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Moody' s to decide this year on Petrobras downgrade

BY MATTHEW COWLEY

SAO PAULO -- Moody' s investors Service will likely determine this year whether to downgrade the ratings of Petrobras, for which the ratings firm currently has a negative outlook.

I think if we make a decision to downgrade then it' s probably going to be this year as we get through the year and watch the performance said Thomas S. Coleman, SVP at Moody' s, in a telephone interview. "But I' m not saying at this point that there' s any certainty we' re going to do that."

Moody' s A3 investment grade rating is two notches above Brazil' s triple B sovereign rating.

Petrobras sold $11 billion in debt, in a six part transaction that was the largest ever debt capital markets deal from the emerging markets. The company has said it plans to raise $20 billion in debt this year and a similar amount next year, part of the funding for a $237 billion five year investment plan.

Mr. Coleman said the company faces a number of short term challenges, but that the "heaviest part of the spending cycle is probably this year and into 2014." Once a number of big projects come onstream and ramp up through 2015 the acceleration of debt is going to decline.

On the positive side, Petrobras has enormous resources and potential, Mr. Coleman said. The company is "still on track to try and meet the production targets they have, which are aggressive and which are the kind of growth that you' re not really seeing anywhere else in the sector" Mr. Coleman said.

The big negative issues for company of course have been the big ramp up in capital spending but they need to do that to develop these resources, and then of course the rate of increase in the debt Mr. Coleman said.

The market has been very much focused on the flattish production and the company' s lack of delivery on production growth, he said.

For us, the dilemma that we' re trying to grapple with is, do we see our way through this debt increase period or do we downgrade the ratings, Mr. Coleman said.

One of the problems the company faces is the price of diesel and gasoline. The government has forced it to keep prices for consumers in Brazil in check to combat inflation, meaning Petrobras has to subsidize more expensive imports of diesel and gasoline to meet domestic demand.

Mr. Coleman said that may "ease off" in terms of import volumes and price relief. "That may be a little bit better this year than it was last year" he said.

Another issue is whether Petrobras can achieve any sizeable asset sales, Mr. Coleman said. Petrobras' s original plan to sell some overseas assets to raise $14 billion has "lagged," which was part of the issue with the negative outlook, he said.

I think they' ve got some assets on the table they' re looking pretty hard at selling Mr. Coleman said.

Dow Jones Newswires

05/13/2013

 

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