Petrobras shares rise as company prepares to end results delay

Investor optimism is rising that Brazil's embattled state-owned oil company Petrobras will emerge from a crippling corruption scandal without defaulting on its $137bn in debt.

Shares of the state-owned oil company company have surged more than 60 per cent from their lows this year after Petrobras said it expected to release this Wednesday long-delayed 2014 financial results - a move seen as essential to avoid a technical default.

"If Petrobras releases its results, signed off by [independent auditor] PwC, without any doubt that will reduce some of the concern about the company and Brazil," said Andre Guilherme Pereira Perfeito, chief economist at broker Gradual Investimentos in Sao Paulo.

Petrobras said in November that its auditor, PwC, had refused to sign off on its 2014 financial results as due to the corruption scandal, raising the risk that it could trigger a technical default under some of its bond covenants.

The announcement sparked a crisis at Petrobras and in Brazil's oil and gas sector with the company unable to access the credit markets to finance its investment programme, considered the largest corporate capital expenditure plan in the world.

Petrobras was also the biggest emerging market issuer of overseas bonds over the past four years, according to Bloomberg data.

But the company, which has a final deadline of the end of May to release the results, said last week it would produce its financial statements by this Wednesday, sending its share price to R$13.01 by the close of trade on Friday, up nearly 62 per cent from its lows in January.

Analysts say the government, which is Petrobras' controlling shareholder, has flirted with disaster with its slow resolution of the issue of the release of the results.

If Petrobras defaulted, it could trigger an energy crisis in Brazil, as the company imports most of the nation's oil and is its sole refiner.

Under the scandal, federal police have accused former Petrobras executives and politicians as senior as Joao Vaccari Neto, treasurer of President Dilma Rousseff's ruling Workers' Party, the PT, of collaborating with contractors to cream billions from the company in kickbacks.

Mr Vaccari, who was arrested last week by police as he was about to go for his morning run, has denied any wrongdoing while Ms Rousseff is not accused of involvement.

Analysts said that if Petrobras fulfils its promise and releases the results, it will remove the most immediate risk hanging over the company.

Concern will then shift the focus to its operational challenges, which include trying to increase oil output fast enough to enable it to reduce its debt load.

"There are other implications from the scandal," said Lucas Aristizabal of Fitch Ratings. "Perhaps most significant is what it means for production."

The scandal has devastated Petrobras' supply chain, with many of its key construction contractors and some equipment suppliers blacklisted from doing business with the company or facing debt problems.

Brazil's Schahin industrial group became the latest Petrobras contractor to file for bankruptcy protection on Friday, citing "the closure of national and international" credit markets for its inability to refinance its debt.

Mr Aristizabal said if Petrobras publishes the 2014 audited financial statements as expected, Fitch might remove its "rating watch negative" warning that related specifically to the uncertainty over the release of results and switch to a longer term "negative rating outlook".

This would reflect the concerns the company might miss its forecasts to produce 3.5m barrels of oil or equivalent a day by 2018.

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