Petróleo Brasileiro S.A. or Petrobras (PBR - Free Report) recently announced plans to offload stakes in its fuel distribution units in Paraguay to Grupo Copetrol. The transaction, valued at $383.5 million in cash, will help Petrobras forge ahead with its divestment goals. The company, which is grappling with huge debt of more than $80 billion, intends to reinstate financial health through deleveraging efforts and divestment goals.
Per the deal, the Brazilian oil giant will jettison stakes in three units namely Petrobras Paraguay Distribución Limited, Petrobras Paraguay Operaciones y Logistics SRL and Petrobras Paraguay Gas SRL. The divested assets would include 197 service stations, 113 convenience stores along with storage terminals in three airports. The deal is set to boost the portfolio of Grupo Copetrol, a fuel and LPG distribution firm in Paraguay, which comprises a network of around 350 service stations and storage terminals.
While Petrobras has already received an advance payment of $49.3 million, it will receive the remaining $334.2 million upon culmination of the deal, subject to regulatory approvals per the rules of Paraguay.
The deal is in sync with the company’s plans to revive financial health through the divestment program of 2017-2018, during which Petrobras intends to sell assets worth $21 billion. The deal will also help the company gain additional liquidity, as it intends to increase investment in the ultra-deepwater projects.
Petrobras’ money-laundering scandal resulted in a huge debt burden and scarred its credit metrics. As a result, it intends to exit from non-core segments including biofuels, LPG distribution, fertilizers and petrochemicals. Instead, it shifted its focus to sub-salt and pre-salt exploration, and production.
Since Brazil eased nationalist regulations and opened the market to greater competition, international oil companies have started considering the region as a viable investment choice. Thus, Petrobras is now entering into various strategic partnerships with foreign oil giants to drive its exploration momentum. In this regard, the company has inked deals with major players like TOTAL S.A. (TOT - Free Report) , Royal Dutch Shell plc (RDS.A - Free Report) and Equinor ASA (EQNR - Free Report) .
The changes in regulatory environment along with rebalancing of priorities are likely to offer Petrobras various growth opportunities. Its committed efforts to improve liquidity and operational efficiency, along with ambitious five-year plans bode well. The Brazilian oil giant intends to boost average output from an expected 2.7 million barrels of oil equivalent per day (Boe/d) in 2018 to 3.55 million Boe/d by 2022. It further targets net debt/EBITDA of 2.5 in 2018 compared with 5.3 in 2015.
However, the company has been going through a rough patch since a month. From the abrupt resignation of its CEO Parente to suspension of the $7-billion TAG sale by the Brazilian Court, it is grappling with new challenges as of now. Worsening the situation, PBR recently lost a wage dispute that is expected it to cost around $4.5 billion, causing a huge blow to its financials. Petrobras currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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