Petrobras Equity Value Is Zero Due to Debt, BTG Pactual Says

  • Many investors think debt-to-equity conversion inevitable: BTG
  • BTG estimates 3 state banks hold $22 billion in Petrobras debt

Petrobras’s stock is worthless and a growing group of investors believe Brazil’s state-controlled oil company will convert debt into equity in a move that will benefit bondholders over shareholders, BTG Pactual said in a research report.

Brazil’s three state-controlled banks, Banco do Brasil, Caixa Economica and development bank BNDES, hold an estimated 87 billion reais ($22 billion) in Petrobras debt, and it’s a “genuine possibility” that these securities will eventually get converted into equity and dilute the value of existing shares, BTG analysts led by Antonio Junqueira said in a note to clients dated Feb 15.

“Such an event is everything equity holders don’t want and bondholders do want to see,” the analysts said. “In the current commodity environment, and despite its quasi-monopoly on the country’s refining, Petrobras has no equity value.”

Petroleo Brasileiro SA, as the Rio de Janeiro-based producer is known, didn’t immediately respond to an e-mail requesting comment.

Petrobras’s debt has exploded fourfold in the past five years after the company borrowed heavily to expand production in deep waters of the Atlantic Ocean and subsidized fuel imports during the commodities boom as part of a government policy to contain inflation. The combination of the oil price crash and a widespread corruption scandal has hindered the company’s ability to reduce leverage. As a result, Petrobras is selling assets and slashing spending.

Petrobras added 0.9 percent to 4.56 reais as of 12:40 p.m. in Sao Paulo trading, paring its drop in the past 12 months to 54 percent.

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