This is a syndicated repost published with the permission of oftwominds-Charles Hugh Smith. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.
State-owned oil companies that don’t slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction.
The firm has become one of the largest corporate borrowers in the world as it seeks to fund an investment program worth some $221 billion over the next five years, much of which is to develop huge oil fields that lie deep below Atlantic waters off the country’s southeast coastline.
Those efforts have turned Petrobras into the region’s most indebted company, with net debt of 268 billion Brazilian reais ($115 billion) at the end of 2013. That figure was 36% higher than at the end of 2012, in large part from depreciation of the Brazilian real against the dollar during 2013.
Moody’s Investors Service has placed Petrobras S.A.’s global foreign currency and local currency debt ratings on review for a possible downgrade. This would be the second time Petrobras’ debt ratings was downgraded by Moody’s after in October the oil giant’s debt ratings was downgraded from Baa1 to Baa2 stating that the company’s outlook remained negative.
In March, before the corruption scandal broke, another risk ratings company, Standard & Poor’s cut Brazil’s debt rating to its lowest investment grade ‘due to the erosion of the country’s public accounts and slow economic growth.’
According to S&P the state-controlled oil company’s smaller projected liquidity and lower cash flow generation led to the downgrade.
Companies that are being operated as going concerns are responding quickly and decisively to the meteor-strike of collapsing prices. State-owned oil companies that don’t slash expenses to align with revenues and boost critical investment in the infrastructure needed to maintain production will suffer financial extinction.
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