Petrobras Turns to China for $10 Billion to Avert Crunch

Petrobras Turns to China for $10 Billion to Avert Crunch
What do you do when you're burdened with the oil industry's biggest debt, credit is drying up and some of your main suppliers are under the gun? Call China.

(Bloomberg) -- What do you do when you’re burdened with the oil industry’s biggest debt, credit is drying up and some of your main suppliers are under the gun? Call China.

Brazilian President Dilma Rousseff’s strategy of turning to fellow BRIC member China to finance the country’s prized state-controlled oil company is paying off as she and Premier Li Keqiang unveiled $10 billion in Chinese credit.

The fresh funding comes as Rio de Janeiro-based Petrobras seeks to leave behind the biggest crisis of its almost 62-year history. Petroleo Brasileiro SA, as it’s known formally, has been at the center of a corruption scandal that sent shudders through the country’s business and political elites and all but closed access to bond markets, while ill-conceived projects prompted $15 billion in writedowns.

“This shows Petrobras is looking for any alternative to avoid cash-flow problems this year,” Bruno Caloni, an analyst at Coinvalores brokerage, said by telephone from Sao Paulo. “Petrobras is building a trust relationship with China.”

The $10 billion announcement includes $5 billion in loans from China Development Bank, of which $3.5 billion was disbursed last month, and two initial agreements worth a combined $5 billion with the Industrial and Commercial Bank of China and the country’s Export-Import Bank. The Chinese financing package surpasses the $8.5 billion obtained by Petrobras from bond investors in March 2014, the last time the producer -- one of the biggest emerging-market bond issuers -- sold debt in international markets.

“The main objective is to guarantee the oil supply, even if it has a political bias,” said Reinado Ma, a partner at TozziniFreire Advogados.

Closer Ties

The Chinese loans will provide part of the cash Petrobras needs to finance expansions, said Danilo Onorino, a portfolio manager at Dogma Capital SA, which holds Petrobras bonds.


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Copyright 2016 Bloomberg News.


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Cleveland M Jones | May. 21, 2015
I recently made some comments regarding Petrobras´ recovery efforts. I pointed out that the greatest threat to Petrobras is the lack of access to new capital, and reminded readers that new Chinese oil-for-cash deals, hailed as the salvation for Petrobras´ cash woes, probably carry very onerous terms, although details are not made public… Much better alternatives for Petrobras would be to negotiate farm-outs of their large Marlim and Roncador fields, which could also raise many billions of dollars, and would free Petrobras from the heavy investments needed in order to maintain production levels at those old fields, which exhibit significant but rapidly declining production. Sympathies for the Chinese deals would likely be tempered if their terms were disclosed, and farm-outs, which could face some popular resistance, might be more acceptable if Petrobras explained, frankly, how such deals may be much more attractive, fundamentally. Petrobras cannot afford to keep assets that represent a large cash drain for maintenance, when they have pre-salt fields that can produce up to 40 thousand bopd waiting to be hooked up. The pre-salt fields should be the destination of all available cash, while other assets are secondary. Once again, important decisions at Petrobras seem to be politically motivated and shrouded in secrecy, rather than guided by an analysis of the alternatives available.

John | May. 21, 2015
Mismanagement cost you money.Violation for ethics cost reputation

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