Brazil's Petrobras Unveils Details Of Debentures Issue

SÃO PAULO—Brazilian state-run oil company Petroleo Brasileiro SA, or Petrobras, unveiled details of its debentures issue on the local debt market, which could totaled up to 4.05 billion reais ($1.28 billion).

The company will issue the debentures in five series, with different maturity dates of five-, seven- and 10 years. The company will sell a total of 3 billion reais in debentures and it can increase the offer by 1.05 billion reais to accommodate potential strong demand from investors.

The company said that the debentures of the first and second series will pay an annual yield of up to 2.15 percentage points over the interbank rate, called DI, which is 11.4% a year.

The debentures of the others three series will pay a yield based on the variation of the official inflation index, the so-called IPCA.

Petrobras said that the exact yield and the amount to be raised from each series will be determined after the book-building process. The company didn't provide an exact timetable for this process.

Petrobras has tapped U.S. and European debt markets for tens of billions of dollars in financing in recent years, paying yield-starved investors there interest rates that often fell below 5%. Petrobras' free cash flow remains deeply negative as it continues to invest heavily to develop ultra-deep-water oil reserves off the coast of Brazil.

Earlier this month, the company said interest and amortization on existing debt are expected to cost $21 billion this year, and capital expenditures are forecast at $29 billion. The company's operations, on the other hand, are only seen generating $25 billion in cash during 2015.

But with the biggest debt load of any major oil company, investors' willingness to lend more money to Petrobras at affordable interest rates remains to be seen. A corruption investigation by federal prosecutors alleging a massive bribery and kickback scheme around the company further damaged its credibility.

Petrobras wrote off more than $2 billion in 2014 related to the corruption allegations. The company considers itself a victim of the ploy and has begun filing a series of lawsuits against contractors that allegedly profited from it.

Write to Rogerio Jelmayer at [e-mail]

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