Cash Burn at Petrobras to Oi Looms as $7.9 Billion Bond Tab Due

  • Corporate borrowing costs in Brazil reach a 7-year high
  • No company has issued bonds in overseas markets since June

Companies in Brazil are facing their biggest bond tab of 2016 at a time when they’re all but shut out of overseas debt markets. 

Borrowers from state oil producer Petroleo Brasileiro SA to telecom company Oi SA have $7.9 billion of foreign-currency notes coming due in the first three months of the year, the most for any quarter in 2016, data compiled by Bloomberg show. 

No Brazilian company has sold bonds abroad since June -- the longest drought since at least 1999 -- as a deepening recession, a corruption scandal and a political crisis send borrowing costs to a seven-year high. Unable to refinance that debt, a third of Brazil’s firms are now spending more than half of their earnings to pay down obligations, according to Fitch Ratings. That’s a record and up from 24 percent at the end 2013.

“Most Brazilian corporates are in survival mode,” Joe Bormann, a managing director for Latin America corporate finance at Fitch, said from Chicago. “They will need to burn cash to repay upcoming debt maturities as capital markets remain closed for the majority of the issuers and cash flow from operations does not support debt repayment except for a few select issuers.”

Petrobras, as the oil producer is known, has $2.5 billion of bonds maturing this month. The oil producer, which is at the center of Brazil’s biggest-ever corruption probe, hasn’t sold debt overseas since June. Yields on its $5.25 billion of benchmark notes due in 2021 have surged 5.75 percentage points in the past year to 12.61 percent.

The company’s press office didn’t respond to a phone call and e-mail seeking comment on how the crude producer plans to repay the bonds maturing this month.

Oi, Brazil’s most-indebted phone company, has the equivalent of $580 million of euro-denominated notes coming due next month. Its $1 billion of bonds maturing in 2020 yield more than 20 percent.

In a statement, Oi said it has “good liquidity position and available credit lines to cover all debt amortizations until mid-2017.”

Marianna Waltz, the managing director for the corporate finance group at Moody’s Investors Service in Sao Paulo, said cash balances for Brazilian companies run the risk of quickly deteriorating in the first quarter as the economic slump crimps earnings and credit dries up even more.

Latin America’s biggest economy will shrink 2.99 percent in 2016 after a 3.73 percent contraction last year, according to a central bank survey released Monday. That would amount to the deepest recession since 1901. The real rose 0.9 percent to 3.9904 per dollar at 11:54 a.m. Wednesday in New York.

Moody’s put Brazil’s remaining investment grade rating on review for a downgrade on Dec. 9, citing economic and political woes. President Dilma Rousseff is seeking to fend off a push by lawmakers to impeach her.

“When you combine less cash generation with more restricted access to funding, we see there is a very challenging scenario for companies forming right now,” Waltz said from Sao Paulo.

Below is the full list of foreign debt issued by Brazilian companies maturing this quarter.

Issuer

Amount Of Debt in $

Maturity Date

Vale1 billionJan. 11
Banco Santander Brasil850 millionJan. 14
Banco BMG SA60 millionJan. 15
Banco do Brasil815 millionJan. 20
Petrobras2.5 billionJan. 27
Banco Daycoval300 millionJan. 28
Oi580 millionFeb. 02
Banco Votorantim1.25 billionFeb. 11
Banco Santander Brasil310 millionMar. 18
BTG Pactual152 millionMar. 26
Banco ABC Brasil33.6 millionMar. 28
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