Brazil to Back New Petrobras Debt

By Will Connors And Luciana Magalhaes 

RIO DE JANEIRO--The Brazilian government will help beleaguered state-run oil firm Petroleo Brasileiro SA raise money by guaranteeing its debt as part of an effort to stave off damage from falling oil prices and a corruption scandal.

Brazil will guarantee debt issuance of an unspecified amount by Petrobras, supported in part by $3.4 billion that Petrobras lent the country's state-run power company, Eletrobras, according to a spokeswoman for the Ministry of Mines and Energy.

The plan could be announced as early as this week, according to the spokeswoman.

A Petrobras representative declined to comment.

Petrobras's access to capital markets is restricted until it reports its audited third-quarter earnings. The company said last month that it has enough cash on hand to cover investments and operations for the next six months. Petrobras is expected to issue unaudited third-quarter results Friday.

Petrobras is in the midst of an ambitious, $221 billion spending plan over the next five years as it develops offshore oil fields and ramps up production. But a widespread corruption scandal involving alleged overpayment for Petrobras contracts could crimp the company's ability to raise money.

Petrobras delayed reporting its third-quarter earnings last month after its auditor, PricewaterhouseCoopers, declined to sign off on the results amid a widespread corruption probe at the company. A PricewaterhouseCoopers spokeswoman declined to comment.

Brazilian prosecutors said during a press conference Thursday that at least 35 people, including two former Petrobras executives and more than a dozen executives from the country's biggest construction firms, participated in an alleged scheme to pay bribes for Petrobras contracts. At least 12 of those construction-industry executives were indicted this week on charges of money laundering, fraud and corruption, according to a person familiar with the investigation.

The U.S. Securities and Exchange Commission and the U.S. Department of Justice are conducting their own investigations of alleged wrongdoing at Petrobras because the company's shares trade in the U.S.

Petrobras executives have said previously that they are cooperating with authorities on the investigation and have set up a compliance division at the company to address the alleged corruption.

Shares in Petrobras were down 3.7%, to $7.46, on the New York Stock Exchange at midday. Shares are down 57% over the last three months.

Write to Will Connors at [e-mail] and Luciana Magalhaes at [e-mail]

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