NEW YORK (Reuters) - Brazil's state-controlled oil company Petroleo Brasileiro SA PETR4.SA on Wednesday agreed to pay $2.95 billion to settle a U.S. class action corruption lawsuit, in what was said to be the biggest such payout in the United States by a foreign entity.
Petrobras denied any wrongdoing in the deal, which was one of the largest securities class action settlements in U.S. history. With the settlement, it will pay out more than six times what it has received so far under a Brazilian probe into bribery schemes that involved company executives and government officials.
The settlement, smaller than many analysts anticipated, was an important milestone for the oil firm as it tries to emerge from the scandal that has entangled two former Brazilian presidents and dozens of the country’s corporate executives.
But the deal reduces chances the world’s most indebted oil company will pay a dividend for 2017, much anticipated by investors who have not seen such a payment since 2014 when the scandal came to light, a source familiar with the matter said.
For the last four years Brazil has been rocked by the so-called Car Wash investigation into kickbacks from contractors to executives of state-run companies and politicians in return for public projects.
The settlement put an end to “extremely high uncertainty” about the company’s potential liability, JPMorgan said in a client note, adding that it had expected a figure above $5 billion. Analysts at Brazilian bank BTG Pactual said the market had expected a settlement of $5 billion to $10 billion.
Petrobras preferred shares closed up nearly 0.91 percent to 16.70 reais. U.S.-traded shares PBR.N rose 2.52 percent at $10.97.
Moody’s brushed off concerns about the impact of the fine on the company’s balance sheet, noting it was expected to generate some $30 billion in cash this year and make capital investments of around $15 billion.
“Petrobras’ liquidity position is adequate and the payment of the agreed class action settlement amount is not a material concern,” it said.
Jeremy Lieberman, an attorney for the investors, called the deal an “excellent result” and said it was the largest ever involving a foreign securities issuer in the United States.
The deal came as the U.S. Supreme Court was set to consider on Friday whether to hear Petrobras’ appeal of a lower court decision certifying the case as a class action. Petrobras said it and the investors would ask the Supreme Court to put off considering the case while the settlement awaits approval.
If the Supreme Court does take the case, it could delay its resolution for years.
U.S. District Judge Jed Rakoff in Manhattan must still approve the accord.
Investors had sued Petrobras after prosecutors in Brazil accused executives of accepting more than $2 billion in bribes over a decade, mainly from construction and engineering companies.
In a securities filing on Wednesday, Petrobras claimed it was a victim and denied wrongdoing, adding that it has only recovered 1.475 billion reais ($455.77 million) for itself from the Car Wash investigation.
But its market value has plunged as its central role in the scheme continues to be unwound by investigators.
Petrobras said it hoped the settlement would resolve all investor claims in the United States where 13 individual lawsuits remain open, following settlements in 20 other cases.
Some claims involving non-U.S.-based Petrobras securities purchased outside the United States also still remain.
The deal came days after Brazil’s securities regulator CVM formally accused eight former Petrobras executives of corruption.
The accusations relate to possible irregularities in the contracting process for three drilling ships, according to a legal filing by the regulator last Friday.
Among the accused in CVM’s filing are former Petrobras Chief Executives Maria das Gracas Foster and Jose Sergio Gabrielli. Neither could be reached for comment.
The largest securities fraud settlements in U.S. history include $7.2 billion stemming from the collapse of Enron, $6.2 billion over an accounting scandal at WorldCom and $3.2 billion over an accounting scandal at Tyco International, according to Stanford Law School’s Securities Class Action Clearinghouse.
($1 = 3.25 reais)
Reporting by Brendan Pierson in New York; Additional reporting by Rodrigo Viga Gaier and Marta Nogueira in Rio de Janeiro, Flavia Bohone in Sao Paulo and Alison Frankel in New York; Writing by Gram Slattery and Alexandra Alper; Editing by Jeffrey Benkoe, Andrew Hay and Cynthia Osterman
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