PetrolBras, Brazil’s largest oil producer is downgraded by Moody’s to junk status but asset sale may help.
As more corruption allegations against the largest Brazilian oil producer come forth, PetrolBras is downgraded and shares slump from 6.77 to 6.25 on Wednesday, after a 5.8% rise on Tuesday.
Thursday sees a slight reversal to 6.37 as news from Reuters announces that PetrolBras has hired JPMorgan Chase to aid a $3 billion asset sale.
The huge corruption scandal at the heart of the PetrolBras demise saw the state-owned company overprice construction projects often by 3% and use the kickbacks for bribes. Due the fallout of the scandal with many company executives arrested and the entire management resigning, and alongside the 7 month oil price slump, PetrolBras shares have fallen from August 2014 highs of 20.84.
The junk downgrading and the scandal have led to the closing of lending facilities and bond markets for PetrolBras as Moody’s strip the company of its investment-grade rating. This has made the sale of assets, that according to a source quoted by Reuters include properties and drilling licenses, absolutely essential to the future of the company.
Moody’s may only be the first to downgrade, as PetrolBras currently sits in the lowest investment-grade ranking on Fitch Ratings and Standard and Poor's.
PetrolBras downstream business in refinement could provide possible cash flow to meet debt, given that the price of oil is so low against the finished refined product. However, operational cash flow is not expected to bridge the gap and pay for the capital spending needed in oil production and refining.
Share price currently stands at the lowest seen on MT4 platform dating back to 2006. The question is: Will investors see the worth of PetrolBras at such a low price and be willing to buy, or will scandal and low equity price discourage potential stockholders?
MT4 chart: PetrolBras
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