(Recasts with government sources confirming swap option and
By Alonso Soto and Guillermo Parra-Bernal
BRASILIA/SAO PAULO Feb 16 Brazilian state-run
lenders are considering converting part or all of their
outstanding loans to Petróleo Brasileiro SA into equity in a bid
to help the embattled oil producer, two sources familiar with
the plan told Reuters on Tuesday.
The swap would offer a government lifeline to Petrobras
, the world's most indebted oil company, struggling
with a sharp drop in crude prices and a multi-billion dollar
State development bank BNDES, Banco do Brasil SA
and Caixa Econômica Federal are analyzing the option of
debt-to-equity conversion, the sources said.
"Ideally, we would like to convert the loans into stocks
and have the freedom to sell them later when its value
improves," said a senior BNDES executive, who asked for
anonymity because he was not allowed to speak publicly. He said
BNDES already holds about 20 billion reais ($4.92 billion) worth
of Petrobras stocks and 30 billion reais in loans.
A member of the government's economic team confirmed that
authorities were considering that option among others, but
declined to elaborate on the other proposals.
After repeatedly denying the possibility of a bailout,
President Dilma Rousseff in January for the first time said her
government does not rule out injecting new capital into
Petrobras if oil prices continue to drop.
Banco BTG Pactual was first to raise that option to swap
about 87 billion reais ($22 billion) worth of loans to Petrobras
In a client note distributed late on Monday, BTG analysts
led by Antonio Junqueira said that under current rules, a full
debt-to-equity conversion was possible for Banco do Brasil SA
and Caixa Econômica.
For BNDES, whose exposure to the oil producer
known as Petrobras is already above the legal
threshold, waivers in the loan contracts allow for full
conversion of debt into equity, the note added.
Petrobras owes about $130 billion to banks, bondholders and
While this would hurt shareholders of the state-controlled
company considerably, Petrobras' debt metrics would improve
dramatically, Junqueira and his team said. The extent of the
improvement would hinge on the degree of participation of
investors in the plan, since many of them would seek to avoid
dilution of their stakes, the note added.
"First things first: Yes, conversion is a genuine
possibility," Junqueira wrote. He did not say whether this would
amount to a renationalization of a company - the government sold
a stake in Petrobras to private investors in 1997.
The swap option underscores concerns over state lenders'
exposure to Rio de Janeiro-based Petrobras, which spent and
borrowed heavily in recent years as the government sought to
develop vast offshore oil finds. BNDES is Petrobras' largest
creditor, highlighting the fact that Rousseff used state lenders
to help fund Petrobras and foster industrial production,
employment and economic growth.
Petrobras, whose market value is about $18 billion now, and
the banks did not have an immediate comment.
A continuing investigation into an alleged kickback scheme
at Petrobras has triggered concerns about banks with exposure to
companies involved in the scandal.
The note stressed that information about a potential
debt-for-equity swap was not public. Local media have speculated
that government officials were considering such a step, while
several Petrobras bondholders have told Reuters in recent months
that they would support the idea.
"As far as public banks are concerned, such a conversion
could be made without breaching the Brazilian financial system's
regulatory requirements," the note said. "It seems the most
viable way to do this conversion is to book converted debt as
Nonvoting shares of Petrobras reversed early losses and
gained 0.6 percent to 4.54 reais in midafternoon trading on
Tuesday. The stock has fallen 55 percent in the past 12 months.
($1 = 4.0237 Brazilian reais)
(Writing by Guillermo Parra-Bernal and Alonso Soto; Editing by
Lisa Von Ahn, Jonathan Oatis and Andrew Hay)