Petroleo Brasileiro S.A. or Petrobras PBR declared the sale of 100-year bonds worth $2.5 billion. This reflects solid demand for Petrobras bonds, even though the integrated player was involved in a multibillion dollar money laundering scandal.
The bonds are set to mature by Jun 2115 and carry an interest rate of 6.85%. Most importantly, the bonds are expected to yield 8.45% and were sold at 81.07% of the face value.
Generally, discounted and high yield bonds carry higher risk. The Petrobras bond is not an exception as the company has been struggling to raise money from the market after being involved in price fixing and bribery cases.
It is to be noted that there was significant demand for the bonds as it will give much higher returns than the debts issued by the government. As revealed by data from media releases, the yield of the 30-year US Treasury bond is 2.94%.
However, such huge appetite for the Petrobras bond is quite surprising. For a company that is buried under a pile of debt – the credibility of which is being questioned – this demand for its bond is incredible. Even though Moody’s Investors Service provided a junk rating to the company, most analysts believe that its high yield nature is attracting investors.
Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
Petrobras currently carries a Zacks Rank #3 (Hold). However, there are some better-ranked players in the energy sector. Pembina Pipeline Corporation PBA, LRR Energy LP LRE and WPX Energy Inc. WPX, all sporting a Zacks Rank #1 (Strong Buy), are to name a few.
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