Petrobras Extends Rally on Capital Injection Plan

Petrobras was leading LatAm credit markets higher on Friday following news that the Brazilian government was considering a plan to inject fresh capital into the beleaguered oil company.

The issuer's 2024s were extending Thursday's late-day rally to trade at 83.50-84.00 on Friday, marking a five-point leap for the week. The company's Century bond was up at 72.75, or 5.5 points higher on the week.

Under the plan, the Brazilian Treasury would transfer hybrid securities to Petrobras (Ba2/BB/BBB-), which would count the securities as equity until it sold new stock, according to Reuters citing a local report.

"This is very clear support from the government for Petrobras," said a trader. "It is very positive for fixed-income investors."

Fitch, the only rating agency to still have Petrobras in investment-grade territory, has said its BBB- rating reflects strong government backing.

Without that support, it has said, Petrobras's credit metrics fail to meet investment-grade standards.

Petrobras needs new capital to help alleviate the burden of US$130bn in debt and to cut total debt to Ebitda which currently stands at over 5x.

The company faces debt amortizations totaling US$18.76bn next year and US$17.77bn in 2017, according to its website. The amortizations spike to US$23.17bn in 2018 and US$28.93bn in 2019.

There has been talk about a possible bond trade secured by oil exports as a way to achieve better ratings and cheaper funding, according to one banker.

"(The question is) do they do an international bond supported by oil or do they use those oil exports to term out bank debt," the banker said. "They have a lot of bank debt maturing."

Elsewhere the sovereign's debt had given back some earlier gains but the 2025s were still trading at 89.80, two points higher on the week.

This comes despite analyst warnings about a particularly tough time ahead for a country struggling to pull itself out of recession.

"The challenges of fiscal consolidation in Brazil are only beginning, and without policy changes, prospects of success are bleak," Barclays (BCS) analyst wrote in a report on Friday.

Even under some of the more optimistic outcomes, the bank predicts the country's debt to GDP rising to 76% in 2018 from 65% last year.

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Arcos Dorados, the largest McDonald's franchiser in South America, held a Swiss roadshow in the week ended November 6 via Credit Suisse. The Argentina-based, NY-listed company is rated Ba3/NR/BB+.

Mexican white-goods manufacturer Controladora Mabe has finished investor meetings through Barclays, Bank of America (BCXQL.PK) Merrill Lynch, Citigroup and JP Morgan. Ratings are BB+/BB+.

Mexican REIT Fibra Uno completed meetings with investors through Bank of America, Credit Suisse, HSBC and Santander.

Brazilian airline Gol (B3/B-/B-) has completed roadshows with Morgan Stanley (MS), Credit Suisse and Citigroup.

Reporting By Paul Kilby