Petrobras deadline prompts some bondholders to push for default

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#1
Petrobras, Brazil is the next target after Argentina bond?

Petrobras deadline prompts some bondholders to push for default

RIO DE JANEIRO - Petrobras, Brazil's state-run oil company, could be declared in technical default on some of its foreign debt as early as Tuesday if bondholders pursue efforts to force it to speed up its assessment of losses in a giant corruption scandal.

The push, led by New York-based Aurelius Capital, applies to $54 billion of Petrobras bonds governed by U.S. law in New York state. Aurelius, a "distressed debt" fund, is asking investors to put the company into default as "a precautionary step," according to a Dec. 29 letter from the firm reviewed by Reuters.

Under the terms of those bonds, Petrobras is required to provide third-quarter financial statements within 90 days of the end of a quarter, in this case by Monday, Dec. 29. Petrobras has not published those accounts because allegations of contract-fixing and bribery at the company have raised doubts about the true value of its assets.

For the default declaration to take effect on any of the more than 20 U.S. law bonds outstanding, investors holding at least 25 percent of any one series must request the action, Aurelius said in the letter to fellow bondholders.

Aurelius was a leading member of a group of investors that refused to accept a debt restructuring with Argentina, taking the country to court.
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http://www.todayonline.com/business/petr...sh-default
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#2
A impairment equals 42% of the market value! What a write-down... Petrobras must has over-stressed its balance sheet previously...

Petrobras may book $20 billion asset write-down: Veja magazine blog

SAO PAULO - Brazilian state-controlled oil company Petróleo Brasileiro SA could take a charge of about 52 billion reais ($20 billion) in its delayed third-quarter results to reduce the value of some assets, a Veja magazine blog said on Monday.

The impairment equals 42 percent of the market value of Petrobras , as the company is known, Veja's Mercados blog said, citing sources close to the company. A Petrobras spokeswoman declined to comment on the report but reiterated the company's plan to release third-quarter results on Tuesday.
...
http://www.todayonline.com/business/petr...azine-blog
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#3
Time bomb waiting to explode.

https://www.moodys.com/research/Moodys-d...-PR_310942

Rating Action: Moody's downgrades Petrobras' ratings to Baa2
Global Credit Research - 21 Oct 2014
New York, October 21, 2014 -- Moody's Investors Service downgraded Petrobras S.A.'s (Petrobras) global foreign currency and local currency debt ratings to Baa2 from Baa1. The downgrade reflects Petrobras' high financial leverage and Moody's belief that it is only likely to decline significantly well after 2016, contrary to our original expectations, given downward pressures on oil prices and the local currency as well as high capex commitments. The outlook remains negative.

"While Petrobras has been relatively successful in executing on its ambitious capital program and has delivered on aggressive production targets, leverage continues to grow in 2014 given mainly its inability to pass through costs related to imported oil products, local currency devaluation, and an aggressive capex program", said Nymia Almeida, a Vice President-Sr. Credit Officer at Moody's.

Downgrades:

..Issuer: Petrobras Global Finance B.V.

....Subordinate Shelf (Foreign Currency), Downgraded to (P)Baa3 from (P)Baa2

....Senior Unsecured Shelf (Foreign Currency), Downgraded to (P)Baa2 from (P)Baa1

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Downgraded to Baa2 from Baa1

..Issuer: Petrobras International Finance Company

....Senior Secured Shelf (Foreign Currency), Downgraded to (P)Baa1 from (P)A3

....Subordiante Shelf (Foreign Currency), Downgraded to (P)Baa3 from (P)Baa2

....Senior Unsecured Shelf (Foreign Currency), Downgraded to (P)Baa2 from (P)Baa1

....Senior Unsecured Regular Bond/Debenture (Foreign Currency), Downgraded to Baa2 from Baa1

..Issuer: Petroleo Brasileiro S.A. - PETROBRAS

.... Issuer Rating (Local Currency), Downgraded to Baa2 from Baa1

....Preferred Shelf (Foreign Currency), Downgraded to (P)Ba1 from (P)Baa3

....Preferred Shelf (Foreign Currency), Downgraded to (P)Ba2 from (P)Ba1

....Subordinate Shelf (Foreign Currency), Downgraded to (P)Baa3 from (P)Baa2

....Senior Secured Shelf (Foreign Currency), Downgraded to (P)Baa2 from (P)Baa1

....Senior Unsecured Shelf (Foreign Currency), Downgraded to (P)Baa2 from (P)Baa1

Outlook Actions:

..Issuer: Petrobras Global Finance B.V.

