The Big-Oil Bailouts Begin
Despite a bounce this week, low oil prices continue to sow fear, uncertainty, and mayhem across the emerging market complex. On Wednesday, it was leaked that the IMF and World Bank would dispatch a team to oil and gas-dependent Azerbaijan to negotiatea possible $4 billion emergency loan package in what threatens to become the first of a series of global bailouts stemming from the tumbling oil price.
In Latin America’s largest economy, Brazil, the government has refused to rule out bailing out Petrobras, once the jewel of the nation’s crown but now a scandal-mired shadow of its former self, weighed down by $127 billion in debt, most of it denominated in dollars and euros.
If it is unable to sell the $15 billion in assets it has targeted by the end of this year – a big IF given how the prices of oil and gas assets have deteriorated – Petrobras might need some serious help from Brazil’s Treasury. According to Citi, that help could reach $21 billion – just enough to plug the company’s cash hole and fix the capital structure on a sustainable basis. That’s a big payment for a government that has on its hands a widening budget gap, a 4% economic contraction, and double-digit inflation.
Brazil is not the only Latin American economy entertaining a bailout of its national oil company. The government of Mexico just announced that it quietly injected 50 billion pesos ($2.7 billion) of public funds into the coffers of state-owned oil company Pemex.
The timing of the announcement could not have been more convenient, coming just a day before Pemex was due to launch a $5-billion bond issue, which was predictably gobbled up by investors. In all likelihood, it will be the first installment of what could end up being a very large, very costly bailout of Mexico’s oil sector. Pemex is the world’s second largest non-publicly listed company, with $416 billion in assets. But things are looking decidedly grim.
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