CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB-' rating to Petroleo Brasileiro S.A.'s (Petrobras) proposed senior unsecured century notes issuance. The notes, which mature in 2115, will be issued through its wholly owned subsidiary, Petrobras Global Finance B.V. (PGF), and will be unconditionally and irrevocably guaranteed by Petrobras. Proceeds will be used for general corporate purposes. Fitch currently rates Petrobras 'BBB-'. The Rating Outlook is Negative.
KEY RATING DRIVERS
Petrobras' ratings continue to reflect its close linkage with the sovereign rating of Brazil due to the government's control of the company and its strategic importance to Brazil as its near monopoly supplier of liquid fuels. Absent implicit and explicit government support and its defacto monopoly position, Petrobras' credit quality is not commensurate with an investment grade rating. Government support is evidenced by the recent lending commitments offered by stated-owned Banco do Brasil and Caixa Economica Federal as well as the decision to maintain gasoline and diesel prices at the pump significantly above international levels in order to bolster Petrobras' cash flow generation. By law, the federal government must hold at least a majority of Petrobras' voting stock. The government currently owns 60.5% of Petrobras' voting rights, directly and indirectly, and has an overall economic stake in the company of 48.9%. Petrobras' cash position is sufficient to meet its short-term funding needs.
Petrobras' Negative Outlook reflects the uncertainties surrounding the company's ability to deleverage its balance sheet over the medium term. Petrobras may face challenges to deleverage its capital structure organically as the corruption scandal may result in delivery delays of production units. Fitch will continue to monitor Petrobras' strategy to strengthen its capital structure and expects the company to release coherent deleveraging program once the company releases its revised business plan for the next five years. Should Petrobras succeed in placing this proposed debt issuance, it will be viewed as a positive step in regaining access to the debt capital markets, which the company relies on in order to support its investment plans and funding needs.
A negative rating action may be considered if Petrobras fails to lower its total debt-to-EBITDA below 5.0x over the medium term and there is a lessening in the perception of government support. While a sovereign rating downgrade could also cause a negative rating action, Fitch will consider the company's credit quality and materiality of government support in such case.
A positive rating action is unlikely in the short- to medium-term; nevertheless, direct explicit support from the government could help stabilize the ratings and, to the extent support is material, the ratings could be equalized again in the future. Asset sales and/or changes in regulation, i.e. loosing of local content rules and minimum participation requirements, to allow a faster deleverage could also help stabilize the credit.
LIQUIDITY AND DEBT STRUCTURE
The company's liquidity position is supported by its currently solid cash and cash equivalent position, robust cash flow generation and manageable amortization schedule. As of March 31, 2015, the company reported USD21 billion of cash and cash equivalent, including short term investment held in Brazilian government securities. During the LTM ended March 31, 2015, Petrobras reported an EBITDA of approximately USD26.7 billion and its maturity schedule is well spread with approximately USD9 bn to USD12 bn of principal payments due per year over the next few years.
As of March 31, 2015, Petrobras reported USD125 billion of debt composed of bonds, bank loans and financial lease obligations. Approximately 75% of Petrobras' debt is denominated in U.S. Dollars, 16% in Brazilian Real and the balance in other currencies. Petrobras' leverage continues to be high and as of the LTM ended March 31, 2015 the company reported a leverage, as measured by total debt to EBITDA, of approximately 4.7x.
FULL LIST OF RATING ACTIONS
Petrobras Global Finance B.V. (PGF)
--Sr. Unsecured Notes due 2115, assigned rating of 'BBB-'.
Date of Relevant Committee: April 23, 2015
Additional information is available at 'www.fitchratings.com'.
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 28 May 2014)