Verde Adds Petrobras Bonds, Warns Debt Too High
Verde Asset Management, Brazil's largest hedge fund, stepped up purchases of state-controlled oil producer Petróleo Brasileiro SA bonds in October to take advantage of high yields, but warned that the company is not acting with sufficient urgency to cut debt.
In a monthly letter to investors on Monday, money managers led by Luis Stuhlberger said Verde started becoming net-long positioned in bonds of the company known as Petrobras in September as they assessed whether a surge in yields was overdone.
The yield on Petrobras' 6.25 percent bond due in March 2024 ended last month at 9.75 percent, compared with 8.15 percent on Aug. 30. The yield peaked on Sept. 28, reaching almost 13 percent as slumping oil prices, the biggest debt burden among global oil firms and a corruption scandal drove investors to sell the securities.
"In spite of that, the company still continues to spark worries, especially because of the highest leverage of its balance sheet," the letter said, referring to Petrobras. "The solution isn't simple or easy, but we do not see there is the necessary urgency to deal with it."
Stuhlberger's view underscores that a recent rally in Petrobras bonds may fail to acknowledge the challenges facing the world's most-indebted oil company. Investors list weakening oil prices, output goal misses, a sharp drop the currency as well as growing concern over the government's ability to provide timely support to the company in the event of stress.
The fund booked a consolidated return of 1.58 percent in October, the third gain in four months, the letter said. On a year-to-date basis, the Verde fund gained 24.27 percent, compared with a 10.76 percent return posted by Brazil's benchmark CDI interbank interest rate.
The decline in Petrobras' borrowing costs that took place during most of October helped improve risk perceptions about Brazil, the letter said, adding that Verde cut equity positions in international and Brazilian markets to take advantage of the strongest month for global equities in three years.
Verde oversees about 30 billion reais ($7.9 billion) in assets.
