Petroleo Brasileiro SA is seeking refuge in Brazil’s domestic bond market as overseas borrowing costs surge amid a plunge in the local currency has exposed a mismatch between its real-based revenues and dollar debt payments.
The world’s most-indebted oil producer said it’s planning to sell 3 billion reais ($830 million) in local bonds. The move from the state-controlled company comes as crude prices trade near the lowest in a decade and after Brazil’s currency tumbled 27 percent this year, pushing up the cost of its debt.
Yields on benchmark dollar bonds due in 2024 jumped to a record 8.71 percent this week amid a global selloff in emerging markets and heightened concern that Brazil won’t be able to maintain its investment-grade credit rating. Petrobras’s revenue is mainly in reais, while the bulk of its debt costs are in foreign currency, making it one of the developing nations most at risk of the effects of foreign-exchange volatility.
“As an investor, I want to see the minimization of the mismatch between revenue streams and liabilities,” said Michael Roche, an analyst at Seaport Global Holdings. “All in, costs appear lower than borrowing in dollars and hedging that back into reais.”
Petrobras plans to sell the bonds in three tranches with maturities of five, seven and 10 years, according to a filing. The proceeds will be used to finance investments and extend debt maturities, it said.
Petrobras’s $2.5 billion of notes due 2024 fell to 86.6 cents on the dollar at 10:31 a.m. in New York, from 95 cents at the start of the year. Yields jumped to a record 8.71 percent on Aug. 24.