Brazilian oil giant Petrobras has tapped China Development Bank for another US$5 billion loan, easing its liquidity pressures as the company ends a year when it has struggled with low oil prices, domestic political turmoil, and its own internal corruption scandal.
Petrobras said that it received US$5 billion from China Development Bank after a facility agreement was executed on December 15. The ten-year financing is the result of a term sheet signed back in February 2016.
Also on December 15, Petrobras signed commercial agreements with three Chinese companies: China National United Oil Corp, China Zhenhua Oil Co., and Chemchina Petrochemical Co. Each agreement establishes a preferred supply of 100,000 barrels of oil a day, under market conditions, for a ten-year period.
The company said that it will not need new net borrowing for 2017 and 2018, in line with the management plan assumptions. However, there is existing maturing debt which needs to be renewed. Petrobras will continue to evaluate new funding opportunities in accordance with its liability management strategy, which focuses on improving the amortization profile and reducing debt cost.
In its strategic plan and 2017 to 2021 business and management plan, Petrobras highlighted the steps it is taking to strengthen its balance sheet, via asset sales, lower capex and opex, and capital and financial discipline. It noted that it had high levels of debt, with concentrated maturities, and increasing costs associated with debt renewals.
After being downgraded from investment grade to high yield by Moody's and S&P over the course of 2015, its cost of new borrowing has risen sharply, from an average of 4.9% in 2015, to 8.5% in 2016.
The company envisages more divestments and partnerships for risk sharing, which will present opportunities for foreign companies, including those from China. In late December Petrobras closed a deal involving the sale of $2.2 billion worth of assets to Total of France. It is looking at new partnerships which are seen as essential to enable the planned capex.
A co-operation agreement was signed between Petrobras and CDB in 2015, when Prime Minister Li Keqiang visited Brazil. This resulted in $5 billion worth of funding being extended in 2015. Then in February 2016 Petrobras signed a term sheet for $10 billion worth of financing from CDB. The term sheet included the implementation of a trade agreement to supply oil to Chinese companies, in a similar fashion to other agreements in place since 2009.
In May 2016 Petrobras signed a credit facility with China Exim Bank regarding equipment and goods contracted with Chinese companies.
