The bankruptcy of the oil giant could completely implode the Brazilian economy, but Brazil is not in a position to add billions to the deficit to rescue Petrobras.
Brazilian politics has been shaken by revelations of the scandal at Petrobras, the existence of a network of business and political corruption in the most important company in the country.
The consequences, however, go beyond the political sphere. The serious financial situation of Petrobras and its importance to the economic activity of the country could put a halt to the Brazilian economy and, with it, the government of Dilma Rousseff.
Petrobras faces the most distressing situation of its 62-year history.
The combined pressure of a five-year investment plan worth $221 billion and a gigantic debt of $130 billion threaten to bring down Petrobras despite the oil boom of recent years. The precipitous decline in oil prices and the political scandal have decimated the value of the company down to a third of what it was worth just 12 months ago.
Its market value has fallen by two thirds as the Federal Police uncovered operation “Lava Jato” the large-scale corruption scandal that involves politicians, political parties and businesses in Brazil. The fall of the Brazilian real to its lowest level since 2004 has made it even more difficult to pay the debt held by Petrobras because much of it is in US dollars.
The first problem of the company is its inability to present a credible and audited statement of accounts, because its auditors from PwC have refused to sign the report since June last year.
It is not known how much money has been diverted in recent years to pay commissions and bribes. The former president of Petrobras, Graça Foster once said that losses due to corruption at the oil giant accrued some $31 billion. That number has now been denied by her successor.
The deadline for submitting the accounts ends on the 30th of April and if no audited accounts are ready by that date the result would be a violation of the agreements with creditors, which could lead to a suspension of payments.
That’s when, due to its character as a state enterprise, the Brazilian government assumes the responsibility to provide public assistance and, given the size of the company, a public bailout would make the public deficit skyrocket to levels never seen before. Such deficit would risk the credit rating of the country to be assessed as less than desirable, which would threaten the sustainability of an economy that is already in the red.
The company has apparently begun to take action. It has announced the sale of assets between worth between $13 billion and $15 billion. The sale of these assets will happen in the next 12 months. The company is also preparing a reduction in investment plans worth $16 billion.
“The problems in Petrobras risk becoming systemic,” say market sources. Since last November, no Brazilian company has been able to place debt on the international market.
Goldman Sachs estimates that Brazilian banks have investments in the oil sector of about $40 billion, mostly to Petrobras.
The company accounts for 10% of the country’s investment and the decision to defer payments to suppliers has already caused the bankruptcy of one of its contractors. The oil company and its suppliers account for between 15% and 20% of Brazil’s GDP.
Experts from several investment offices are comparing the potential and until now hypothetical bankruptcy of Petrobras to the disaster that Russia lived in the late 1990s. They warn that it would be the largest industrial bankruptcy in history.
“If Petrobras falls, losses inflicted on large public banks would cause such financial turmoil that the government would have to come to the rescue of the financial system.” But that rescue would have a hefty price for Brazilians as the losses in a hypothetical bailout would amount to no less than $70 billion.
The only possible alternatives to avoid a substantial increase in the deficit would be to sell Petrobras to its creditors for pennies on the dollar or to hand it over to foreign investors who can pay its mounting debt. In all three cases, the losers would be the Brazilian people.
As únicas alternativas possíveis para evitar um aumento substancial do déficit seria vender a Petrobrás a seus credores por tostões ou entregá-la a investidores estrangeiros que podem pagar sua dívida. Em todos os três casos, os perdedores serão os brasileiros.