Thursday, April 23, 2015

Petrobras Says That $2.5 Billion Of Corruption Losses Are Recoverable

April 23, 2015 12:22 pm

Petrobras says $2.5bn of corruption losses are ‘recoverable’

Brazil's Banco do Brasil Chief Executive Aldemir Bendine speaks during the Reuters Latin American Investment Summit in this Sao Paulo April 1, 2011 file photo. Brazil's Petrobras chose current Banco do Brasil SA Chief Executive Bendine as its new CEO on February 6, 2015, government sources said, as the embattled state-run oil company tries to regroup following the sudden resignation of nearly all of its senior managers amid a corruption scandal. The choice may disappoint investors who had hoped for a more market-friendly name to fill the post. Bendine, who has led the state-run bank since 2009 and maintains close links to the ruling Workers' Party, will replace Maria das Gra�as Foster, according to three government sources who spoke on condition of anonymity. Numerous local media also reported Bendine would be appointed. Foster quit along with five key lieutenants on Wednesday amid a huge and still expanding corruption probe. The scandal has helped send the company's shares tumbling about 60 percent since September and caused a major political crisis for President Dilma Rousseff. REUTERS/Nacho Doce/Files (BRAZIL - Tags: BUSINESS ENERGY)©Reuters
Aldemir Bendin says Petrobras is not going to take the corruption scandal lying down
For a tense period on Wednesday evening, those gathered for the press conference of Brazil’s corruption-plagued Petrobras began to sense a feeling of déjà vu.
The state-controlled oil company had announced it was planning to release at 6pm its long-delayed audited financial results for the second half of last year. But as the minutes ticked past the appointed hour, some journalists began to fear a repeat of January, when the company kept them waiting until 4am before releasing an unaudited version of the same figures.
Then at 7.30pm, Aldemir Bendine, the new chief executive of Petrobras handpicked by President Dilma Rousseff to rescue it from its problems, finally appeared with the board in tow. “Thanks for your patience,” he said.
Since November, when Petrobras revealed its books were suspected to be so tainted by a huge corruption scandal that PwC, its auditor, had refused to sign off on them, Latin America’s largest country has been on tenterhooks wondering what would become of its most important company.
The country’s dominant oil explorer, refiner and importer of fuel is at the centre of a corruption scandal in which former executives allegedly colluded with contractors and politicians to loot billions from the company.
Failure to produce independently audited for figures for the final two quarters of last year by the end of this month would have violated some of the covenants of Petrobras’s large borrowings — it recorded net debt of $106.2bn at December 31. Missing this deadline would have set Petrobras on a path towards a possible technical default and created a systemic risk for Brazil’s national accounts.
That threat was at least averted on Wednesday when Mr Bendine unveiled financial results that he said had been audited without qualification by PwC.
“The likely avoidance of debt acceleration at Petrobras would remove any near-term need of extraordinary support for the company, an event that would have increased the government’s financial challenges,” analysts at Moody’s, the rating agency, said.
But any euphoria about the aversion of bankruptcy was swiftly replaced in Brazil by appalled wonder at the scale of Petrobras’s losses. The company recorded a total one-off hit of R$50.8bn ($16.8bn) — of which R$6.2bn directly related to continuing corruption investigations into the company and R$44.6bn of impairment charges connected to delays at its refinery projects and falls in the global oil price.
These charges drove the company to a net loss of R$21.6bn for last year compared with a profit of R$23.6bn in 2013. Once trusted by retail investors for its regular dividends, this year there would be no payout to preserve cash.
Petrobras earnings
“Petrobras billions in the red is the biggest admission ever of corruption and bad management for a Brazilian company. [This is] a historic date,” said José Roberto de Toledo, a columnist for newspaper O Estado de S. Paulo, on Twitter.
Mr Bendine said the financial results represented a conservative estimate of the company’s losses. The corruption figure could grow, however, if the investigations reveal further schemes.
“If some credible revelation comes up that significantly alters [this value] of course we will have to review it,” he added.
Mr Bendine seemed to backtrack on government promises that Petrobras would not sell off part of its crown jewel — the so-called pre-salt oilfields in the deep waters of the South Atlantic that the company discovered to much fanfare in 2007.


Brazilian President Dilma Rousseff attends a ceremony to announce a package of anti-corruption bills, at the presidential palace in Brasilia, on March 18, 2015. Rousseff announced the package, which includes bills to criminalize under-the-table campaign contributions, seize property from government officials who cannot document its origin and bar anyone without a clean criminal record from serving in public office, as she sought to battle back from a devastating scandal at state oil giant Petrobras that has ensnared her party. Rousseff is reeling from nationwide demonstrations against her that drew hundreds of thousands of Brazilians into the streets Sunday. AFP PHOTO / EVARISTO SA (Photo credit should read EVARISTO SA/AFP/Getty Images)
Brazilian oil company embroiled in corruption allegations braces for multiple law suits
Petrobras has ruled out selling pre-salt assets already in production but is open to taking on partners for those in the exploratory phase, said Mr Bendine.
“There are situations where we could look for a partner to help us in the exploration of [pre-salt] fields that are high-risk,” he added.
But while Petrobras has painted itself as a victim of the corruption scandal, Mr Bendine said the company was not going to take the matter lying down. He classed the R$6.2bn of losses related to the corruption investigation as “recoverable”, adding that he expected Petrobras to begin to receive part of the money back in May.
The company hinted it might sue some of its former contractors for damages. This would help it offset some of the potential losses it is facing from investor lawsuits in the US, where it has a listing.
Lawyers said the matter was a timely warning to companies of the importance of ensuring their legal compliance was in order.
“We are advising Brazilian companies of all sorts on implementing compliance programmes,” said Andrew Haynes, partner and co-head of the Brazilian practice at Norton Rose Fulbright. “They are being scrutinised by investors as never before.”
Other lawyers warned that with Petrobras co-operating fully with authorities, including most probably those in the US, the investigations were likely to extend to its contractors and suppliers round the world.
“This thing is probably going to grow larger very quickly,” said Richard Smith, head of regulatory and governmental investigations with Norton Rose Fulbright in the US.