Brazilian state-run energy giant Petroleo Brasileiro S.A. (PBR), or Petrobras S.A., which recently raised R$120.4 billion ($70 billion) in the biggest global share sale in history, may need to issue an additional $60 billion in bonds over the next few years to fund its massive investment program.
Last month’s stock offering not only added about $25 billion in cash to Petrobras’ coffers but also allowed the company to reduce its net debt-to-equity ratio substantially (16% after the offer, down from 34% at the end of the second quarter). However, the state-run oil producer is still in need of financial resources to pay for its $224 billion investment plan.
As a result, Petrobras is now looking to tap debt markets in 2011 to meet its expanded capital expenditure needs. Analysts believe that a $15 billion dollar debt issuance per year between 2011 and 2014 will allow Latin America’s largest company by market value to fund the investment program and at the same time stay within its forecasted range for leverage of 25 – 35%.
The Rio de Janeiro-based integrated major plans to use the multi-billion dollar capital infusion to help finance its ambitious 2010-2014 strategic plan, with projected investments of $224 billion during the five-year period. Petrobras will require huge capital expenditures to develop the deep pre-salt layers as part of the company’s strategic initiative to ramp up production from the current 2.5 million barrels of oil equivalent per day (MMBOE/d) to 3.9 MMBOE/d in 2014 and 5.4 MMBOE/d in 2020.
Petrobras ADRs currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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