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Petrobras (PBR) Receives Court Approval for Asset Sales

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Bringing in pleasant news for Petrobras (PBR - Free Report) , the Brazilian Supreme Court recently lifted the suspension order on the company that put a pause on its asset divestiture program. The court’s ruling brought relief to the state-held energy giant as the suspension order had posed a severe threat to the company’s aim of mitigating huge debt.

In May, the court had suspended the sale of the TAG pipeline unit, eight refineries and the Araucaria Nitrogenous fertilizer business, putting Petrobras’ divestment plans in jeopardy. Supreme Court Justice Edson Fachin halted the $8.6-billion sale of the TAG unit to Engie SA-led consortium, arguing that the divestments of subsidiaries by state-owned companies needed congressional approval. Markedly, the TAG sale is supposed to be the largest-ever single asset sale for the Brazilian energy giant, which has been making serious efforts to trim its huge debt burden.

Marking a major victory for the Bolsonaro government and Petrobras, the court recently ruled that state-held companies do not require congressional approval to jettison their subsidiaries. The ruling is a boon for other state-owned firms like Eletrobras, which is also contemplating to offload some of its assets.

For Petrobras, the divestment plans are is in sync with the aim of cutting debt levels. Notably, while the company’s net debt of $100 billion peaked in 2015, concentrated efforts to lower leverage, boost liquidity through operational efficiency and divestment of non-core assets have helped Petrobras in deleveraging to a considerable extent. In 2018, its net debt declined to $69.4 billion from $84.9 billion a year ago and $96.4 billion in 2016. The finalization of the sale of TAG assets and other divestments are likely to give a considerable boost to the company’s financials.

As we know, Petrobras revved up its five-year plan in March, and now intends to offload $26.9 billion through 2023, streamline portfolio and sharpen focus on other profitable segments for achieving top-tier results. The firm is entering into various strategic partnerships with foreign oil giants to drive exploration momentum. In this regard, the Zacks Rank #3 (Hold) company 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) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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