Petroleo Brasileiro SA Petrobras Considered As Biggest Problem Of Brazil

After being involved in one of the biggest corruption scandal, Petroleo Brasileiro Petrobras can be Brazil's biggest problem in a long time.

A few months ago, news tipped that Petroleo Brasileiro SA Petrobras is involved in what is said to be the biggest corruption scandal in Brazil’s history. The oil and gas firm was in a multibillion-dollar money laundering case among other companies and banks. Due to this, the debt burden has continued to hurt Brazil’s economy.

The Brazilian regulators, after strict scrutiny, came to a conclusion that Petrobras will be facing consequences of its actions. The corruption scandal was not a recent one but it was carried forward from older times.

Sources now suggest that the bailout of Petrobras could easily cost the government around $20 billion but there are conditions applied to these as well. The bailout will cost $20 billion only and only if the crude oil prices decline to $20 per barrel in the region. It is believed that this amount is sufficient to further improve the capital structure and the liquidity position of the oil and gas company; which is also federally operated. Bloomberg reported this news after citing the research published by Citigroup.

The Brazilian economy and the oil and gas industry was immensely declining. Hence, all economic factors along with the multibillion-dollar corruption scandal had an adverse effect on the firm’s balance sheet. According to sources, the company has liabilities valued at more than $130 billion for the three months ended September 30, 2015.

Furthermore, the debt to earnings ratio has also jumped 6.5 times during this time. Citigroup reported that Petrobras has reached an unsustainable level and it would take quite a while to recover its business.

Apart from this, the company’s total debt to equity ratio also increased when compared to last year. Citigroup mentioned that it was 115% in 2014, which increased to 174% by the end of September 2015. This made Petrobras the most indebted oil and gas corporation in the whole industry.

The Standard and Poor’s (S&P) ratings also downgraded the organization’s stock and credit rating to Junk last year. Analysts believe that it is now impossible to revive its business amidst all the corruption cases and the dying economy of the region.

Lower crude oil prices affected Petrobras most. If the price of crude oil further goes down, then the financial condition of the business would become worse. The company already opted for several cost cutting strategies and closed down its few operations and production.

Petrobras also announced that it will be reducing its production target of 2016 along with the investment plans of 2015-2019. Previously, it had plans to invest $130.3 billion in projection but it will decrease the investment to 24% and will invest $98.4 billion only.