Petrobras raises $2.5 bn in 100-year debt

02 Jun 2015


Brazilian state-run oil company Petrobras said on Monday it has sold $2.5 billion worth 100-year bonds amidst market fears whether oil will be used as fuel hundred years hence, and if at all Petrobras would still be producing oil in 2115?.

Deutsche Bank AG and JPMorgan Chase & Co are managing the sale of the securities made available through an offering on the New York Stock Exchange.

Petrobras said it opted for the 100-year bond after its cost of borrowing surged in the wake of a giant corruption scandal and concern about its soaring debt, one of the world's largest.

Petrobras, formally known as Petroleo Brasileiro SA, sold the 6.85 per cent bonds due in June 2115 at 81.07 per cent of face value to yield 8.45 per cent.

The discount helped Petrobras raise about $2.03 billion in the sale.

Petrobras had, in May 2013, sold $1.8 billion of 5.625 per cent 30-year bonds at a coupon rate of 7.3 per cent while its dollar borrowing of similar amounts cost the company less than 4 per cent as recently as 2012.

The sale, however, shows that investors are still willing to lend money to the company after a price-fixing, bribery and political kick-back scandal led to about $17 billion in write-downs.

Petrobras has turned increasingly to Chinese banks for financing and signed $7 billion-worth in loans during the visit to Brasilia by Chinese Premier Li Keqiang last month.

Earlier on Monday, the company said it finalised a 5-year export financing loan of 3 billion reais ($945.3 million) for its unit Petrobras Distribuidora SA from Brazil's second largest private sector bank Banco Bradesco SA.

Petrobras is currently the world's third most-indebted non-financial company.

Amidst charges of corruption and questionable accounting practices, a Petrobras default was looming and it was threatening to become a systemic risk to Brazil itself, which could potentially send the currency tumbling in value.

Petrobras in its initial filing, noted an important risk factor – that the payments might not be made in US dollars. ''The government may institute a restrictive exchange control policy in the future. Any restrictive exchange control policy could prevent or restrict our access to US dollars, and consequently our ability to meet our US dollar obligations under the guaranty and could also have a material adverse effect on our business, financial condition and results of operations,'' the prospectus stated.

Another could be fraud itself, as the risk factors observed that if a legal consideration of how these new bond holders cold loose an important lean, ''A finding that Petrobras is subject to US bankruptcy laws and that any of the guaranty executed by it was a fraudulent conveyance could result in the relevant PGF holders losing their legal claim against Petrobras.''

So forget that 100 years from now a new governmental system is likely to be ruling the world and planet earth may have moved away from depleted fossil fuels. 

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