SÃO PAULO — Stocks and bonds of Brazilian state-controlled oil giant Petrobras slumped on Wednesday, after Moody’s stripped the company of its investment grade rating.
Petrobras shares on the São Paulo Bovespa stock exchange fell sharply on opening, and were still down 7 percent by 1 p.m. in the city (GMT1600), with the Ibovespa index down more than 1 percent at the same time.
The New York-based credit ratings agency announced late on Tuesday its decision to downgrade Petróleo Brasileiro SA, as Petrobras is formally known, by two notches from Ba2 to Baa3 — from investment grade to speculative or “junk” territory. Company bonds also declined the most this month in Europe on Wednesday morning, Bloomberg reported.
In a statement, the agency cited concerns about a probe into a wide-reaching corruption scandal at the company as one of the reasons for the downgrade.
“The rating actions reflect concerns about corruption investigations and liquidity pressures that might result from delays in delivering audited financial statements,” it said, adding that the ratings “remain on review for further downgrade.”
The agency said it believed the vast corruption scandal in which the company is currently embroiled “heightens uncertainty about the timely delivery of audited financial statements.”
After months of delays, Petrobras finally released a financial statement for the third quarter of 2014 at the end of January, but the results were unaudited and failed to give any estimate of losses incurred by the company through the years of alleged graft.
The purported kickback scheme, in which executives allegedly took bribes from third-party construction companies in exchange for contracts, is currently the subject of a criminal investigation dubbed Operation Lava Jato – Portuguese for “car wash”, and a list of political figures involved is set to be delivered by Prosecutor General Rodrigo Janot in the coming days.
While Moody’s had warned at the beginning of February, the decision to downgrade Petrobras to junk took the markets by surprise.
Company executives had been informed of the impending downgrade earlier Tuesday, local media reported, at which point Brazilian President Dilma Rousseff is said to have ordered Finance Minister Joaquim Levy to assure the ratings agency that the government would not allow the company to sink.
According to the Estado de S.Paulo newspaper, Levy offered a written agreement that the government would support Petrobras if necessary.
Speaking on Wednesday, Rousseff labelled Moody’s decision to downgrade Petrobras as “an error” that stemmed from “a lack of familiarity with what is happening at Petrobras.”
However, key opposition politician and senator Aécio Neves, who ran against Rousseff in last year’s presidential elections, said the downgrade was a “disaster caused by the government’s incompetence,” the G1 news portal reported.
The government now fears two other major ratings agencies, Fitch and Standard & Poor’s, that currently have Petrobras on an investment grade rating, could follow suit.
Moody’s currently has Brazil’s sovereign debt at Baa2, in investment grade territory, but in September put the country on a “negative” outlook, meaning this should change in the near future.