MercoPress. South Atlantic News Agency

China to the rescue of debt-burdened Petrobras with a US$10bn credit

The company has about US$24bn in debt maturing between this year and next against some US$25bn in cash, according to Moody's

Bonds issued by Brazil's Petrobras ended one to two points higher on Monday as the beleaguered oil company eased refinancing pressure by clinching a US$10bn loan from China. The US$10bn loan from China Development Bank, which can be repaid in cash or oil, will do much to reduce refinancing risks for what is one of the world's most indebted companies.

 The company has about US$24bn in debt maturing between this year and next against some US$25bn in cash, according to Moody's. However, it was bonds due between 2018 and 2020 that outperformed in a up day for the state-owned entity Monday, as investors bet that the new loan will help the company tackle maturities during that period.

“That was the most vulnerable part of the curve,” said a New York based trader. “This gives them some breathing room so they are not forced to do asset sales. One big asset sale and they will be out of the woods between 2017 and 2018s.”

In an effort to address high leverage ratios, the company has been slashing capital spending and trying to shed assets, albeit at a slow pace.

“If they could knock some of their refinancing risks and get yields down, perhaps they could come to market next year,” the trader said.

This is not the first time Petrobras has sought Chinese financing. CDB had already extended a US$3.5bn credit line to Petrobras, and in 2009 the oil company entered a US$10bn loan agreement with China's Sinopec backed by future oil exports, according to Citigroup.

Chinese lenders have also come to the rescue of several cash-strapped borrowers in Latin America hit by the rout in commodity prices, including Argentina, Venezuela, and Ecuador.

“While clearly credit positive for Petrobras, we see a larger significance in this deal as it is another example of China recycling its foreign reserves to shore up its long term supply of raw materials,” Citigroup analysts wrote on Monday.