RIO DE JANEIRO, June 27 Ratings firms expressed
concern on Friday about a Brazilian government decision to sell
billions of dollars worth of offshore oil rights to Petrobras,
saying the move will weigh on the state-run oil company's cash
flow and credit-worthiness.
Petroleo Brasileiro SA, as the company is
formally known, was awarded on Tuesday the rights to explore
four offshore fields off Brazil's southeast coast believed to
contain an estimated 5 billion to 9 billion barrels of oil.
In return, it will pay the government 15 billion reais
($6.85 billion) through 2018. Of that amount, 2 billion reais
are going to the Treasury's coffers this year, which will help
it try to achieve its fiscal goals despite a weakening economy.
"These payments will put additional burden on Petrobras'
already negative free cash flow resulting from its aggressive
capex program," Fitch Ratings said in a statement, referring to
Petrobras' massive 2014-2017 investment program worth $221
Fitch said the decision may increase Petrobras' borrowing
needs beyond the $15 billion the ratings firm had initially
estimated at the beginning of the year.
Under President Dilma Rousseff's government, Petrobras has
become the world's most indebted and least-profitable major oil
Competing ratings firm Moody's Investors Service said the
additional cash demand is "credit negative" for Petrobras,
diverting funds the company needs for its investment program and
"placing further strain on its credit profile at a time of
already high leverage."
Moody's noted that Petrobras remains highly leveraged, with
a reported debt/EBITDA ratio of four times as of March. The
agency has a negative outlook on Petrobras' rating, which at
Baa1 stands three notches into investment grade territory.
Fitch warned it could take negative action on Petrobras'
ratings if, for example, its debt/EBITDA ratio grows to more
than five times. Fitch currently rates the oil company at
BBB-minus, one notch above junk level.
It is crucial for Petrobras to maintain its investment-grade
rating to curb interest paid on its huge debt load.
($1 = 2.19 Brazilian reais)
(Reporting by Walter Brandimarte; Editing by Paul Simao)