Petroleo Brasileiro SA, Brazil’s state-run oil company, said it will unveil its much-delayed third quarter financial information in January, amid bondholders pursuing their efforts to declare the company in default as early as this week. A group of investors led by New York-based Aurelius Capital refused to accept a debt restructuring with Argentina, taking the country to court.
Alleged corruption at Petrobras
According to a probe into corruption at the state-owned oil company dubbed Operation Car Wash, the non-political prosecutors maintain that the oil company had roughly $1.7 billion stolen from them as a group of construction firms colluded to drive up the price of contracts that were meant to be competitive. The group of companies is also accused of bribing execs at Petrobras from 2004 and 2012.
In its Dec. 29 letter, Aurelius Capital, a “distressed debt” fund, asked investors to put Petrobras into default as “a precautionary step.” If the bondholders pursue their efforts to force the oil company to speed up its assessment of losses in the giant corruption scandal, Petrobras could be declared in technical default on some of its foreign debt as early as Tuesday.
Aurelius Capital’s push applies to $54 billion of Petrobras bonds governed by U.S. law in New York State. The terms of the bonds envisage the oil company providing third quarter financial statements within 90 days of the end of a quarter, in this case, by Monday, Dec. 29. In its letter to fellow bondholders, Aurelius said for the default declaration to take effect on any of the more than 20 outstanding U.S. law bonds, investors holding at least 25% of any one series must request the action.
The distressed debt fund said: “If Petrobras releases its third-quarter financial statements by the beginning of March, the default will be cured.” It added: “If Petrobras still has not released its third-quarter financials by early March, the underlying causes of the delay may be considerably worse than is understood today.”
Petrobras’ Q3 results in January
Amid mounting pressure from bondholders to declare the company in default, Petrobras said in a statement late Monday that the release of its unaudited quarterly results will meet obligations to creditors and prevent a forced early payment of certain outstanding debts. Though Petrobras first planned to release the results in early November, it extended the deadline to Jan. 31, as new corruption allegations came to light.
Petrobras was the pride of Brazil in 2007 after it announced the world’s largest offshore oil discoveries in decades. However, thanks to the bribery scandal, today it is in danger of becoming a pariah among investors and a national shame for Brazilians.
Analysts at Morgan Stanley noted last month that Petrobras’ announcement that auditors can’t sign off on the third quarter numbers raises new questions and increases the likelihood of material adjustments to the company’s financial statements. The analysts believe charges of money laundering and organized crime against a former downstream director will likely lead to a material loss recognition on PBR’s P&L that could range from ~R$5B (bull case; 24% of 2014e NI) to ~R$12B (base case; 57% of 2014e NI) to ~R$21B (bear case; 95% of 2014e NI).