Petrobras woes deepen as debt rises

Petrobras woes deepen as debt rises
Updated 19 December 2012

Petrobras woes deepen as debt rises

Petrobras woes deepen as debt rises

RIO DE JANEIRO: The decision this week by Moody’s Investors Service to put Petrobras on watch for a possible debt downgrade is the latest sign that the problems at Brazil’s state-led oil company are going from bad to worse.
It is also evidence that Chief Executive Maria das Gracas Foster, appointed nearly a year ago, has had little success in her push for a more efficient and profitable approach to the company’s politically charged and financially undisciplined plan to become one of the world’s top four oil producers by 2020.
Rather than cutting spending, Foster boosted the company’s five-year investment plan, already the world’s largest, by 5.3 percent to $ 237 billion in June. In the second quarter, Petrobras posted its first loss in 13 years.
Her response to that loss: a cost-control plan to cut “up to $ 7.8 billion” that is short on specifics. Since reaching an 11-month high in February only days after she took office, the company’s most-traded shares have lost 14 percent.
Other emergency efforts are also faltering. There have been few offers for the non-Brazilian oil fields and refineries Petrobras wants to sell, bankers told Reuters earlier this month. Nor is there much chance the assets will fetch the $ 14 billion Petrobras says they are worth.
“Cost cutting and asset sales are slow and difficult,” said Oswaldo Telles, oil and gas company analyst with Espirito Santo Investment Bank in Sao Paulo. “With Petrobras’ financial situation getting worse, the only thing that will provide certain relief is a fuel price rise.”
Blocked from raising fuel prices by a government trying to keep inflation in check, Petrobras’ refining unit has racked up more than $ 8 billion in losses this year. Revenue has been further hurt by falling oil output as older fields decline and new fields fall behind schedule or go over budget.
As a result, for the first time in more than a decade, Petrobras faces problems with its debt, something it will depend on until large scale offshore output and revenue comes on stream in 2015 or 2016.
This year, Petrobras will borrow about $ 25 billion, 56 percent above its planned annual average of $ 16 billion, the company said Dec. 10. Debt is now above the company’s self-imposed limit of 2.5 times EBITDA, or earnings before interest taxes depreciation an amortization.
“Debt has broken the ceiling and is already at 2.6 times EBITDA,” a source with direct knowledge of the company’s finances said. “Next year it could go to three times EBITDA and Petrobras could lose its investment grade rating.”
“Every time Foster requests a fuel price increase at a board meeting, Mantega dismisses it with a ‘give it a rest, this is not the proper forum for that,’” the source said, referring to Finance Minister Guido Mantega, who is also chairman of Petrobras’ board.
Brazil’s finance ministry did not immediately respond to requests for comment.
The loss of an investment grade credit rating would force many investors to sell Petrobras bonds and drive up its borrowing costs, making an already difficult situation worse. Since reaching an all-time low of 4.83 percent on Oct 19, the yield on Petrobras dollar bonds due 2040 have jumped 38 basis points to 5.21 percent.
“We hope that (Moody’s) decision to lower the outlook on Petrobras debt will alert the company and the government to the risk of an actual ratings downgrade and impact on the company’s borrowing costs,” Eduardo Velho and other oil analysts at Planner Corretora in Sao Paulo said in a recent report.
In other words, a fuel price rise is essential.
“Refineries are at 98 percent capacity, fuel demand is rising and we have to import more and more gasoline to meet demand,” the Petrobras source. “We can’t do that and continue to finance our expansion plan.”
The government, though, is already going ahead with plans to make Petrobras invest. The government owns a majority of voting stock in the Rio de Janeiro-based company, which is traded on the Sao Paulo and New York stock exchanges.
The government considers oil and gas to be the cornerstone of a plan to catapult Brazil to developed-nation status. After Petrobras found an oil bonanza in 2007, the government changed the country’s oil law in 2010 to give it and Petrobras more control of the industry and limit foreign influence.
After four years of stagnation, the country’s first oil rights auctions in more than four years are expected in 2013. A frontier area concession auction open to all is expected in May and the first-ever auction of prime “subsalt” areas under new production-sharing contracts is expected by November.
Under the subsalt production-sharing rules, Petrobras will have to own at least 30 percent of the area and operate all the drilling and production. Others can be financial partners only.
The New York-state-sized subsalt area may hold up to 100 billion barrels of oil, enough to supply all US needs for more than 14 years, according to Brazil’s National Petroleum and Gas Institute at the State University of Rio de Janeiro.
“Brazil has hitched the development of its main oil reserves to a single company, and that company is already stretched to the financial limit,” said Christopher Garman Latin American director of the Eurasia Group in Washington. “This problem is not going to go away, and we are probably in for a period of reduced production.”
With debt already beyond limits, restrictions on the activities of foreign oil companies, and a fuel price increase unlikely in the near future, Petrobras and the Brazilian government will have few choices, Telles said.
“If they don’t get an increase, Petrobras will probably have to do what investors fear the most — a capitalization,” he said. “The government will have to buy stock and dilute the minority investors.”


