Energy Petroleo Brasileiro SA Petrobras (ADR) (PBR): Rewarded with a Rating Upgrade by Moody's

Petroleo Brasileiro SA Petrobras (ADR) (PBR): Rewarded with a Rating Upgrade by Moody's

Published By Blake Audett at October 24, 2016 08:34 am

Having come out of the corruption scandal massacre, Brazilian oil giant Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) received an upgraded rating by sell-side firm Moody’s. This is the first time in five years that the company has been rewarded with a rating upgrade.

The latest rating comes as the oil producer has increased its efforts to make reductions in its asset profile as part of its cost controlling initiatives. Since last year, it disposed of assets worth $10 billion in Argentina, Chile, and Brazil. Besides, implementation of the new fuel price policy has also added to the company’s balance sheet bolstering efforts.

Being alleged over manipulatively inflating engineering contract prices, top executives of the company along with national politicians have long been facing a tumultuous phase. This combined with the depleting oil prices crashing to their record lows of $27 per barrel at the beginning of this year, financial profile of Petrobras has been heavily dented. However, with the aftermath of the corruption scandal having soothed down, the company has immensely reduced its liquidity risk along with improving its operational performance. As a result, Moody’s Investors Service had its rating raised one level to B2. The outlook on the rating, which is five levels below investment grade, is stable.

Nymia Almeida, the analyst at the sell-side firm in an interview, stated: "The debt refinancing and significant asset sales were better than we expected. Positive news started in April, when the company announced asset sales, and continued in May and June, with debt issuance".

Emphasizing on the lowered risk profile, Petrobras’ autonomy in setting the fuel prices along with its management’s strict adherence to conservative financial policies have largely reduced the risk for its creditors, the research firm opines. Other factors that contributed to the upgrade include debt refinancing and the positive investor sentiment toward the Brazilian energy market.

Analyzing the current situation, Stock News Today believes that although the energy company has received a rating upgrade, it still has a long way to go to achieve operational excellence. The company yet has to overcome the significant financial and operational challenges standing in its way. It has taken the first steps towards deleveraging by considering that the oil prices still continue to extend their declines, we hold that it is not going to be an easy battle for Petrobras to win.