Petrobras raises $6.75 billion in return to global bond markets

SAO PAULO (Reuters) - State-controlled Petróleo Brasileiro SA raised $6.75 billion on Tuesday from a sale of five- and 10-year dollar-denominated bonds, in a closely watched return to global debt markets after the suspension of Brazilian President Dilma Rousseff.

Gasoline prices are displayed at a Brazilian Oil Company Petrobras gas station in Rio de Janeiro, Brazil, February 6, 2016. REUTERS/Ricardo Moraes

The sale is the first by any Brazilian company since June and the first to test investor sentiment toward Brazil since Rousseff was ousted last week to face an impeachment trial. Petrobras PETR4.SA, as the firm is known, will also buy back up to $3 billion of debt maturing in 2018.

Investors have said Petrobras, which for years was Rousseff’s main tool to enact policies that helped drive Brazil into a recession not seen in eight decades, could gain most from the change in Brazil’s leadership. Rousseff forced Petrobras to borrow beyond capacity to bolster her Workers Party’s political agenda. The company is the world’s most indebted oil firm.

In a strong sign of backing for a company that has been the largest emerging market corporate borrower in recent decades, investors placed more than $20 billion worth of bids for the new securities, according to three sources directly involved with the transaction. They asked to remain anonymous because terms of the deal are private.

The deal could help pave the way for other Brazilian companies to raise money in a “very gradual” reopening of debt markets, as optimism mounts that Rousseff’s exit may usher in the implementation of more business-friendly policies, said Eduardo Vieira, an analyst with Deutsche Bank Securities in New York.

“Petrobras needed to tap the market, since one of the company’s pressing issues was liquidity,” he said.

The sale is Petrobras’ first attempt to place global bonds since a $2.5 billion offer of bonds maturing in 2115 last June. The company borrowed from Chinese lenders in recent months to counter the impact of plunging oil prices, restricted access to capital markets and fallout from the sweeping corruption scandal that accelerated Rousseff’s fall.

The company sold $5 billion in five-year notes at 8.625 percent and $1.75 billion in 10-year notes at 9 percent. Petrobras had last sold similar debt in March 2014, bearing interest of 4.875 percent and 6.256 percent, respectively.

“It may turn out to be a costly deal, even if the market response turns out to be very positive,” Vieira said.

Yields on Petrobras’ shorter-termed bonds had surged in recent months on concern the company could have trouble refinancing $18 billion in notes maturing between next year and 2019, one of the sources said.

The last Brazilian corporate bond sale was planemaker Embraer SA's EMBR3.SA $1 billion offering of 10-year bonds on June 8, according to Thomson Reuters data.

Brazil’s Senate voted last week to impeach Rousseff and she faces trial on charges of breaking budgetary rules. Vice President Michel Temer, now serving as interim president, has vowed to end Rousseff’s budget profligacy and reduce long-term spending.


Petrobras hired the investment-banking units of Banco do Brasil SA Bank of America Corp, JPMorgan Chase & Co and Banco Santander SA to handle the deal.

The bonds were rated “B3” by Moody’s Investors Service, six levels below investment-grade. Until the scandal and the oil price slump undermined the company’s finances, Petrobras had a debt rating higher than the Brazilian government’s.

Proceeds from the sale of the senior unsecured notes will be used to fund the buyback. Petrobras has about $54 billion in outstanding bonds.

According to the sources, Petrobras initially offered to pay around 8.75 percent on the five-year portion of the sale, and 9.125 percent for the 10-year bonds, they added.

Non-voting shares of Petrobras fell 2.6 percent, reflecting concerns over the transaction's borrowing costs, traders said. The cost of insuring Petrobras debt against default for five years PETR5YUSAC=MP slipped 7 basis points to 736 basis points, according to Markit prices.

Last week, Chief Financial Officer Ivan Monteiro said on a conference call to discuss Petrobras’ first-quarter results that an eventual market reopening could help the company pay down debts coming within the next five years.

Petrobras has $33 billion of bonds coming due within the next five years, or about 60 percent of outstanding bond debt.

“We need to adjust to the fact that we are no longer an investment-grade company,” Monteiro said last week. “The cost has risen.”

Repurchase of the bonds is subject to the consent of most bondholders, who will also be asked for their permission to change any contractual terms under which the securities were sold.

The new bonds fell before they were officially sold, shedding as much as 0.2 percentage point in the so-called gray market, where investors trade them on a when-issued basis, traders said.

Additional reporting by Tatiana Bautzer in São Paulo, Paul Kilby and Davide Scigliuzzo in New York, and Jeb Blount in Rio de Janeiro; editing by Tom Brown and Richard Chang