Petrobras Gets $10 Billion Chinese Loan in Oil Supply Deal

  • Funding stems from accords signed with Asian nation last year
  • Producer has sought to avoid high borrowing costs for bonds

Petroleo Brasileiro SA secured a $10 billion loan from China Development Bank Corp. as the beleaguered state-owned oil producer endures the worst crude market in a generation and faces more than double that amount in maturities over the next two years.

The lifeline is part of a deal to supply crude to the Asian country, Petrobras said in a filing on Friday. The amount of crude that will be supplied wasn’t disclosed. Shares gained 6 percent to 5.16 reais at 2:58 p.m. in Sao Paulo.

China has invested in oil-rich nations to ensure supplies to the world’s biggest crude market after the U.S. Similar deals have helped Venezuela fund its ballooning debt. Petrobras has been mired in Brazil’s worst-ever corruption scandal just as the Latin American nation goes through a recession, reducing domestic demand, and oil prices are 70 percent lower than in mid-2014.

“The company is notorious for urgently needing more money, and everybody had already mentioned that getting money from China was its best option,” said Pablo Spyer, a Sao Paulo-based operational director at Mirae Asset Wealth Management. “This money will provide good relief."

The loan stems from accords signed between Brazil and China last year, Petrobras said in the statement.

Not Enough

The loan isn’t enough to solve Petrobras’ financial problems and will worsen leverage even though it will be paid back in oil over time, Adeodato Volpi Netto, head of capital markets at Eleven Financial Research, said by telephone from Sao Paulo.

“This loan only diverts attention from the fact that Petrobras isn’t doing enough to be a profitable company again,” Volpi Netto said. “It means more leverage, a bigger burden for a company whose situation is already horrible.”

This is the latest major deal between Petrobras and China in seven years. In 2009, a $10 billion arrangement with China included a commitment to export as many as 150,000 barrels a day of oil in the first year and 200,000 barrels a day over the subsequent nine years. In May, Petrobras announced a $10 billion agreement with three Chinese banks that included $5 billion in loans from CDB.

Petrobras Chief Financial Officer Ivan Monteiro said in November the oil industry’s most indebted major producer was studying ways to borrow against future crude exports as part of an effort to cut its dependence on international capital markets.

High Yields

The executive said the company didn’t want to sanction the high yields offered by the market since it was downgraded to junk by credit agencies.

The loan will probably be used to roll over the company’s debt coming due this year, easing short-term liquidity pressure, Banco Santander SA analysts including Christian Audi said in a note to clients Monday.

“The agreement covers almost all debt issuance needs for 2016,” the analysts said. “The company needs approximately $12 billion in debt issuance in order to end the year with a comfortable cash balance of $20 billion.”

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