RIO DE JANEIRO Oct 3 Moody's Investors Service
downgraded the debt of Brazil's state-run oil company, Petroleo
Brasileiro SA, on Thursday on concern that fuel
subsidies and huge investment commitments will cause its debt to
grow until at least 2015.
Moody's cut the rating on the long-term, foreign currency
debt of Petrobras, as the oil company is known, to "Baa1" from
A3. Debt in Moody's Baa range "is subject to medium credit risk"
and "may posses certain speculative characteristics." While
still "investment grade," Baa1 is the highest rated debt with
speculative aspects, according to Moody's.
The downgrade comes as a rebuke to Chief Executive Officer
Maria das Graças Foster, who has made controlling costs one of
the main goals of her nearly two years at the Rio de
While the new rating is three notches away from
non-investment grade, a level that would require many pension
funds and major investors to sell its debt, the outlook for the
company is negative, Moody's said.
In late 2012, Petrobras debt exceeded its own internal limit
of 2.5 times earnings before interest, taxes, depreciation and
amortization (EBITDA). Debt soared as domestic fuel subsidies,
declining output and a $237 billion expansion plan, the world's
largest corporate spending program, crimped revenue, even as
costs soared. Significantly increased production is still
several years away.
"We see Petrobras' leverage to be at nearly peak levels in
2013 and 2014, significantly higher than those of its industry
peers and only likely to decline in 2015 and beyond," Thomas
Coleman, a Moody's senior vice president, said in a statement.
"Successful execution on its ambitious capital program and
delivery on aggressive production targets will be key to
reducing leverage in the next few years and to stabilizing the
Petrobras had $112.4 billion of debt as of June 30, 17
percent more than a year earlier. Net debt, or debt minus cash
and marketable securities, was $79.6 billion.
The company's spending is likely to be almost double its own
cash generation from operations, and debt rose by $16.8 billion
in the first half of 2013, Moody's said.
Petrobras did not immediately have a comment on the
The company now has $11.25 of debt for every barrel of
proved reserves and it has $64,000 of debt for each barrel of
daily output, the highest level of similar integrated oil
companies such as Exxon Mobile Corp and Royal Dutch
Shell Plc, or state oil companies such as Colombia's
Ecopetrol SA and Mexico's Pemex.
Moody's on Wednesday lowered its outlook on Brazil's
sovereign debt rating to "stable" from "positive," as the
country's economy struggles with the impact of three years of
low growth, flagging investment and swelling debt.