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MarketScreener Homepage  >  Equities  >  Bolsa de Valores de Sao Paulo  >  Petróleo Brasileiro S.A. - Petrobras    PETR4   BRPETRACNPR6

PETRÓLEO BRASILEIRO S.A. - PETROBRAS

(PETR4)
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Credit Markets: Brazil's Corporate Bonds Draw In Foreign Investors -- WSJ

08/18/2020 | 02:48am EST

By Paulo Trevisani and Jeffrey T. Lewis

Foreign investors are flocking to the relatively high yields offered by big Brazilian corporations that are issuing debt to shore up their balance sheets in the midst of the coronavirus pandemic.

The Brazilian Financial and Capital Markets Association said local corporations had seven dollar-denominated bond issues in July, totaling $3.7 billion, an increase of 48% from a year earlier. That compares with just two issues in June and none in April or May when the pandemic stalled business around the world.

Despite that lull, Brazilian corporations have raised $18.5 billion from foreign bond investors this year through July, up 27% from the same period last year. In local currency, the increase was 56%.

State-controlled oil giant Petróleo Brasileiro SA, or Petrobras, iron-mining behemoth Vale SA and petrochemical giant Braskem SA are among those that issued bonds in June and July. The companies say investors like their debt because it pays better than developed-world rivals without too much added risk.

"The world is living with interest rates that are too low," said Andrea Marques de Almeida, chief financial officer of Petrobras. "The opportunity to buy [high-yield] fixed income from a company with solid fundamentals" attracts them, she said.

In June, Petrobras sold two series of bonds totaling $3.25 billion, some maturing in 2031 with a 5.6% coupon, while bonds maturing in 2050 pay 6.75% a year.

One fund manager said a Brazilian company's debt can pay as much as 2 percentage points over an equally risky U.S. or European counterpart.

"Brazilian corporates are underpriced," said Tim Jagger, head of emerging-markets debt at Columbia Threadneedle Investments. "They are trading at excessive premiums relatively to the sovereign [debt] given their history, with a very, very similar likelihood of default."

Central banks around the world have cut their lending rates to mitigate economic damage from Covid-19. Discounting inflation, interest rates are negative in 28 of 40 major economies, including the U.S., Brazil and most European countries, according to São Paulo-based brokerage Infinity Asset.

In this low-return environment, Brazilian corporations stand out because they pay higher yields, since the country's government debt is rated as speculative. But some investors say they sense less risk of default than in other emerging markets. Brazilian leaders have for years tried to deflate ballooning sovereign-debt levels, an effort interrupted by pandemic stimulus spending that investors hope will resume eventually.

While Brazil's government debt was 85.5% of gross domestic product in June, according to central-bank data, the International Monetary Fund says the country's corporate debt is equivalent to 42% of GDP, a level similar to Russia's and India's. It is below China's at 153.6% and the U.S. at 74.5%.

Adding to the appeal, Brazilian corporate-debt issuers come from various sectors, including energy, mining, food supplies, retail and others. That allows investors to diversify without the need to consider different sovereign risks, a rarity among emerging markets, says Atul Bhatia, fixed-income portfolio strategist at RBC Wealth Management.

"When you look for yields, [Brazil] is the country that draws your eyes first," Mr. Bhatia said.

Abdelak Adjriou, a portfolio manager at American Century Investments who manages $2 billion overall, including $5 million in Brazilian corporate debt, says he likes exporters, which tend to profit from local-currency weakness and from the coronavirus recovery in countries such as China. The Brazilian real has lost about a quarter of its value against the dollar this year, making its products more competitive abroad and softening a coronavirus-driven economic recession.

"It's the first time [Brazil] heads into a crisis where rates are low, the currency devalues and there is no threat of inflation," he said.

To be sure, Covid-19 has claimed more than 100,000 lives in the South American country, a death toll second only to the U.S.

The economic impact of the pandemic was among the main reasons rating firms downgraded the debt of companies such as Braskem. A frequent debt issuer, Braskem still managed to borrow from foreigners last month.

Braskem issued $600 million in debt that matures in 2081 and pays 8.5%. Demand for the bond was five times higher than the amount offered, Chief Financial Officer Pedro Freitas said, adding that the company is considering additional debt issuance soon.

"We had just lost investment grade; it was a sensitive moment," Mr. Freitas said. "But we felt that investors are used to Braskem."

Write to Paulo Trevisani at paulo.trevisani@wsj.com and Jeffrey T. Lewis at jeffrey.lewis@wsj.com

 

Stocks mentioned in the article
ChangeLast1st jan.
BRASKEM S.A. -1.47% 24.83 End-of-day quote.5.35%
EURO / BRAZILIAN REAL (EUR/BRL) -0.48% 6.3666 Delayed Quote.0.54%
LONDON BRENT OIL 0.97% 55.28 Delayed Quote.6.15%
PETRÓLEO BRASILEIRO S.A. - PETROBRAS -0.18% 28.07 End-of-day quote.-0.95%
US DOLLAR / BRAZILIAN REAL (USD/BRL) -0.97% 5.2455 Delayed Quote.1.77%
VALE S.A. 0.81% 94.31 End-of-day quote.7.84%
WTI 0.33% 52.469 Delayed Quote.8.19%
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Financials
Sales 2020 279 B 52 958 M 52 958 M
Net income 2020 -50 494 M -9 599 M -9 599 M
Net Debt 2020 353 B 67 168 M 67 168 M
P/E ratio 2020 -5,61x
Yield 2020 1,59%
Capitalization 371 B 70 618 M 70 584 M
EV / Sales 2020 2,60x
EV / Sales 2021 1,98x
Nbr of Employees 57 983
Free-Float 64,3%
Chart PETRÓLEO BRASILEIRO S.A. - PETROBRAS
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Petróleo Brasileiro S.A. - Petrobras Technical Analysis Chart | MarketScreener
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Technical analysis trends PETRÓLEO BRASILEIRO S.A. - PETROBRAS
Short TermMid-TermLong Term
TrendsNeutralBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 11
Average target price 35,20 BRL
Last Close Price 28,07 BRL
Spread / Highest target 63,9%
Spread / Average Target 25,4%
Spread / Lowest Target 1,53%
EPS Revisions
Managers and Directors
NameTitle
Roberto da Cunha Castello Branco President, Chief Executive Officer & Director
Eduardo Bacellar Leal Ferreira Chairman
Andrea Marques De Almeida Chief Financial & Investor Relations Officer
Marcelo da Silva Carreras Head-IT & Telecommunications
Marcia Tosta Head-Cyber & Information Security
Sector and Competitors
1st jan.Capitalization (M$)
PETRÓLEO BRASILEIRO S.A. - PETROBRAS-0.95%70 618
SAUDI ARABIAN OIL COMPANY-0.14%1 862 312
ROYAL DUTCH SHELL PLC13.92%152 560
TOTAL SE4.76%117 404
PETROCHINA COMPANY LIMITED8.33%113 073
GAZPROM7.32%73 022