Petrobras plans to use loan to help pay down debt
Petrobras (ticker: PBR, Petrobras.com) will receive a $10 billion loan from the China Development Bank to help pay down the company’s debt coming due this year, according to a report from China Business News. In exchange for helping PBR pay its $12 billion 2016 debt, Petrobras will supply oil to Chinese companies.
Petrobras announced in January that the company was cutting its five-year expenditure plan by $32 billion (25%) as it combats low oil prices and high debt. PBR said in November of last year that it also planned to sell $58 billion in assets as the company looks to stay afloat. The company’s Q3 results (still its most recent) indicated the company had net debt of $101.3 billion.
China is increasingly lending in Latin America as the country looks to secure more natural resources. The Chinese state banks have been offering loans to distressed companies and governments that have been shut out of private debt markets, reports The Wall Street Journal.
Petrobras dollar bonds maturing in 2020 are trading were trading at 75 cents on the dollar last Friday, reflecting doubt about the company’s ability to repay its debt. PBR’s bonds, along with those from the Brazilian government, have been downgraded into junk territory in recent months.
Moody’s, the latest agency to downgrade Petrobras, noted that free cash flow will likely remain negative for the foreseeable future. The ratings agency estimates the company needs $8-$10 billion for its day-to-day operations, making it very difficult to pay off the $23 billion in debt maturing over the next two years.
“Although Moody’s recognizes that the company’s has attractive, valuable assets, execution of the sale program as planned may be difficult under current global industry conditions and Brazil’s economic and political situation,” the agency said.
