LatinFinance - March/April 2016 - 46

BRZIL
BANKING

Petrobras is looking to offload assets as it faces billions of dollars in maturities
over the next two years. But significant domestic and international headwinds
are calling its plan-and its future-into question. By Aaron Weinman

Plumbing the depths

P

etrobras is tasked with an unprecedented transformation, shaped by austerity and
largely dependent on a divestment program that comes amid a pervasive corruption investigation and a torrid time for Brazil's economy and global energy markets.
The company is saddled with $24 billion in debt maturing in 2016 and 2017, $6 billion of
which is due to bondholders this year. While it has announced intentions to divest up to $15.1
billion of assets by the end of 2016, and a further $42.6 billion in divestments by the end of
2018, these goals seem ambitious given Petrobras' track record last year, when it unloaded
$700 million of assets. The largest sale, Mitsui's roughly $463 million purchase of a stake
subsidiary Gaspetro, was suspended in January by a federal Brazilian court that found the
transaction lacked transparency and could bring losses to the company and public coffers.
Chief executive officer Aldemir Bendine described Petrobras' circumstances as a "scenario
of total stress," at a press conference in January. Bendine outlined austere policies in response to growing corruption allegations and economic stress in Brazil. Bendine was named
CEO in April 2015 after Maria das Graças Silva Foster resigned from the post amidst the Lava
Jato investigation, which continues to impact
the company. Petrobras shelved the sale of its
fuel distributor BR Distribuidora, after buyers
skirted the asset due to concerns over Lava
Jato.
Petrobras will slash capital expenditure
through 2019 to $98.4 billion, about 24.5%
less than the original $130.3 billion. The company is also set to reduce management positions in non-operational areas by about 30%,
for savings of up to 1.8 billion reais annually.
Ratings agencies welcomed the business
plan, but oil prices and Brazil's real have
continued to decline, increasing pressure on
Bendine and his plans, leaving Petrobras with
a dearth of liquidity, which is the most immediate concern, says Nymia Almeida, vice
president and senior credit officer at Moody's.
Should Petrobras' bondholders choose to
cash in their $6 billion of notes at the end of
2016, rather than refinance the company's

46 L ATINFINA NCE.COM - March/April 2016

debt, the Ba3/B+/BB+ rated issuer will need
immediate access to capital, Almeida says.
Asset sales are seen as the surest way to
increase liquidity, he says.
Moody's and Fitch both downgraded
Petrobras last December, while Standard &
Poor's cut the company two notches to B+
in February as a result of a downgrade of
the sovereign to BB from BB+. If Petrobras
can't meet its target, the sovereign could
theoretically step in and help the company
meet this year's debt obligations, Almeida
says. But Brazil, faced with its own debt
burden, is working through budget cuts. If
Petrobras cannot pay down 2016 and 2017
debt, it could be locked out of the capital
markets for years, a São Paulo-based
banker says.
Bendine is implementing the right policies to improve Petrobras' balance sheet

LOOKING FOR LIQUIDITY: Petrobras aims to
offload billions of dollars of assets ahead of
maturing debt
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