Petrobras On Track To Achieve Its Targeted Debt Levels? – Part 2
In our previous analysis, Petrobras On Track To Achieve Its Targeted Debt Levels? – Part 1, we had discussed the recent deals, such as the initial public offering (IPO) of its fuel distribution unit and strategic partnership with Statoil, that Petrobras has undertaken to raise funds to reduce its massive debt obligations and achieve its targeted debt levels. The Brazilian integrated energy company aims to reduce its leverage to less than 40% over the next two years, and to less than 35% by 2020. Further, the company plans to achieve a Net Debt to EBITDA ratio of 2.5x by 2018. In this note, we will talk about some other initiatives that will enable the company to move closer to achieve its desired debt profile.
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Financing From China Development Bank
Petrobras has been exploring various financing options in order to realize its objective of delevering its capital structure. In this quest, the oil and gas major entered into a financing agreement of $5 billion, maturing in 2027, with China Development Bank (CDB) earlier this month. Under the contract, a sum of $3 billion has already been disbursed to the company, while the remaining $2 billion will be received in January 2018, when the company will repay an amount of $2.8 billion that it owes to CDB for a loan contracted in 2009. The new $5 billion loan will be repaid by Petrobras in a span of 10 years, in cash or oil supply based on the Bank’s request. We believe that the company plans to utilize the proceeds of this loan to pare down its long term debt obligations in the coming quarter, which will help to reduce its overall leverage.
Strategic Alliance With Exxon Mobil
Apart from the various partnerships initiated during the year, Petrobras last week entered into a strategic alliance with Exxon Mobil to jointly identify and evaluate potential business opportunities. Under the contract, the two companies will align their interests and explore new opportunities in exploration, production, gas, and chemicals both inside and outside Brazil. While this deal, unlike the other recent deals, will not result in immediate cash flows for the company, it is in line with Petrobras’ Business and Management Plan 2017-2021, under which it plans to enter relevant partnerships and joint ventures to enhance its operations as well as augment investment capacity in the oil and gas value chain. Thus, we expect this alliance to contribute to Petrobras’ operations and cash flows in the coming years, which could be used to reduce its large debt burden.
Impact On PBR’s Debt
Given the company’s focus on de-levering its balance sheet, we expect Petrobras to utilize the proceeds from the recent deals to repay its huge debt obligations and achieve its targeted debt levels. Below, we present our forecast of Petrobras’ debt position over the next two years. Based on our estimates, we expect the company to achieve its targeted leverage ratio of 40% by 2018. The company’s target beyond 2018 will be highly dependent on the recovery of commodity prices as well as company execution capabilities.
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