Petrobras Among Brazil Borrowers Most at Risk as Real Sinks

  • Fitch also cites Eletrobras, Gol and General Shopping
  • Companies have biggest foreign-exchange mismatch in Brazil

Petroleo Brasileiro SA, the state-controlled oil producer with $55 billion of overseas bonds, is among the Brazilian companies most at risk of seeing leverage ratios swell as the real posts the world’s biggest currency losses.

For Petrobras, the electric utility known as Eletrobras, airline Gol Linhas Aereas Inteligentes SA and mall operator General Shopping Brasil SA, every 10 percent depreciation in the real boosts the companies’ debt-to-earnings ratio by a factor of one, according to Fitch Ratings.

The companies, with a combined $60.1 billion of overseas bonds outstanding, are vulnerable to a falling real because they have high levels of foreign-currency debt while most of their sales are in the local tender, said Joe Bormann, a managing director for Latin America corporate finance at Fitch. The ratings company has Petrobras at the lowest level of investment grade, while the other companies are classified as junk.

“Those are the names that we see as the most exposed to a depreciation of the real,” Bormann said from Chicago. “The depreciation materially changes the amount of leverage that they have to a higher degree than a lot of their peers.”

The real has tumbled 25 percent this year, the worst performer among 16 major currencies tracked by Bloomberg, as President Dilma Rousseff struggles to sustain a coalition in Congress that can support her plan to cut spending and shore up fiscal accounts. Standard & Poor’s lowered the outlook on Brazil’s BBB- sovereign rating from stable to negative last month, while Moody’s Investors Service cut the country’s grade one notch on Aug. 11.

While the four companies compose a group considered most at risk to currency swings, the Sao Paulo state water utility known as Sabesp is seen as a “medium-risk concern” on the same basis, Bormann said.

Most Brazilian issuers haven’t used derivative instruments to completely eliminate foreign-exchange risk because the country’s 14.25 percent benchmark interest rate, the highest among the world’s biggest economies, makes hedging expensive, Bormann said. Local policy makers have increased borrowing costs seven times since October to control above-target inflation.

Petrobras’s $2.5 billion in bonds due 2024 have dropped about 9 percent this year as top executives from the company were cited in a bribery scandal, a scandal that delayed the publication of its annual results and led to a change of its top management. Yields on the notes fell 0.35 percentage point Tuesday to to 8.36 percent as of 11:32 a.m. in New York.

Perpetual bonds issued by Sao Paulo-based General Shopping totaling $250 million have plummeted 44 percent since December as rising unemployment and inflation running at 9.6 percent a year damped consumption. The notes now trade at about 50 cents on the dollar.

Rio de Janeiro-based Eletrobras’s $1.75 billion of bonds due 2021 have tumbled 13 percent since December, while Gol’s $325 million in notes due 2022 slumped 17 percent.

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