Petrobras woes deepen Brazil concerns
By Paul Kilby
NEW YORK, Jan 9 (IFR) - Petrobras's pariah status worsened this week as a widening corruption scandal and acceleration fears left investors fleeing the Brazilian state-controlled oil outfit's benchmark bonds and any other credit associated with the company.
The investigation into kickbacks and corruption allegations at Petrobras - widely known as "Operation Car Wash" - has already claimed several victims, including construction firm OAS, which opted on January 2 to miss a payment on its 2021s to preserve liquidity after being temporarily banned from bidding on any future contracts with Petrobras.
Indeed, uncertainty over the scope of wrongdoing and fears of more revelations concerning corruption has the buyside taking a broader hands-off approach to Brazil, a country already struggling with deteriorating fiscal numbers and flagging growth.
"In a country like Brazil where a big portion of the economy is still linked to the government, (a scandal like this one) has an economic effect on the country as a whole," said Maxim Vydrine, an emerging markets debt fund manager at Amundi Asset Management.
Jack Deino, head of emerging market portfolio management and senior portfolio manager at Invesco, took a similar view, saying: "If they don't get this problem solved soon, these companies are going to stop a significant portion of their business, generating layoffs and slowing economic growth, which is already teetering."
Distressed fund Aurelius Capital Management - better known as one of the lead holdout investors battling Argentina in US courts - exacerbated investor fears in late December when in a letter to holders of Petrobras bonds it warned that a technical default was looming after the company failed to release unaudited third-quarter results after the 90-day deadline set by some indentures.
Rumours this week that Aurelius was seeking to benefit from an acceleration after buying Petrobras CDS were enough to send the Petrobras curve reeling.
The short-end of the curve was particularly vulnerable to such talk, given the high cash price, and widened by about 100bp on Tuesday. The 2016s hit a wide of around 675bp-700bp, but traded back down to the high 500s by the end of the week. Continuación...