....Outlook, Remains Negative

..Issuer: Petrobras International Finance Company

....Outlook, Remains Negative

..Issuer: Petroleo Brasileiro S.A. - PETROBRAS

....Outlook, Remains Negative

RATINGS RATIONALE

Through June 30, Petrobras' debt (Moody's adjusted) reached USD 170 billion, a USD 25 billion increase from December 2013, mainly as a consequence of FX devaluation, losses in downstream related to the gap between international and local prices for gasoline and diesel and funding for capital expenditures. The company's inability to increase local prices for oil products vis-a-vis international prices has been causing major losses in downstream in the last few years; the government has prevented increases in oil products in order to control inflation.

The current lower international prices for oil products, if sustained in the medium term, will be beneficial to Petrobras' downstream business; however, lower crude oil prices will negatively affect the upstream operation. In turn, although capex may decline in 2015 based on what the company submitted to the federal government for Congress' approval (about R$ 87.6 billion, equivalent to about USD 37.9 billion in capex expected for 2015, down from approximately USD 41 billion expected in 2014), Moody's believes that it will not be enough to allow for an accelerated reduction in debt in a context of higher foreign exchange rate, which places pressure on debt and interest metrics. In this market environment, deleveraging will take longer than anticipated.

In the last twelve months ended in June 2014, leverage metrics have increased steadily and are elevated, with adjusted total debt/EBITDA of 5.3x, debt/proved and developed reserves of $21.88/BOE, and debt/daily production approaching $74,000/BOE, the highest among its peer group of integrated and national oil companies.

Petrobras continues to increase oil production and so far in 2014 its pre-salt production in particular reached 532 thousand bpd in September, from 344 thousand bpd in December 2013; total crude oil production reached 2.1 million bpd in September, from 1.9 million bpd in December 2013.

It is also positive that, in the medium term, Petrobras' refining capacity will increase with the start of RNEST and Comperj refineries, expected for 2015 and 2016, respectively, reducing the need for product imports in about 395 mbbl. However, funding the capex necessary to reach a target of about 4 million bpd by 2020 has become more difficult given elevated leverage, which adds to the already high execution risk related to timely delivery of oil drilling and production equipment given the need to meet local content requirements.

Petrobras' Baa2 ratings are supported by its large-scale reserve base and dominance in the Brazilian oil industry with a leading position in one of the industry's most prospective offshore areas; by its sizeable new pre-salt discoveries and renown technological expertise; and by its growing production. In addition, the company's continuous focus on project execution and cost reduction should ease some of the cost overrun issues and delays it has experienced in the past.

Petrobras' Baa2 ratings also reflects government support and the impact of joint-default analysis. Underlying the ratings downgrade, Moody's has lowered Petrobras' baseline credit assessment to baa3 from baa2, reflecting its high leverage profile. We are maintaining assumptions of high support from the government of Brazil (rated Baa2 with a negative outlook) and moderate dependence/default correlation between Petrobras and the government.

While government support continues to provide one notch of uplift on the BCA, we note increasing linkages between Petrobras and the sovereign. The government has been playing a larger oversight role in Petrobras' operations, strategic direction and offshore development.

We are maintaining a negative outlook on Petrobras' ratings given the probability that the company's leverage may increase further due to lower international oil prices and limited flexibility to reduce cost, with negative impact on margins. In this environment, execution on the company's capital program and achievement of targeted production growth could be negatively impacted.

Petrobras' ratings could be downgraded if financial leverage increases and is sustained with debt/EBITDA above 5x or if production growth falls short of targets. A downgrade of Brazil could also pressure the Petrobras' ratings.

We do not see momentum for an upgrade of Petrobras' ratings in the near-to-medium term. In the longer-term it could be upgraded as the company lowers if debt leverage and delivers on rising and profitable production and reserves growth, in conjunction with a higher rating on Brazil's government debt.

