Petrobras Absorbs Shock On Latest Downgrading By Moody’s- Securing $10 Billion Loan From China

February 29
4:19 AM 2016

Petroleo Brasileiro S.A. - Petrobras has announced on Friday signing an agreement for $10 billion loan from China Development Bank. The Brazilian state-owned oil and gas producing giant will supply its petroleum extract to Chinese companies, under the agreement. The loan will help Petrobras to pay off debts worth $12 billion scheduled to be matured this year.

According to a Petrobras security filing, the contract mandatorily includes supplying fuel to Chinese firms, very similar to one signed in 2009. The firm has secured a loan for $10 billion from the Chinese bank in return for oil supply in that deal. Counterpart Brazil has guaranteed supply of 200,000 barrels of oil per day to China's state oil firm Sinopec for the coming ten years.

China, now a day, has appeared as a familiar lender to Latin American countries. In several instances, the country has extended loans to businesses and governments struggling to pay off their debts through its central bank. In similar approach, US has helped Venezuela to pay off its ballooning debts, reports Bidness ETC.

Petrobras intends to sell assets worth around $14 billion in 2016 in a bid to slash its $130 billion debt and maintain cash amid a decline in world oil prices. Furthermore, a bribe scam has been haunting the firm for siphoning of money to political parties. The scam has dragged down the share prices of the firm indicating lesser confidence to its management.

The indebted oil producer has been searching ways to borrow against future crude fund aiming to slash dependence on global capital markets. The firm hasn't wanted to sanction the high yields offered by the market following downgrading to junk by credit agencies, reports Seneca Globe from a statement of Ivan Monteiro, Chief Financial Officer of Petrobras delivered in November.

Concerns among the investors have been mounting since Petrobras dollar bonds maturing in 2020 are trading only at $0.75. Credit rating agencies have downgraded to 'junk statuses' during the past few months. Moody's Investment Agency has appeared as the latest to degrade the company's rating on Wednesday, both in Brazil and Argentina, according to a report published in China Business News.

Petrobras lags behind its five year plan may not be able to generate enough amounts from asset sales due to political and economic uncertainty in Brazil, cites Moody's. A further downgrade is also very likely since the company is still under credit watch.

Petrobras has finally opted for borrowing against future crude fund aiming to reduce its debt burden. The oil giant has announced on Friday reaching an agreement securing $10 billion loan from Chinese Development bank in exchange of selling extracted oil to the Chinese companies. The announcement follows the latest degradation of credit ratings for Petrobras to junk status by Moody's on Wednesday.

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