Oil’s ‘Ugly’ Outlook Sends Petrobras Into Freefall

(Bloomberg) -- Petroleo Brasileiro SA tumbled after crude prices sank the most since 1991, triggering an analyst downgrade and raising concern over the pace of the company’s debt reduction.

Petrobras’s American depositary receipts fell 31% to $7.26 in New York Monday, the most on record. Oil markets crashed more than 30% after the disintegration of the OPEC+ alliance set off a price war between Saudi Arabia and Russia.

Bradesco BBI sees a bearish scenario for crude and downgraded Petrobras to neutral from outperform. The scenario makes it harder for Brazil’s state-controlled oil producer to reach its goal of cutting net debt to about 1.5 times Ebitda, said analyst Vicente Falanga. He said it probably won’t get below that metric until after 2025.

“Deleveraging should take much longer,” he wrote in a report, while slashing his price target to $11 from $18. Higher dividends “should not happen anytime soon.”

Under Chief Executive Officer Roberto Castello Branco’s administration, Petrobras has sought to shore up its balance sheet and focus on ultra deep-water fields. Further weakness can’t be ruled out and oil prices could potentially collapse to as low as $25 per barrel, Falanga said.

“Whatever the long-term outcome of this war is, one thing is clear to us,” he said. “The short term will get pretty ugly.”

Petrobras bonds led declines in Brazil and were among the worst performing corporate debt in emerging markets, along with notes from YPF SA and Petroleos Mexicanos. Dollar notes due in 2043 fell as much as 18 cents, the most since they were issued in 2013, to 99 cents, sending the yield to 5.7% from below 4.5% last week.

--With assistance from Aline Oyamada.

To contact the reporter on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Lisa Wolfson, Scott Schnipper

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