Petrobras walks the debt/capital tightrope

Rob Dwyer
Published on:

When Brazil’s national oil and gas champion raised $70 billion from a capital increase in 2010, it was trumpeted as a once-in-a-decade event. But as Petrobras nears its self-imposed leverage thresholds, its capital position looks compromised. A sharp cut to its rating or a return to the equity markets looks likely. So why is Brazil’s banking community so scared to discuss it?

Picture the scene: facing a deteriorating balance sheet and needing to fund a huge capital expenditure programme, Petrobras’s CFO, Almir Barbassa, believes that an equity transaction is the only strategy available to lower the company’s leverage and retain its investment-grade rating. Barbassa is unsure of the best recapitalization structure to employ and, with a presidential election in the following year, there are obvious political issues facing the quasi-sovereign.

Barbassa tells Euromoney that in November more than 30 banks beat a path to the oil company’s Rio headquarters to present their ideas and views on market appetite. All the bankers agree that the company needs fresh equity: Petrobras’s business plan envisages negative cashflow for the next couple of years and the debt-to-equity ratio is approaching 35% – a key threshold used by the company. One banker who visited Petrobras summarizes the situation: "The company is highly leveraged...