Pummeled by Petrobras Probe, Rig Bond Is Now Swarmed by Buyers

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Few Brazilian companies were hit harder by the Petroleo Brasileiro SA bribery investigation than the nation’s rig suppliers.

Queiroz Galvao Oleo e Gas Constellation, one of the biggest, saw some of its bonds lose almost half their value in the two months before January, after its parent company was implicated in the alleged kickbacks. Now, the debt is at the center of a buying frenzy.

It’s the latest reversal of fortune after Petrobras, the state-controlled oil producer, reported audited financial earnings for the first time since November on April 22. The results took into account the cost of the corruption, fueling optimism that the worst of the damage is over. Since the release, the rig operator’s notes have jumped more than 13 percent.

“We’ve seen a lot of buying,” Marcelo Lima, a fixed-income trading manager at INTL FCStone Securities Inc., said from Sao Paulo. “We’ve had interest from clients.”

Queiroz Galvao Oleo e Gas Constellation’s press office declined to comment on its bonds or the probe into contractors accused of overcharging Petrobras and bribing its executives.

Parent Queiroz Galvao SA said in a Nov. 14 statement that all of its contracts are within the law.

Petrobras Contracts

Queiroz Galvao, which owns 51 percent of the voting shares in the rig supplier, was one of 23 companies banned from signing contracts with Petrobras in December. Executives at the oil-rig unit aren’t being investigated.

The rig supplier has a better chance of maintaining its contracts with Petrobras -- without any changes that may reduce revenue -- because it hasn’t been directly implicated in the probe, said John Haugh, a Latin America corporate strategist at Mizuho Securities Co.

Luxembourg-based Queiroz Galvao Oleo e Gas Constellation contracts seven of its eight offshore rigs to Petrobras.

“Investors have confidence in the management teams of these companies and consider the companies to be fundamentally sound and liquid,” Haugh said in an e-mailed response to questions.

The rig operator’s notes, which are backed by long-term charter agreements with Petrobras, climbed this week to an almost five-month high of 74 cents on the dollar, with yields falling to 14.26 percent, data compiled by Bloomberg show.

Brazil’s real advanced 0.3 percent to 3.046 per dollar at 3:14 p.m. in New York.

‘Limited Upside’

To Oppenheimer & Co. analyst Omar Zeolla, the risk that Rio de Janeiro-based Petrobras may renegotiate its contracts with suppliers means the bonds now offer “limited upside.”

“Right now I think you kind of missed it,” he said by telephone from New York, referring to the bond rally.

Still, with oil prices rebounding, Petrobras is less likely to cancel or change drill-rig contracts, said Jason Trujillo, an analyst at Invesco Ltd. He predicts the rig bonds’ premium over similar-maturity Petrobras notes will return to the levels seen before the scandal surfaced in November.

The gap is currently 9.5 percentage points, compared with 1.6 percentage points in July.

“The yields are attractive now,” Atlanta-based Trujillo said in an e-mail. “We have seen a significant reduction in the uncertainty around the Petrobras scandal. The issue is not over, but investors are now able to better assess the risk.”

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