Brazilian state-run oil company Petrobras’ debt was downgraded to junk status on Tuesday by Moody’s Investors Service.
The ratings agency wrote that the downgrade reflects “increasing concern about corruption investigations” and also Petrobras’ liquidity and debt burden, which is about US$100 billion.
It is the latest sign of the quick fall from grace of Petrobras, which not long ago was seen as an industry darling prepared to lead development of Brazil’s recent finds of massive offshore oil basins that could hold upward of 100 billion barrels.
However, since last year, the company has been engulfed in an ever-sprawling corruption scandal — a kickback scheme that prosecutors say is the largest ever uncovered in Brazil.
Prosecutors allege that Brazil’s biggest construction and oil firms paid big bribes to former Petrobras officials and politicians in return for inflated contracts.
“The company has repeatedly fallen short of certain financial and production targets and Moody’s no longer expects significant improvement in leverage over the medium term,” the report read.
Moody’s added that Petrobras is on watch for further downgrade, in large part because the company has continued to delay the release of audited third-quarter financial statements, which are meant to include writedowns on how much the company lost to kickbacks.
Further delay in releasing the audited financial statements “carries the risk that creditors could take actions that lead to a declaration of technical default.”
It is a huge blow for Brazil’s biggest company and the entire Brazilian oil industry — which employs 400,000 and depends overwhelmingly on Petrobras and its investments in local development.
It is also more bad news for Brazil as a whole.
“The risk now grows for the Brazilian government,” economic commentator Miriam Leitao wrote on the Web site of the O Globo newspaper, adding that Brazil’s sovereign debt is clinging to the lowest investment-grade rating.
“As Petrobras is the biggest Brazilian company, the risks for Brazil and the firm are tied together. For that reason fears are rising that Brazil will also be downgraded,” she wrote.
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