Hidden in Awful Petrobras Earnings Is Some Really Good News

(Bloomberg) -- Petroleo Brasilerio SA rattled markets last week when it posted a surprise $4.9 billion loss. Buried in the Brazilian oil giant’s 33-page financial statement was a piece of really good news: Its debt levels have tumbled to the lowest in almost three years.

While there’s still a long way to go, the $16 billion reduction since mid-2014 marks a hard-fought milestone in the company’s plan to claw its way back into investors’ good favor. Petrobras, once the gem of Brazil’s economy, has been battered in recent years by an oil rout, a massive corruption scandal and government policies that forced it to sell fuel at a loss. It’s the world’s most indebted publicly traded oil company with $123 billion in liabilities to pay back.

“At the moment, the most important thing for Petrobras is the balance sheet,” said Danilo Onorino, a portfolio manager at Dogma Capital SA, which owns Petrobras bonds.

The surprise loss -- analysts had forecast a profit -- capped a week of extreme volatility triggered by Donald Trump’s unexpected victory in the U.S. presidential race Nov. 8. Investors the world over dumped higher-yielding assets on speculation Trump’s spending plans may push up U.S. inflation and interest rates. In Brazil, five of Friday’s 10 worst-performing Brazilian corporate bonds were issued by Petrobras, according to Bloomberg data.

Onorino said the meltdown creates a buying opportunity.

“In my view, they are quite cheap because of the yield and the potential disposals,” he said from Lugano, Switzerland.

Petrobras has sold or agreed to sell $9.8 billion in assets since 2015 as it tries to win back its coveted investment-grade rating. The deep-water oil producer plans to unload an additional $25 billion in assets through 2018.

Moody’s Investors Service on Oct. 21 rewarded the company with its first upgrade in five years, raising the rating one level to B2. While that’s still five steps below investment grade, Moody’s said the asset sales and a new fuel-pricing policy are positives.

If Petrobras succeeds in trimming the fat on its balance sheet, it’ll look more like other state-controlled oil companies, such as Russia’s Gazprom PJSC and Rosneft PJSC, which enjoy lower borrowing costs than Petrobras, Onorino said. Gazprom’s $1.25 billion in notes due in 2037 yielded 6.74 percent at 1:36 p.m. in Sao Paulo, compared with 8.94 percent on Petrobras’s $1.5 billion in bonds due in 2040.

“The difference between Gazprom and Petrobras is Gazprom has a very normal situation with its balance sheet, and Petrobras is getting there,” he said. “I can see Petrobras getting normalized in terms of net debt because of the disposals.”

To contact the reporter on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net.

To contact the editors responsible for this story: Melinda Grenier at mgrenier1@bloomberg.net, Brendan Walsh at bwalsh8@bloomberg.net, Jessica Brice