(Moody’s, 15.Mar.2017) – On 15 March 2017 Moody’s changed the outlook on the Government of Brazil’s Ba2 rating to stable from negative, reflecting Moody’s expectation that the downside risks are abating and macroeconomic conditions stabilizing.
As stated in our previous reports, the change in Brazil´s outlook does not directly affect the B2 ratings or stable outlook of state-owned oil company Petroleo Brasileiro S.A. (Petrobras).
Petrobras’ ratings and outlook reflect Moody’s joint-default analysis for the company as a governmentrelated issuer. The ratings reflect the rating agency’s assumption of a moderate likelihood of timely extraordinary support from the Brazilian government. As well, Moody’s assumption for default dependence between Petrobras and the government continues to be moderate. This assessment currently results in a one-notch uplift of Petrobras’ senior unsecured rating to B2 from its b3 Baseline Credit Assessment (BCA).
On 21 October 2016, Moody’s raised Petrobras’ Baseline Credit Assessment to b3 from caa2, upgraded its ratings to B2 from B3, and changed the ratings outlook to stable from negative. The action incorporated improvements in the company’s liquidity profile and in the regulatory framework in Brazil, both of which reduced Petrobras’ credit risk. Moody’s continues to monitor progress on Petrobras’ execution of asset sales, operational improvements, and debt refinancing initiatives.
Following the $13.75 billion in bond issuances since May 2016, Petrobras’ debt amortization schedule has improved, although debt maturing in 2017 and 2018 remains high at $21.45 billion as of September 30, 2016. In addition, the class action lawsuit, the US Securities Exchange Commission (SEC)’s civil investigation and the US Department of Justice (DoJ)’s criminal investigation related to bribery and corruption could negatively affect the company’s cash position in an amount yet unclear. While Moody’s believes Petrobras’ dispute with Brazil’s federal securities regulator CVM over the company’s 2013-15 financial statements will not cause a material enough restatement to prompt the agency to take a negative rating action, any resolution with CVM could result in some future cash implications for dividend payments.
Petrobras’ lower capital spending in relation to about $13.6 billion in asset sales could indicate a reduction in its future revenues and cash flow. But any actions that strengthen Petrobras’ liquidity while also improving its operating margins and leverage would likely have a greater impact on the company’s credit quality than reductions in its production, revenues and reserve base.
Petrobras is an integrated energy company, with total assets of $247 billion as of 30 September 2016. The company dominates Brazil’s oil and natural gas production, as well as downstream refining and marketing. Petrobras also holds a significant stake in petrochemicals and a position in sugar-based ethanol production and distribution. The Brazilian government directly and indirectly owns about 46% of Petrobras’ outstanding capital stock and 60.5% of its voting shares.
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