Brazil's Petrobras popped up on the ABS radar last year when a domestic deal came out that was backed by contracts between the oil giant and its suppliers. A receivable investment fund (FIDC), the transaction features senior shares rated 'AA(bra)' by Fitch Ratings and HSBC as the administrator. The deal is designed to facilitate the funding of small projects and services. A typical candidate would be a supplier that needs financing to assemble a machine for Petrobras.
Having a big name like Petrobras as an obligor is partly the point of the deal, although a degree of operational risk for the projects in question means that the creditworthiness of the transaction is weaker than Petrobras' risk.
While the fund can reach up to R$100 million ($54 million), the company is serious about doing significantly more, according to Petrobras CFO Almir Barbassa. Felipe Ossa from ASR recently had the opportunity to ask Barbassa a few questions about the FIDC approach to financing suppliers and whether developments are on the horizon for other areas of ABS.
With a 2009-2013 business plan amounting to $174.4 billion, any role for securitization could mean significant volumes. Last year alone, the company raised $30 billion.
ASR: How much in shares has been sold in this FIDC? Is Petrobras participating in ways other than being the effective obligor?
Barbassa: The company has already contributed R$4 million of a total R$100 million to be invested in the coming months.
ASR: Once the full $100 million is placed, will there be similar funds?
Barbassa: The aim is that this fund will achieve the sum of R$1 billion of net equity in the short term, in multiples of R$100 million. A second fund, administered by Banco Pactual, is due to be rolled out this month and should achieve net equity of R$3 billion. It has a AA+ [national scale] rating from Standard & Poor's. [Each FIDC will likely have] a different strategy to meet a different segment of Petrobras' suppliers chain.
ASR: Why have you found this an effective way to finance expansion?
Barbassa: Petrobras aims to drive greater participation by our suppliers in the development of the Brazilian oil and gas sector and in the development of the pre-salt reserves, as well as to encourage the reduction, in the long term, of product and service costs in this industry. Through the new funds, suppliers with a Petrobras Registration and Classification Certificate and a good performance assessment with the company will have pre-approved credit and can advance up to 50% of the value of their contracts with Petrobras under more advantageous conditions and timescales than those offered by the traditional credit market.
The aim of this new way of financing is to generate adequate cash flow for small and medium suppliers that hold pending contracts and require resources to meet their obligations. Another significant advantage of this advance payment to the supplier is that it does not impact negatively on its balance sheet because the operation is recorded as an advance on future income and not as a loan, which means the transaction is not subject to the tax on financial operations.
Normally, a company - particularly a small or medium company - supplying Petrobras ends up paying very high interest to finance its working capital. This is because the contract in itself is not accepted by the financial institution as security for the loan, despite being with a large company such as Petrobras. [With the FIDC] the company in possession of a signed contract sells the receivables from Petrobras to the fund. This security reduces the risk to the fund considerably and consequently reduces the interest [rate] and, by extension, the costs to the supplier.
ASR: Are there other ways that Petrobras is planning to use securitization to raise funds? For example, there was a "built-to-suit" lease-backed transaction that the company issued in the domestic market a few years ago (ASR 9/12/05). Is Petrobras planning any deals of this nature?
Barbassa: If market conditions are favorable in 2010 to new "built-to-suit" projects that require this type of financing, Petrobras might access domestic capital markets.
ASR: Petrobras used to have an export-backed securitization program. My understanding is that cheaper financing alternatives have been uneconomical for the company to securitize its export receipts. Could this program, which now has $331 million outstanding, be revived?
Barbassa: It's not Petrobras' intention to use this kind of program at this moment.
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