Fitch: Petrobras' Cash Flow to Remain Under Pressure

CHICAGO--(BUSINESS WIRE)-- Petroleo Brasileiro S.A.'s (Petrobras) cash flow generation is expected to remain under pressure from the Brazilian Real depreciation and the fall in oil prices despite today's price increase announcement. The price increase is marginally positive as it demonstrates Petrobras' ability to adjust prices upwards even during periods of economic downturn in the country and declining oil prices globally.

Although the 6% and 4% price increases announced today for local diesel and gasoline sales, respectively, will modestly bolster the company's cash flow generation in Real terms, it is not considered enough to offset the Brazilian Real depreciation seen since the last price adjustment in November of 2014. Fitch believes Petrobras' EBITDA could fall from an annualized rate of approximately USD27.9 billion for the first half of 2015 (1H15) to an annualized rate of USD23.5 billion for 2H15 at the current exchange rate of BRL4.0 per dollar and following the price increases.

Petrobras' ratings of 'BBB-'/'AAA (bra)' with a Negative Outlook continue to reflect its close linkage with the sovereign rating of Brazil due to the government's control of the company and its strategic importance to Brazil as its near-monopoly supplier of liquid fuels. Absent implicit and explicit government support, Petrobras' credit metrics are not consistent with other large, integrated private sector oil and gas companies that are rated investment grade. The company reported total financial debt of approximately USD134 billion. Fitch expects Petrobras' leverage to remain above 5x should the current exchange rate prevail throughout 2H15 and 2016.

The credit linkage of Petrobras to the sovereign is evidenced by the lending commitments offered by Banco do Brasil and Caixa Economica Federal during 1H15 in order to bolster Petrobras' liquidity, as well as by today's decision to increase domestic fuel prices, which remain above international levels. By law, the federal government must hold at least a majority of Petrobras' voting stock. The government currently owns 60.5% of Petrobras' voting rights, directly and indirectly and has an overall economic stake in the company of 46%. Petrobras' cash position is strong and sufficient to meet its short-term funding needs.

Additional information is available on www.fitchratings.com

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150930006440/en/

Fitch Ratings
Lucas Aristizabal, +1-312-368-3260
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Mauro Storino, +55-11-4504-2625
Senior Director
or
Media Relations
Alyssa Castelli, +1-212-908-0540
[email protected]

Source: Fitch Ratings

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