Brazil Said to Study Hybrid Securities for Petrobras: Estado

  • The securities would boost capital without increasing leverage
  • Selling shares to minority investors not option now: Estado

Brazil is studying the possibility of using hybrid securities to boost capital at struggling state-controlled oil producer Petroleo Brasileiro SA, Agencia Estado reported, citing government officials it didn’t name.

The operation is being discussed between Brazil’s Treasury and Petrobras’s management, and no amount has been defined yet, Estado said. The government and Rio de Janeiro-based Petrobras aren’t considering a share sale to minority investors as an option to raise cash at this time, Estado said. Petrobras declined to comment.

Hybrid securities like contingent convertibles -- or Cocos, as they are known -- provide companies with a way to raise money without immediately diluting shareholders, as is the case when a firm issues new stock.

The instrument, which doesn’t impact the country’s surplus or the public net debt, was used by former Finance Minister Guido Mantega to fund state-controlled banks in recent years, the paper said. 

In Brazil, the securities have been used by banks only and the government would still need to find an intermediary to transfer the money to Petrobras, as the producer is not a financial institution, Estado reported.

Capital Increase

The government could use Brazil’s Treasury to get Petrobras an advance payment for a capital increase, Eliseu Martins, a former securities regulator and accounting specialist, said by phone. The Treasury would issue securities without a firm deadline to convert them into Petrobras shares, he said.

“When market conditions improve, the company could then call investors for a capital increase,” Martins said, adding he isn’t aware of the government’s discussions.

Petrobras’s debt has surged fourfold in the past five years as the company boosted investments to tap giant oil fields deep in the South Atlantic, while at the same time subsidizing fuel imports during the commodities boom as part of a government effort to contain inflation. Standard & Poor’s cut the company’s ratings to junk in September amid rising leverage and a corruption scandal that has resulted in some of its suppliers filing for bankruptcy.

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