CORRECTED-UPDATE 1-Petrobras still faces default risk despite release, fund says
(Corrects Jan. 28 story to say analyst Karina Freitas is concerned about Petrobras debt levels, not that she is concerned the debt levels may break a bond covenant, paragraphs 11-12)
By Jeb Blount
RIO DE JANEIRO Jan 28 (Reuters) - Brazilian state-run oil company Petrobras still runs the risk of being declared in default on billions of dollars of debt even after releasing its delayed third-quarter earnings before a self-imposed deadline, a New York-based hedge fund said on Wednesday.
The results, which failed to include an expected charge against earnings related to a corruption scandal, may even add to the number of bond covenants, or legal promises to investors, that have been broken by the company, a senior executive at Aurelius Capital Management said.
The default threat is another headache for Petrobras, which has been caught in a political and financial fire storm over the biggest graft scandal in Brazil's history.
In particular, Petrobras' comment in "Note 2" of its unaudited results saying that they do not fully meet the International Accounting Standards Board's (IASB) standards shows non-compliance, said Mark Brodsky, Aurelius' chairman.
The Petrobras note to its results says those disclosures related to assets whose value may have been inflated by corruption do not comply with the IASB's IAS-34 rule.
"Despite its recent assurances, Petrobras remains in default on its New York-law bonds," Brodsky said in a statement sent to Reuters. "Those bonds require Petrobras to issue financial statements that comply with IASB rules, but Note 2 to the new financial statements admits that they do not."
Petrobras did not immediately respond to a request for comment. Aurelius, an investment firm with a focus on distressed assets, asked investors in December to put Petrobras into default as "a precautionary step," according to a Dec. 29 letter. Continuación...