Petrobras has signed a preliminary loan agreement with the Import-Export Bank of China for a US$1bn loan.
To fill a heavy funding gap, Petrobras has turned to borrowing from states, such as China, that are looking not only for oil supplies, but also to increase their share of sales of goods and services to Brazil.
“China is interested in more than just oil assets, it is looking to get all the concessions it can get from Brazil,” noted Vernon Budinger, CEO and CIO of Latin America Structured Finance Advisors.
The signing of the deal has come earlier than expected. The loan was planned to be arranged in 2017. The credit line was designed to diversify the company’s sources of funding, according to Petrobras.
Petrobras’ ability to tap the international capital markets has been hampered by the fact that it is at the centre of the ‘carwash’ corruption scandal.
“The company is still not financially transparent, and this means it struggles to raise capital on the international markets, which has led to the acceleration of the signing date for the Chinese loan,” said Budinger, adding that it would avoid lending money to the state run oil firm.
China Exim Bank is able to easily lend to Petrobras because it will be strongly hedged elsewhere.
Petrobras has among the highest volume of non-financial corporate debt in the world, at around US$130bn. It is the world’s most heavily indebted oil company.
Budinger said the company would eventually be bailed out by the Brazilian people if necessary, as it would just raise petrol prices to pay off its debt.
He said that there are still investment opportunities in Brazil, especially within small and medium sized enterprises.
“The further removed from the government, the safer an investment they will be,” he added.