The principal methodology used in these ratings was Global Integrated Oil & Gas Industry published in April 2014. Other methodologies used include Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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#4
As we highlighted in another thread, I think the biggest singular & "heuristically convenient" risk for low oil price is actually Petrobras. There are some SGX companies with exposures there so not totally OT.

With 1/3 of foreign reserve equivalent liability, it is too big to fail and too big to bail

(17-12-2014, 10:45 AM)specuvestor Wrote: It suddenly just occurred to me that a good example how a pte enterprise, excluding the banks, can have a moral hazard as well is Petrobras.

Petrobas has debt that is roughly 1/3 of Brazil's foreign reserves. With oil crash I think it is an accident waiting to happen.
http://www.valuebuddies.com/thread-5237-...#pid103337
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

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#5
Kepcorp and Sembmarines has many oil rigs exposures to Petrobras till 2018. Please correct me if I am wrong.
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#6
Petrobras should be closely monitored by those vested in Keppel Corp and SembMarine...

Brazil's president sets plan to replace Petrobras management: source

BRASILIA (Feb 4): Brazil's President Dilma Rousseff has accepted an offer by Petrobras Chief Executive Officer Maria das Graças Foster to step down this month, setting in motion a plan to replace senior management at the embattled state-run oil company, a government source said on Tuesday.

Earlier on Tuesday, presidential spokesman Thomas Traumann denied that Rousseff and Foster reached a conclusion about her possible resignation in a meeting at the presidential palace.
http://www.theedgemarkets.com/sg/article...ent-source
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#7
More uncertainties to whether they will be able to contain the skeletons and cockroaches in the closet

"The head of Brazil's state-run oil giant Petrobras and five senior executives have resigned in the wake of a huge corruption scandal."

http://www.bbc.com/news/business-31126287

NB talking about containing skeletons in the closet it seems it is not impossible Tongue
http://www.ibtimes.com/india-body-parts-...ce-1802402
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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#8
The latest update on asset sales of Petrobras...

Petrobras doubles planned asset sales to US$14 billion to cut debt

RIO DE JANEIRO (March 3): Petroleo Brasileiro, the world’s most-indebted publicly traded oil company, plans to sell US$13.7 billion in assets in the next two years after a corruption probe limited access to overseas debt markets.

The sales will reduce leverage, improve cash flow and allow the Rio de Janeiro-based producer to focus on developing its most prolific fields in Brazil, it said in a statement on Monday.

The company previously planned to sell US$5 billion to US$11 billion in assets in the five years through 2018, it said.

Petrobras said it plans to sell assets from its exploration and production, supply and gas and energy divisions.

The company may revise the plan because it will be sensitive to variables including the exchange rate and the price of oil, it said.
...
http://www.theedgemarkets.com/sg/article...n-cut-debt
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#9
In spite of all Petrobras has broken out of range:

http://www.wsj.com/articles/how-brazils-...1428334221

I always admire how these people have guts to arise time from time to time to fight the powerful and connected... knowing they can be "erased" relatively easily. What happened in Petrobras is actually quite commonplace in Emerging Asia.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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#10
One interesting development was the stepping in of China (yet again?!) to the rescue.

http://www.bloomberg.com/news/articles/2...pment-bank

"Petrobras, as Brazil’s state-run producer is known, signed a finance contract with the China Development Bank for $3.5 billion, the first part of an accord to be implemented this year and in 2016, according to a regulatory filing Wednesday. That follows the entrance of two Chinese oil companies in Petrobras’s biggest project in 2013 and a $10 billion cash-for-oil agreement in 2009.
..............

Wednesday’s announcement follows the purchase by PetroChina Co. and Cnooc Ltd., China’s biggest offshore explorer, of a 10 percent stake each in a consortium to explore the Libra oil field in the ultra-deep waters of Brazil’s Santos Basin.
In 2009, Petrobras signed a $10 billion loan with China Development Bank which included an export component for 150,000 barrels of oil a day in the first year and 200,000 barrels a day over the nine subsequent years."

Gotta say I'm impressed with China's soft power projection - AIIB, Silkroad/Maritime route, China-Africa Development Fund all done "quietly" without much fuss - compare and contrast with the joke of the TPP and the impasse of the US congress.
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