Kuwait plans region’s first city for electric carmakers

Kuwait plans region’s first city for electric carmakers
Updated 01 August 2021

Kuwait plans region’s first city for electric carmakers

Kuwait plans region’s first city for electric carmakers
  • Kuwait Ports Authority noted that electric carmakers do not use local distributors or dealers

DUBAI: Kuwait Ports Authority (KPA) has approved a proposal to build the Middle East’s first city to serve electric vehicle manufacturers, the authority said in a statement on Sunday.

The statement does not make clear where the project, called EV City, will be located.

The design and construction tendering process will be during the 2011/22 fiscal year, said KPA General Manager Yousef Al-Abdullah Al-Sabah.

KPA noted that electric carmakers do not use local distributors or dealers and sell their vehicles directly to consumers, adding that it was common for ports to provide certain infrastructure to manufacturers.

“KPA is able to provide all port and logistics services to the biggest global companies manufacturing electric cars,” Sabah said, adding that the project was in line with Kuwait’s Vision 2035 economic diversification plan.

The Public Investment Fund, the sovereign wealth fund of Saudi Arabia, has made huge gains after it invested more than $1 billion in electric carmaker Lucid in 2018.

Lucid Group listed last month after a merger with a blank check company, Churchill Capital Corp IV, in February in a deal that gave the combined company a pro-forma equity value of $24 billion. PIF owns 62.7 percent
of Lucid.


Saudi budget airline expands flights to Bisha

Saudi budget airline expands flights to Bisha
Updated 01 August 2021

Saudi budget airline expands flights to Bisha

Saudi budget airline expands flights to Bisha

RIYADH: Saudi Arabia’s budget airline flyadeal on Sunday launched operations from Dammam to Bisha.

The addition of the new destination to the company’s flight network is part of its expansion plans.

It is a pure low-cost airline, with passengers charged for meals and checked luggage, a model that has so far not had major success in the Middle East beyond UAE-headquartered Air Arabia. The Saudi government owns the airline through state carrier Saudia.

Ahmed Al-Barahim, executive vice president for commercial and customer affairs, vowed to ensure good service for passengers.

He said the airline will continue to expand its fleet and flight network.

Fahd Al-Harbi, CEO of Dammam Airports Co., said healthy competition between airlines will support the Kingdom’s drive to boost domestic tourism.


Saudi Arabia’s net foreign assets rebound from 10-year low on higher oil sales

Saudi Arabia’s proceeds from sales of crude oil increased with the global oil industry gradually recovering from the impact of the coronavirus disease (COVID-19). (Reuters/File Photo)
Saudi Arabia’s proceeds from sales of crude oil increased with the global oil industry gradually recovering from the impact of the coronavirus disease (COVID-19). (Reuters/File Photo)
Updated 01 August 2021

Saudi Arabia’s net foreign assets rebound from 10-year low on higher oil sales

Saudi Arabia’s proceeds from sales of crude oil increased with the global oil industry gradually recovering from the impact of the coronavirus disease (COVID-19). (Reuters/File Photo)
  • The value of Saudi Arabia’s oil exports in May increased by 147 percent to just over SR60 billion from a year earlier

RIYADH: Saudi Arabia’s net foreign assets rose 2 percent in June, recovering slightly from their lowest level in more than a decade as the Kingdom’s proceeds from sales of crude oil increased with the global oil industry gradually recovering from the impact of the coronavirus disease (COVID-19).

