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Moody's Investors Service Inc.

Petrobras Ratings Downgraded Amidst Corruption Scandal

Strategic Insights

— 2 min read

As a result of a vast corruption scandal, Moody's Investors Service has downgraded all ratings for Brazilian oil giant Petrobras, citing concerns over investigations and liquidity pressures that might result from delays in delivering audited financial statements. The credit ratings agency cut Petrobras's senior unsecured debt from Baa2 to Baa3, the lowest investment grade rating on its scale. This move has led to a significant slump in the company's assets, with a 6 percent drop on the SEu Paulo-based Bovespa stock exchange.

Key Takeaways:

  • Moody's downgraded Petrobras's senior unsecured debt from Baa2 to Baa3, citing concerns over corruption investigations and liquidity pressures.
  • The rating action reflects the deepening scope of the investigation of improper payments, which Moody's believes heightens uncertainty about the timely delivery of audited financial statements.
  • Petrobras's ratings remain on review for further downgrade, which could see the state-controlled company enter speculative or "junk" territory.
  • The company's assets slumped 6 percent on the Bovespa stock exchange after the news, and failed to regain lost ground by 1 p.m. in SEu Paulo.
  • The Bovespa operated down 1.4 percent at the same time.
  • Investors were promised in December that the report would include writedowns for assets lost in the corruption scheme, but the company released a delayed and unaudited financial report for the third quarter of 2014.
  • The report showed earnings had fallen 38 percent on the previous quarter, or 9 percent year-on-year.
  • Petrobras Chief Executive Maria das Gracas Foster warned that the final total lost to improper payments, made between 2004 and 2012, could be more than previously expected.
  • The company has "failed to provide any clarity about the magnitude of these adjustments," despite announcing that it would cut back on investments to a "bare minimum necessary" and decelerate new projects.

Statistics:

  • $783 million (2.1 billion reais) has been directly diverted from Petrobras, according to prosecutors.
  • Operation Lava Jato (Car Wash) is currently investigating 150 people and over 200 companies.
  • Three former Petrobras directors and 40 others from some of Brazil's biggest companies have been arrested under the operation.
  • Petrobras's asset value decreased 6.51 percent by 1:00 p.m. in SEu Paulo.

Sources:

  • Ben Tavener, "Credit ratings agency downgrades all ratings for Brazilian oil giant, currently embroiled in a huge corruption scandal," SAO PAULO.
  • Moody's Investors Service, "Rating Action: Petroleo Brasileiro SA (Petrobras)", Thursday, [no date provided].
  • SyndiGate Media Inc. (Syndigate.info), "Petrobras Corruption Scandal: Company's Assets Slump Amidst Moody's Downgrade", [no date provided].

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