Brazil’s Petrobras Rating Downgraded to Junk Status

By Lisa Flueckiger, Contributing Reporter

RIO DE JANEIRO, BRAZIL – International rating agency Moody’s has downgraded the rating of Brazil’s oil giant Petrobras to Ba2, two grades below investment grade status, on Tuesday February 24th. This is the second downgrading of the company in less than a month.

Petrobras, currently involved in a large-scale corruption and money laundering scandal, have had plunging shares since November. The reason for the downgrading were therefore the increasing difficulty of the company to publish audited balance sheets, raising money in the capital markets and the impact this will have on the company’s cash flows in the coming weeks.

The downgrade, taking place two weeks after the change in control of the state-led company, will lead to the departure of investors, such as pension and investment funds, which can’t put money in stocks and shared of companies at high risk of default, which Petrobras now is.

Petrobras rating was downgraded by two steps at a time, an uncommon measure for the rating agency and an indicator that the company might drop even further soon. It is also uncommon for a state-led agency to be so far below the state that is controlling the company, as Brazil is still rated three steps ahead of Petrobras with Baa2.

Fellow rating agencies Standard and Poor’s and Fitch still rate Petrobras one step above investment grade, but are expected to follow Moody’s soon.

Between 2005 and 2009 Petrobras was rated as high as A2 by Moody’s, the sixth-highest investment grade. And in 2011, the company was still three levels above the overall grade of Brazil.