Fitch: Proposed Regulation May Increase Credit Risk for Brazil's Petrobras
NEW YORK-(Business Wire)-September 28, 2009 - According to Fitch Ratings, proposed regulation by the Brazilian government for the oil and gas industry could increase the credit risk for Petroleo Brasileiro S.A. (Petrobras), Brazil's national oil company. In a special report issued on Sept. 25, Fitch stated that if the regulation is enacted it would likely increase key risks for Petrobras' credit quality including increasing leverage and political intervention. Petrobras' Rating Outlook is Stable and is not expected to change if the regulation passes.
'While the increase in capitalization of Petrobras appears to be a positive outcome from the proposal, the Brazilian government's non-cash 'equity' contribution of up to five billion boe for Petrobras' common shares does not decrease important credit metrics,' said Jose Luis Villanueva, Director at Fitch. 'An important leverage measure in the oil and gas sector includes total debt per barrel of proven developed reserves which will likely increase over the medium term as Petrobras increases capital expenditures and possibly funds this with debt to develop these new reserves.'
Positively, minority holder's execution of their preemptive rights would help finance the incremental capex requirements as new equity money would come into the company. If the 5 billion boe are valued at USD2.5 per barrel, Petrobras could raise nearly USD20 billion in cash in the secondary public offering.
According to the report, the risk of a potential rating action as a result of the proposed regulations and transfer of deep water reserves from the government to Petrobras holds more downside risk than upside from a credit perspective over the medium-term. Nevertheless, the eventual impact on Petrobras' ratings of the proposed regulation depends on the source of funding of the incremental investment requirements in exploration and production, the pace of the development in the assigned fields, and the valuation of the capitalization of the company.
To access the special report, 'New Exploration and Production Regulation in the Brazilian Oil and Gas Industry', please visit 'www.fitchratings.com'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
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