“This committee advises management make efforts to cut leverage given that the deterioration of the ratio places the company’s credit rating at risk,” the committee said, according to minutes of a Feb. 25 meeting released by Petrobras in a March 14 regulatory filing.
Petrobras sold the dollar bonds March 10 in the world’s biggest debt offering since September. The Rio de Janeiro-based company in January sold $5.1 billion of notes denominated in euros and pounds in the largest emerging market euro-offering since the currency was created, and in May raised $11 billion in a record-high emerging market corporate issuance.
Petrobras’s debt was 268 billion reais ($114 billion) at the end of 2013, a more than fourfold increase in five years as it boosts spending to more than double output by 2020, according to data compiled by Bloomberg. Its ratio of debt to earnings before interest, taxes, depreciation and amortization surpassed 3.5 last year, missing the target of 2.5, the audit committee said.
Moody’s Investors Service and Standard & Poor’s have negative rating outlooks on Petrobras. S&P rates the oil producer BBB, two levels above investment grade, while Moody’s has it at Baa1, or three levels above investment grade.
The state-controlled company last month said it would use debt to fund spending of $221 billion through 2018.
The audit committee “recommendation is entirely appropriate, but it’s easier said than done,” Pavel Molchanov, an analyst at Raymond James & Associates Inc., said in an e-mailed response to questions. “There is no escaping the fact that leverage metrics are set to continue to rise for the foreseeable future.”
Chief Executive Officer Maria das Gracas Foster said there is no incongruity in the audit committee’s advice and the company’s fund-raising strategies.
“It’s in line with what the board wants; that is, to lower leverage within 24 months,” Foster told reporters at a conference in Rio de Janeiro today.
Petrobras, which doesn’t expect to generate positive cash flow until 2016, has been struggling with weak results since the government started using it in 2011 to subsidize domestic fuel prices by importing gasoline and diesel at a loss. The government owns a majority of the company’s voting shares.
The company’s net income dropped to 6.28 billion reais, or 48 centavos a share, from 7.75 billion reais, or 59 centavos, a year earlier. The company’s five-year business plan calls for $12.1 billion in yearly borrowing on average.
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