Brazil’s Petrobras Credit Note Upgraded by Moody’s

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Risk rating agency Moody’s upgraded Petrobras’ credit note from B2 to B1 and shifted the outlook to positive, indicating that the rating may rise again at any time. Despite the upward revision however, the state-owned oil giant is four levels still below investment grade.

“The actions on Petrobras’ ratings, BCA and outlook reflect Moody’s expectation of continued improvement in the company’s liquidity profile and financial metrics over the next twelve months, which reduces Petrobras’ credit risk,” said the press release by the risk agency.

According to Petrobras’ CEO, Pedro Parente, Moody’s decision also indicates that the steps taken by the oil company are in the right direction, although there is still much to be done. “It shows that we are on the right path, but it is also the realization that it is the beginning of a job and that much remains to be done.” Parente said after the announcement.

In February 2015, after the disclosure of corruption schemes by Operation Lava Jato, Petrobras lost its investment grade at Moody’s. In February 2016, the oil company was downgraded to the lowest speculative level. The agency, however, upgraded the state’s rating to B2 for one level in October last year.

“Moody’s recognizes that Petrobras’ management has shown commitment to its financial and operating targets, as shown in recent debt refinancing transactions, disciplined use of cash, increasing crude production and declining costs,” concluded the company.

The release also notes that the positive outlook, reflects Moody’s expectation that, in the next 18 months, ‘if the company’s liquidity and overall credit risk continues to improve, further positive rating actions could occur’.

The agency, however, does say that Petrobras’ liquidity, and operating and financial performance continue to be a concern.

Moody’s note that the oil giant has been able to close agreements with 19 out of the 27 investors in relation to the Lava Jato (Carwash) scandal investigations ‘reducing uncertainty about the amounts of additional settlements and fines’.

The company’s decision this week comes less than a month after it improved the outlook for Brazil’s public debt.

The agency kept Brazil two levels below investment grade, but improved from negative to stable the negative outlook for the country’s note, which means that the rating of the Brazilian public debt is no longer in danger of being downgraded at any time.