Petrobras' Dangerous Debt Math: $24B Owed in 24 Months

(Bloomberg) -- The debt clock is ticking down at Brazil’s troubled oil giant, Petrobras. Next up: $24 billion of repayments over 24 months.

That’s a towering hurdle for a company that hasn’t generated free cash flow for eight years and whose borrowing rates are soaring. Annual debt servicing costs have doubled to 20.3 billion reais ($5.4 billion) in the past three years.

The delicate task of managing the massive $128 billion mound of debt accumulated by Petroleo Brasileiro SA -- 84 percent of it in foreign currencies -- falls to the two banking veterans parachuted atop the company earlier this year, CEO Aldemir Bendine, 51, and Chief Financial Officer Ivan Monteiro, 55. The pair came from the state-controlled Banco de Brasil SA to contain the damage from the biggest corruption scandal in the country’s history.

While prosecutors continue to grind away at years of suspicious dealings, Act II for the boys from the Bank of Brazil will further test their mettle. The challenge of Petrobras’s runaway debt, which has grown four-fold in five years, has been exacerbated by low oil prices, a weak currency and the Brazilian government’s own fiscal travails.

“If you considered them to be totally independent and there were no chance of any kind of government support, I think the risk of default would certainly be there in a big way,” said Jason Trujillo, an Atlanta-based fixed-income analyst at Invesco Ltd.

Petrobras is not without options, but they tend to be either politically unpalatable or unattractive to the marketplace. Bendine is actively trying to peddle off minority stakes in the Rio de Janeiro-based oil producer’s pipeline and gas station units, among others, but that plan is behind schedule and faces fierce opposition from the oil industry’s most powerful union.

Other alternatives are also running up against resistance from one interest group or another. The only source of comfort for many bondholders is the belief the Brazilian government would stop at nothing to save the country’s biggest company -- though, even at that, Trujillo said markets are “lessening the amount of implied government support.”


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