Brazil’s state-run oil company Petrobras’ debt was downgraded to junk status by Moody’s Investors Service.
The ratings agency wrote that the downgrade reflects “increasing concern about corruption investigations” and also Petrobras’ liquidity and debt burden, which is about $100 billion.
It’s the latest sign of the quick fall from grace of Petrobras, which not long ago was seen as an industry darling prepared to lead development of Brazil’s recent finds of massive offshore oil basins that could hold upward of 100 billion barrels and propel the country to developed-world status.
But since last year, the company has been engulfed in an ever-sprawling corruption scandal — a kickback scheme that prosecutors say is the largest ever uncovered in Brazil.
Prosecutors allege that the nation’s biggest construction and oil firms paid big bribes to former Petrobras officials and politicians in return for inflated contracts. Money is also alleged to have been funneled back to the campaign coffers of the ruling Workers’ Party and its allies.
“The company has repeatedly fallen short of certain financial and production targets and Moody’s no longer expects significant improvement in leverage over the medium term,” the report read.
Moody’s added that Petrobras is on watch for further downgrade, in large part because the company has continued to delay the release of audited third-quarter financial statements, which are meant to include write downs on how much the company lost to the kickback scheme.
Further delay in releasing the audited financial statements “carries the risk that creditors could take actions that lead to a declaration of technical default.”
It’s a huge blow for Brazil’s biggest company — and for the entire Brazilian oil industry which employs 400,000 and depends overwhelmingly on Petrobras and its big investments in local development.
It’s also more bad news for Brazil as a whole.
“The risk now grows for the Brazilian government,” wrote Miriam Leitao, one of Brazil’s best-known economic commentators, on the website of the O Globo newspaper, noting that the nation’s sovereign debt is clinging to the lowest investment-grade rating.
“As Petrobras is the biggest Brazilian company, the risks for Brazil and the firm are tied together. For that reason fears are rising that Brazil will also be downgraded,” she wrote.
Prosecutors are expected this week to significantly hike the corruption investigation into the graft scandal at Petrobras, with the attorney general expected to formally ask the Supreme Court to allow a full investigation into the alleged participation of dozens of top politicians and ministers of President Dilma Rousseff’s Cabinet.