Energy Business

Does the Petrobras 100-Year Bond Offering Have a Government Guarantee?

Petróleo Brasileiro S.A. (NYSE: PBR), or Petrobras in street terms, is far from your typical global oil giant. The company is effectively owned by the state and by employees, is mandated on pricing by the Brazilian government and has shareholders as far down the capital structure line as they can possibly be. Despite all the corruption down in Brazil that Petrobras has spent time in the barrel about, the investing public just loaned Petrobras’ global finance unit some $2.5 billion in a whopping 100-year bond offering.

Not many companies and countries get to issue 100-year bonds. It also was reported this week that demand was strong for the issue as well. What is amazing to 24/7 Wall St. is that, despite the yield, investors seem to be treating these as having implied guarantees or strong support by the Brazilian government (see Fitch and Moody’s notes below) rather than just being guaranteed by Petrobras itself.

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Another boost has come from the firm Tudor Pickering, which has said that Petrobras shares could rise to as high as $15.00 ahead. The report seems overly optimistic and treats Petrobras like it is a real company rather than a public government societal slush fund. Still, some of the view is based on multiyear views out to 2020 rather than the operations today. Tudor Pickering even derived a sum of the parts analysis of $24, noting an expected 15% discount to peers.

These are referred to as notes rather than bonds in the filing, but 100 years is far longer than the 10-year limit to be called a note. In the oil sector, aren’t the green and renewable folks hoping that the oil industry will be out of business in 100 years?

Petrobras’ SEC filing shows that the 100-year bonds were issued by Petrobras Global Finance B.V. (PGF), and they were unconditionally guaranteed by Petróleo Brasileiro. The filing also showed that the $2.5 billion in global notes also came with a 6.85% coupon, but the initial pricing to the public of 81.07% of face value per note actually raised $2.0267 billion.

Amazingly, this large debt offering required only two book-runners: Deutsche Bank Securities and J.P. Morgan. The filing showed that PGF intends to use the net proceeds from the sale of the notes for general corporate purposes.

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The filing said:

The 6.850% Global Notes due 2115 are general, unsecured, unsubordinated obligations of Petrobras Global Finance B.V., a wholly-owned subsidiary of Petróleo Brasileiro S.A. The Notes will be unconditionally and irrevocably guaranteed by Petrobras. The Notes will mature on June 5, 2115 and will bear interest at the rate of 6.850% per annum. Interest on the Notes is payable on June 5 and December 5 of each year, commencing on December 5, 2015.

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