Petrobras bonds sink on delay in planned share sale

Brasilia: Petroleo Brasileiro's benchmark dollar bonds posted the biggest weekly decline in almost two months on speculation the Brazilian state-run oil producer will be forced to increase debt financing after delaying a planned share sale.

Yields on Petrobras's 5.75 per cent dollar bonds due in 2020 rose 27 basis points, or 0.27 percentage point, to 5.74 per cent, the biggest weekly increase in seven weeks, according to data compiled by Bloomberg.

The extra yield investors demand to own the notes rather than Brazilian government debt jumped to 150 on Friday, the highest since the securities were issued in October, from 94 at the end of last week.

Stock offering

CEO Jose Sergio Gabrielli postponed plans last week to raise as much as $25 billion through a stock offering to minority holders pending an assessment of oil reserves that the government intends to swap for equity as part of the deal.

The company is aiming to raise $58 billion through debt and equity sales over five years as it seeks to develop the largest discovery of crude in the Americas since 1976.

"The key factor is how much money they are going to raise from the equity markets," Jose Luis Villanueva, a director at Fitch Ratings, said in a telephone interview from New York.

Share sales will determine "the incremental debt that Petrobras has to issue, and that could impact its credit metrics over the medium-term and long-term," he said.

A surge in bond issuance by the Rio de Janeiro-based company, whose five-year, $224 billion investment plan is the biggest in the oil industry, could increase the risk of Fitch cutting its BBB credit rating, according to Villanueva.

Gabrielli said in a May 3 interview in Sao Paulo that the company doesn't plan to sell bonds this year because it's reaching the "upper limits" of debt ratios before putting credit ratings at risk.

The company said on Friday that it has an option to sell shares before firms hired to assess the value of oil reserves in a related deal finish their reports.

"To carry out the capitalisation, it isn't mandatory for the certifiers to finish the work, but the company believes that the definition of the value of the share swap will give investors and shareholders more information on whether to participate or not," Petrobras said in the regulatory filing.

Officials in Petrobras's public relations department declined to comment on the company's financing.

"The share sale is an important thing so that they can proceed with further debt sales without risking the ratings," said Eduardo Suarez, a Latin American debt strategist at Royal Bank of Canada in Toronto. "We're more concerned now."

Standard & Poor's cut Petrobras one level to ‘BBB-', the lowest investment grade, a year ago on concern the investment programme was too big.