Petroleo Brasileiro SA secured a $10 billion loan from the China Development Bank as the beleaguered state-owned oil producer endures the worst crude market in a generation and faces more than double that amount in maturities over the next two years.
The lifeline is part of a deal to supply crude to the Asian country, Rio de Janeiro-based Petrobras said in a filing on Friday. The amount of crude that will be supplied wasn’t disclosed.
China has invested in oil-rich nations to ensure supplies to the world’s biggest crude market after the U.S. Similar deals have helped Venezuela fund its ballooning debt. Petrobras has been mired in Brazil’s worst-ever corruption scandal just as the Latin American nation goes through a recession, reducing domestic demand, and oil prices are 70 percent lower than in mid-2014.
“This is a relief for Petrobras,” said Edmar Almeida, a professor at the Federal University of Rio de Janeiro who studies the oil industry. “This kind of oil-for-money contract has a cheaper financial cost for Petrobras than accessing the international bond market, especially after the company was downgraded to junk.”
The loan stems from accords signed between Brazil and China last year, Petrobras said in the statement.
This is the latest major deal between Petrobras and China in seven years. In 2009, a $10 billion arrangement with China included a commitment to export as many as 150,000 barrels a day of oil in the first year and 200,000 barrels a day over the subsequent nine years. In May, Petrobras announced a $10 billion agreement with three Chinese banks that included $5 billion in loans from CDB.
Petrobras Chief Financial Officer Ivan Monteiro said in November the oil industry’s most indebted major producer was studying ways to borrow against future crude exports as part of an effort to cut its dependence on international capital markets.
The executive said the company didn’t want to sanction the high yields offered by the market since it was downgraded to junk by credit agencies.