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Moody's Investors Service Inc.

Petrobras Downgrade Sparks Concerns Over Corruption Scandal and Brazil's Economic Stability

Strategic Insights

— 1 min read

Brazilian President Dilma Rousseff has dismissed the downgrade of state-controlled oil giant Petrobras' debt to junk-bond territory by Moody's Investors Service, attributing it to a lack of knowledge about the company's situation. Rousseff remains confident that Petrobras, which accounts for 12% of Brazil's GDP, will recover from the ongoing corruption scandal without major consequences. The downgrade, which saw Petrobras' credit rating lowered to Ba2, a level below investment grade, has sent shockwaves through the market, with shares plummeting by over 6% on the Sao Paulo Stock Exchange. Moody's cited increasing concerns over corruption investigations and liquidity pressures as the reason for the downgrade, warning that Petrobras faces a significant challenge in reducing its high debt burden over the next several years.

Key Takeaways:

  • Petrobras' credit rating was downgraded by Moody's Investors Service to Ba2, two levels below investment grade, due to concerns over corruption investigations and liquidity pressures.
  • The downgrade sent Petrobras' shares plummeting by over 6% on the Sao Paulo Stock Exchange.
  • Brazilian President Dilma Rousseff dismissed the downgrade, attributing it to a lack of knowledge about the company's situation and expressing confidence in Petrobras' ability to recover from the corruption scandal.
  • Moody's expects Petrobras to face significant challenges in reducing its high debt burden over the next several years.
  • Petrobras is under investigation following disclosure of widespread corruption said to have cost the company billions of dollars since the mid-1990s.
  • Formal charges have been brought against erstwhile Petrobras directors and former top executives of seven construction companies in connection with the scandal.
  • The scandal has led to the resignation of top company executives, including Maria das Gracas Silva Foster, who was replaced as Petrobras' CEO by Aldemir Bendine, former CEO of state-run bank Banco do Brasil.

Statistics:

  • 12%: Petrobras accounts for this percentage of Brazil's GDP.
  • 6%: Petrobras' shares plummeted by this amount on the Sao Paulo Stock Exchange.
  • Ba2: Moody's downgraded Petrobras' credit rating to this level, two notches below investment grade.
  • $Billions: Widespread corruption is said to have cost Petrobras this amount since the mid-1990s.
  • 1990s: The corruption scandal is said to have begun in this decade.

Sources:

  • EFE via COMTEX
  • "Brazil's Petrobras Downgrade Sparks Concerns Over Corruption Scandal and Economic Stability," February 25, 2015.

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