Petrobras Raised by Moody’s on New Fuel Policy, Asset Sales

(Bloomberg) -- Petroleo Brasileiro SA was rewarded with its first rating upgrade in five years after it stepped up efforts to unload assets and began implementing a new fuel price policy.

Petrobras, as the Rio de Janeiro-based oil company is known, had its rating raised one level to B2 by Moody’s Investors Service, which pointed to lower liquidity risk and prospects for better operating performance. The outlook on the rating, which is five levels below investment grade, is stable.

Moody’s cited Petrobras’s increased autonomy in setting fuel prices, management’s commitment to conservative financial policies, and improvements in Brazil’s regulatory framework as factors that have reduced risks for creditors. Success with asset sales and debt refinancing, as well as improved market sentiment toward Brazil, contributed to the upgrade, Moody’s said.

"The debt refinancing and significant asset sales were better than we expected," Nymia Almeida, a Moody’s analyst, said in an interview. "Positive news started in April, when the company announced asset sales, and continued in May and June, with debt issuance".

In October, the world’s most-indebted oil producer announced a monthly review of fuel prices and a commitment to keep them above import costs to avoid subsidies that drained profits in recent years. It reduced fuel prices for the first time in more than a year to protect market share in Brazil. The new policy takes into account international pricing parity plus a margin to make up for taxes and risks including foreign-exchange volatility. 

Petrobras has sold or agreed to sell almost $10 billion in assets in Brazil, Chile and Argentina since last year and plans to raise another $25 billion through 2018. The divestment push is the producer’s main strategy to trim its $125 billion debt load.

"While Petrobras still has significant operational and financial challenges, the management team has defined a clear path forward to deleveraging, and more importantly, taken the first steps along that path," said Darin Batchman, a money manager who helps oversee $39 billion of assets at Stone Harbor Investment Partners in New York.

Petrobras’s $2.5 billion of bonds due in 2024, a benchmark for the company, have risen 39 percent this year to 99.5 cents as of 5:10 p.m. in Sao Paulo. The yield has dropped 5.4 percentage points to 6.35 percent.