Petrobras's $40 Billion Debt Plan Sparks Selloff: Brazil Credit
2010-12-09 11:28:52.230 GMT
By Camila Russo and Tal Barak Harif
Dec. 9 (Bloomberg) -- Petroleo Brasileiro SA's bond yields
are climbing the most in 12 months after Brazil's state-
controlled oil company said it plans to boost debt by as much as
60 percent to $107 billion over the next four years.
The yield on the company's 5.75 percent dollar bonds due in
2020 jumped 81 basis points in the past month to 4.88 percent,
according to data compiled by Bloomberg. Yields on emerging-
market corporate bonds climbed 40 basis points, or 0.40
percentage point, during the same period, JPMorgan Chase & Co.
data show.
Chief Executive Officer Jose Sergio Gabrielli said in Rio
de Janeiro on Dec. 7 the company plans to raise between $30
billion and $40 billion of new debt over the next four years to
finance the biggest investment plan in the oil industry.
Petrobras, which has $67 billion of total debt, hasn't issued
bonds this year after selling $6.75 billion in international
markets in 2009, according to Bloomberg data.
"Investors are betting that they're going to see a lot of
new supply of Petrobras debt," Jack Deino, who oversees about
$1.6 billion of emerging-market debt at Invesco Inc. in New
York, said in a telephone interview. "That's why they're
underperforming. There's also uncertainty on when they're going
to get the new supply and how much of it."
Petrobras's bonds yielded 112 basis points more than
similar-maturity government notes on Dec. 7, the biggest gap
since August, according to Bloomberg data. The yield is 129
basis points lower than the 2020 dollar bonds of OAO Gazprom,
Russia's gas export monopoly, which climbed 31 basis points in
November and are yielding 6.312 percent today, data compiled by
Bloomberg show.
Share Sale
Rio de Janeiro-based Petrobras plans to fund investments in
coming years through bond sales and bank loans after holding the
world's biggest stock offering in September, Gabrielli told
reporters in Sao Paulo on Dec. 6. The company, which sold $70
billion of shares on Sept. 24, aims to invest $224 billion
through 2014 to develop reserves along Brazil's coast.
Petrobras shares dropped 9.2 percent in the past month,
leaving them down 32 percent this year.
The company needs to roll over $38 billion of debt through
2014 as it seeks to double production over the next decade,
Gabrielli said on Nov. 9.
"Statements by Gabrielli have definitely had an impact,"
Juan Cruz, a corporate bond analyst with Barclays Plc in New
York, said in a telephone interview. "Investors are demanding
to get paid more because of the uncertainty."
Petrobras doesn't have any "defined plans" right now to
sell bonds, Gabrielli said yesterday. The company's press office
declined to comment in an e-mailed statement.
The company's $6.75 billion of overseas debt offerings in
2009 was more than the $5.55 billion it raised over the previous
10 years, according to Bloomberg data.
Oil Bill
Brazilian President-elect Dilma Rousseff, 62, plans to
reappoint Gabrielli, a Boston University-trained economist, as
chief executive of Petrobras, a government official briefed on
the decision said on Dec. 7. She takes office Jan. 1.
Brazil's lower house of Congress approved on Dec. 1 new oil
regulations that will increase government control over the
energy industry and reduce competition against Petrobras. The
regulations will allow the company to be the sole operator of
oil fields where licenses haven't yet been auctioned. Petrobras
will be able to explore every field in areas designated
"strategic."
President Luiz Inacio Lula da Silva, who sent the bill to
congress, may sign it this month.
'Harder To Justify'
"Even if the regulation secures assets, the risk is
actually higher because it means more spending and the cash flow
takes a few years to start coming in," Eduardo Suarez, an
emerging-markets strategist at RBC Capital Markets in Toronto,
said in a telephone interview. "It's much harder to justify
Petrobras being rated higher than the government now that the
government controls 60 percent of the stock."
Petrobras is rated Baa1 by Moody's Investor Service, the
third-lowest investment grade and two steps above the Brazilian
government's Baa3 grade.
Gabrielli said in a May 3 interview in Sao Paulo that the
company doesn't plan to sell bonds this year because it's
reaching the "upper limits" of debt ratios before putting
credit ratings at risk.
Messages left for Moody's analyst Thomas Coleman in New
York and Milena Zaniboni in Sao Paulo at S&P were not returned.
Concern European countries may have to restructure their
debts after bailouts for Ireland and Greece prompted investors
to shun Petrobras's bonds in the past few weeks, according to
Jansen Moura, a corporate bond analyst with BCP Securities in
Rio de Janeiro.
"It has absolutely more to do with global concerns than
Petrobras fundamentals," he said in a telephone interview. "As
soon as the market is a little bit more comfortable with
Europe's situation and other macroeconomic points, things might
calm down a bit and yields can come back."
Default Swaps
The extra yield investors demand to own Brazilian
government dollar bonds instead of U.S. Treasuries narrowed 3
basis points to 165 at 6:22 a.m. New York time, according to
JPMorgan's EMBI+ index.
The cost of protecting Brazilian bonds against default for
five years climbed 3 basis points to 109, according to CMA.
Credit-default swaps pay the buyer face value in exchange for
the underlying securities or the cash equivalent should a
government or company fail to adhere to its debt agreements.
The real was little changed at 1.6896 per dollar.
The yield on the overnight interest-rate futures contract
due in January 2012 fell 4 basis points to 12.03 percent.
Tupi, Libra
Petrobras is developing the offshore Tupi field and may
take a minimum stake of 30 percent in the government's Libra
field, the Americas' biggest oil discoveries since Mexico's
Cantarell in 1976. Tupi and Libra, which may hold as much as 8
billion barrels and 15 billion barrels, respectively, are in a
deep-water region known as the pre-salt along Brazil's coast.
The company will invest about $7 billion to $8 billion
through 2014 in deepwater fields that it purchased from the
government in exchange for new stock, Chief Financial Officer
Almir Barbassa said last month.
Petrobras's bonds are also lagging behind Brazilian
corporate bonds in the past month. Yields on debt sold by
Brazilian companies climbed 37 basis points during that period,
according to JPMorgan.
"Changes to the capital expenditure program will be the
most important factor moving forward," RBC's Suarez said.
For Related News and Information:
Brazil Credit Market Stories: NI BZCREDIT <GO>
Top Emerging-Market News: TOP EM <GO>
Most-Read News on Brazil: MNI BRAZIL <GO>
Bloomberg News in Portuguese: NH PBN <GO>
--With assistance by Gabrielle Coppola in New York, Peter
Millard in Rio de Janeiro, Maria Luiza Rabello in Brasilia and
Denis Maternovsky in Moscow. Editors: Lester Pimentel, Brendan
Walsh
To contact the reporters on this story:
Camila Russo in New York at +1-312-493-9048 or
crusso15@bloomberg.net;
Tal Barak Harif in New York at +1-212-617-3026 or
tbarak@bloomberg.net
To contact the editor responsible for this story:
David Papadopoulos at +1-212-617-5105 or
papadopoulos@bloomberg.net
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