuters) - Brazil's state-controlled oil firm Petrobras may have to hike fuel prices, cut spending or seek a capital injection from the government next year as a widening corruption probe threatens to temporarily leave it out of capital markets.

Yet any of those steps would be difficult to implement and may not be enough to fully substitute international bond markets as the company's main funding source, said one banker who helped oversee some of the company's bond offerings in recent years.

Last month, Petrobras (PETR4.SA: Quote) delayed the release of third-quarter results after auditors refused to sign off on them following allegations that it systematically overpaid for assets and work by contractors.

If auditors fail to approve its annual results by April, that could trigger early repayment of as much as $11 billion of bonds and a $5.8 billion local bank loan, according to another source briefed on the situation.

To be sure, few expect Petrobras to default on its debt since it would likely negotiate a solution with bondholders and banks. But global bond investors are unlikely to participate in any new Petrobras bond offering until it provides properly audited financial information, UBS Securities and Morgan Stanley & Co analysts said in reports.

That means the company, formally known as Petróleo Brasileiro SA, may have to look elsewhere to keep funding its five-year, $220 billion investment plan, the largest in the global oil industry.

While President Dilma Rousseff could allow Petrobras to hike gasoline prices next year, she would likely resist any effort to significantly scale back the plan because it is a key part of her administration's flagship infrastructure investment program. About 68 percent of the plan's financing has already been contracted, Moody's Investors Service recently said.

"Take into account the corruption investigation, the risk perception and Petrobras' ongoing financial constraints and you see how its ability to generate cash is severely imperiled," said the banker, who requested anonymity because of the sensitivity of the issue.   Continued...

The headquarters of Brazilian oil company Petrobras is seen in Rio de Janeiro November 14, 2014.     REUTERS/Sergio Moraes