Petrobras Settles With Pimco
October 23 2016 - 10:10PM
Dow Jones News
RIO DE JANEIRO—Brazilian state oil company Petró leo Brasileiro
SA has agreed to settle lawsuits from Pacific Investment Management
Co. and three other investors who alleged they were harmed by a
corruption scheme that funneled billions of dollars from the
company.
Petrobras' board approved agreements with investment funds
managed by Pimco, Dodge & Cox, Janus Capital Group and Al Shams
Investments Ltd., the company said late Friday, marking the first
time it has settled with investors who sued in the wake of the
so-called Car Wash scandal. The company added that it expects to
take a provision of $353 million against its third-quarter earnings
to cover these and other deals that are being discussed.
Though Pimco, a unit of German insurer Allianz SE, is one of
Petrobras' largest bondholders and Dodge & Cox is among its
biggest private stockholders, the oil company has a lot of
negotiating left to do. It is still defending itself against 23
individual lawsuits. In addition, it faces one class-action suit
claiming tens of billions of dollars in damages on behalf of dozens
of plaintiffs, including the New York City firefighters' pension
fund, the Bill & Melinda Gates Foundation, and investment
giants such as Aberdeen Asset Management.
The lawsuits threaten Petrobras' high-stakes plan to reduce its
$123.9 billion debt pile, the largest in the global oil industry.
The company needs to strike a delicate balance of selling assets
and reducing expenditures while maintaining sufficiently robust oil
production to pay off more than $50 billion in debt coming due over
the next three years or so. If it fails, Petrobras could be forced
to dilute existing shareholders, seek a government bailout or
restructure.
At the heart of its troubles—and the lawsuits—is a corruption
scandal that has taken down some of the most powerful figures in
Brazil's business and political establishment in recent years.
Contractors including Brazil's largest construction firms formed
a cartel to drive up prices for ships, refineries and other
Petrobras projects. In exchange for the inflated contracts, the
contractors bribed high-level Petrobras executives, according to
testimony from several participants in the scheme who entered plea
deals. Prosecutors documented the witnesses' accounts with
extensive paper trails linking former Petrobras executives and
contractors to shell companies and Swiss bank accounts. Dozens of
politicians and businessmen have been jailed, some of them with
lengthy prison sentences.
Petrobras insists it was a victim of the scheme and said the
settlements reached last week "do not constitute any acknowledgment
of responsibility."
But investors say Petrobras was responsible. Senior company
executives admitted to taking bribes in exchange for granting
overpriced contracts. While the scheme was going on, Petrobras
publicly countered allegations of irregularities, releasing
communiqué s saying that its procurement process was transparent
and competitive. In addition, the lawsuits allege, Petrobras
churned out years of misleading financial statements that failed to
account for bribe payments and overstated its assets and
earnings.
"In 2008, Petrobras was the world's fifth-largest company with a
market valuation of $310 billion," Pimco alleged in its complaint,
filed in October 2015. "Now, with the revelation of Petrobras'
rampant money-laundering and kickback scheme, Petrobras has a
market capitalization of just $33.13 billion."
Petrobras shares have rebounded in recent months, as the
impeachment of former Brazilian President Dilma Rousseff brought a
management shake-up to the company and more investor-friendly
policies from the government. As of Friday, its market
capitalization stood at $77.3 billion, according to FactSet.
But the company on Friday said "it isn't possible for Petrobras
to make a reliable estimate on the outcome of the class
action."
Petrobras said it "will continue firmly defending itself in the
remaining lawsuits under way and has the objective of eliminating
the uncertainties, onus and costs associated with continuing these
disputes."
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
October 23, 2016 21:55 ET (01:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Petroleo Brasileiro ADR (NYSE:PBR)
Historical Stock Chart
From Aug 2024 to Sep 2024
Petroleo Brasileiro ADR (NYSE:PBR)
Historical Stock Chart
From Sep 2023 to Sep 2024