China to the rescue for Petrobras’s woes

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 Brics member China to finance the country’s prized state-controlled oil company is paying off as she and Premier Li Keqiang unveiled $10 billion (R119bn) in Chinese credit.

The fresh funding comes as Rio de Janeiro-based Petrobras seeks to leave behind the biggest crisis of its almost 62year history. Petroleo Brasileiro, as it is known formally, has been at the centre 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 $15bn 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 in São Paulo. “Petrobras is building a trust relationship with China.”

The $10bn announcement includes $5bn in loans from China Development Bank, of which $3.5bn was disbursed last month, and two initial agreements worth a combined $5bn with the Industrial and Commercial Bank of China and the country’s Export-Import Bank.

The Chinese financing package surpasses the $8.5bn 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 Reinaldo 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.

“China is helping the company execute its capex because it will need that extra oil production from Petrobras,” he said from Lugano, Switzerland. “The ties between China and Brazil are closer than we think.”

Terms of the arrangements weren’t disclosed in Tuesday’s announcements. – Bloomberg