Petrobras may end up swapping as much as $22 billion in debt for even bigger problems. The floundering Brazilian oil giant could get relief from state banks that are considering exchanging their loans to the company for shares of stock, according to Reuters. Handing more ownership to an erratic government, however, is a troubling prospect.
No deal has been announced. But the swap with state development bank BNDES and government-backed Banco do Brasil and Caixa Economica Federal would offer breathing room to the embattled oil group, which is teetering under some $130 billion of total debt.
That huge financial burden - together with low oil prices, fallout from a multibillion-dollar corruption scandal and broader economic turmoil in Brazil - has wiped away nearly three-quarters of the value of Petrobras common shares since late 2014. The company's current market capitalisation of about $18 billion may in part reflect investor hopes for a bailout. Analysts at BTG Pactual who examined the concept of a debt-for-equity swap earlier this week, however, reckon that with oil prices stuck around $35 a barrel, Petrobras stock is essentially worthless.
Bondholders might generally welcome a plan for freeing more resources to honor outstanding loans. Shareholders, on the other hand, would face significant dilution of their holdings. But even that might be preferable to owning an undiluted stake in a zombie corporation. A debt swap could nonetheless create bigger risks down the road. Brasilia and various state banks and pension funds already control over 60 per cent of Petrobras voting rights after a massive 2010 financing that followed the company's 1997 partial privatisation.
Investors pushed the value of Petrobras common stock up nearly eight per cent on Wednesday, indicating they're perhaps worried more about Petrobras' immediate financial squeeze than its long-term governance. Handing another slug of shares to state-backed lenders, however, could in essence amount to renationalisation. And, the heavy hand of government is what got Petrobras in so much trouble in the first place.
