Advanced Theory & Practice of Bonds

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1-2 December 2021

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Brazilian state-owned oil major Petroleo Brasileiro S.A (Petrobras) has been upgraded to Ba1 from Ba2 by Moody’s given the company’s strong operating and financial performance coupled with solid credit metrics. Its baseline credit rating (BCA), which is the company’s standalone credit rating without government support considerations, was also raised to ba1 from ba2. Petrobras is now rated one notch above the Brazil sovereign (Ba2), justified as per Moody’s by the former’s considerably stronger fundamental credit profile vs. the latter. The rating agency added that there is low likelihood of a default as a consequence of a sovereign default or distress event given Petrobras’ (a) strong financial metrics and capital structure, (b) limited reliance on domestic funding, (c) limited exposure to FX risk, (d) 30% export related sales. Moody’s expects its cash generation over the next two years to be more than enough to cover its mandatory cash obligations, dividends and annual capex of $12bn, based on management guidance. The outlook on Petrobras remains stable. Petrobras is now rated just one notch below investment grade based on Moody’s rating and three notches below based on S&P’s rating of BB-.
Petrobras’ 5.6% 2031s are trading 1.1 points weaker this week to currently trade at 108.25 yielding 4.48%.
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