Petrobras Bondholders See Rare Bright Spot in Brazil's Currency

Updated on
  • Oil producer's bond yields have tumbled since January
  • Brazil's real is the year's best performing currency in world

Petroleo Brasileiro SA is becoming less of a default risk in the eyes of bondholders, despite the oil producer’s mounting losses in the wake of an unprecedented bribery scandal.

That’s because the Brazilian real’s 8.8 percent surge this year against the dollar -- the biggest gain in the world -- is bolstering the state-controlled company’s ability to repay debt denominated in U.S. currency. Yields on Petrobras’s $1.6 billion of bonds due in March 2017 have plunged almost six percentage points from a three-month high on Jan. 20. The securities now yield less than notes maturing in 2024, a reversal of the so-called inverted curve that prevailed just two months ago.

The real’s strength is a rare bright spot for Petrobras, which reported an unexpected record net loss last week of 36.9 billion reais ($10.2 billion) in the fourth quarter as falling oil prices triggered asset writedowns. The company -- at the center of an ever-expanding corruption probe -- has $21 billion of dollar debt maturing in the next four years. This leaves it dependent on favorable swings in the local currency to make repayment more manageable.

“The stronger real helps,” said Eduardo Vieira, an emerging-market credit analyst at Deutsche Bank AG in New York.

The real strengthened 0.9 percent Monday to 3.6448 per dollar as of 11 a.m. in New York.