GMO Says Petrobras Century Bonds Best Bet on Brazilian Producer

  • Prices for one-hundred-year bonds dropped 13% since June issue
  • GMO's Tina Vandersteel says firm may consider buying more

Grantham Mayo Van Otterloo & Co. says Petroleo Brasileiro SA is too strategic for the state to let it default and the earlier selloff in the Brazilian oil producer’s longest-dated bonds made them attractive.

Petrobras has been battered by plunging crude prices, a corruption scandal enveloping its executives, a strike that curbed production and disappointing drilling results. But there’s little chance Brazil’s government will let the state-controlled company default, given its importance to the nation, according to Tina Vandersteel, the co-head of emerging market debt at Boston-based GMO, which oversees $104 billion in assets.

GMO may consider buying more of the company’s $2.5 billion in 100-year bonds if offered at attractive prices. The securities fell 13 percent since they were issued in June, pushing yields up to 9.7 percent. That’s among the highest yields for the company’s dollar debt.

The century bond “seems like an obvious choice” for investors who want to own Petrobras securities, Vandersteel said in an interview. “If you don’t think Petrobras is going to default, that bond has a very high yield spread, and you will get paid more on that bond than any of the other bonds."

Petrobras’s debt load 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 as part of a government effort to contain inflation. Standard & Poor’s cut the company’s ratings to junk in September. Rio de Janeiro-based Petrobras has $24 billion in debt maturing in the next two years.

Before it's here, it's on the Bloomberg Terminal.