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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