Data from the Saudi Central Bank (SAMA) showed the foreign assets — a measure of its ability to support its dollar-pegged currency — rose by SR34 billion ($9.1 billion) to SR1.65 trillion from May to June. Total assets increased by SR16.18 billion to SR1.842 trillion, the central bank said on Saturday.

The value of Saudi Arabia’s oil exports in May increased by 147 percent to just over SR60 billion from a year earlier, while non-oil exports rose by 70 percent, the General Authority for Statistics showed last month.

The recent decline in Saudi Arabia’s foreign reserves to the lowest level in a decade was partly due to a lag between import payments and export receipts, the SAMA’s governor told Reuters last month.

The ratio of SAMA’s total assets at the end of July increased by 0.8 percent over the previous month and amounted to SR1.842 trillion. The rise in total assets is due to the rise in investments in securities abroad, which amounted to SR1.13 trillion, an increase of 0.5 percent over the previous month. The value of foreign exchange amounted to SR271 billion, an increase of 0.2 percent.

Net foreign assets declined significantly in 2020 as lower oil income strained finances and officials transferred $40 billion to the Kingdom’s sovereign fund to fuel an investment spree. The indicator — which topped $700 billion in 2014 after an oil boom increased savings — now stands at SR1.66 trillion.

The state’s general reserve declined during the period 2016 to 2020 from SR640 billion to SR358 billion, due to the increase in projects as a part of the Vision 2030 reform plans. The state is pouring significant funds on projects which will be compensated by future income, Zaed Alfaded, a financial analyst, told Arab News. These income streams are expected to increase with the country diversifying its economy away from oil and its price fluctuations, he added.

The government’s current account dipped from SR89 billion to SR52 billion, and then rose again to SR70 billion, as the government spent on its urgent requirements, Alfaded said.

Central bank data showed on Saturday that the issuance of SAMA bills, an indicator of increased lending to local banks, also declined, which Alfaded attributed to the bank’s plans to contain inflation and direct customers to save and invest. 

This strategy, he said, will reflect positively on the markets for trading in financial assets and other investment assets in the Saudi economy.


Saudi Arabia eyes global tie-ups to tap $20bn in cultural opportunities

In the wake of the G20 meeting last year, Saudi Arabia added culture to the forefront of its investment agenda. (Social media)
In the wake of the G20 meeting last year, Saudi Arabia added culture to the forefront of its investment agenda. (Social media)
Updated 01 August 2021

Saudi Arabia eyes global tie-ups to tap $20bn in cultural opportunities

In the wake of the G20 meeting last year, Saudi Arabia added culture to the forefront of its investment agenda. (Social media)
  • Public-private partnership seen as a means to increase sector’s contribution to GDP

DUBAI: Saudi Arabia is seeking partnership with global partners including leading international museums as it sees its culture sector generating $20 billion in revenues and creating 100,000 jobs, while contributing 3 percent to its gross domestic product (GDP), a senior official said.

In the wake of the G20 meeting last year, Saudi Arabia added culture to the forefront of its investment agenda. The Ministry of Culture, which was established three years ago in the hopes of promoting cultural growth and supporting Vision 2030, sees that the sector has already attracted the interest and engagement of private companies both locally and abroad, Rakan Altouq, head of strategy and policy at the Saudi Ministry of Culture, said in an interview on Sunday.

In addition to the public sector, the private sector is a vital contributor to cultural development and Saudi Arabia will benefit from this new strategy, as it will lead to an increase in its economy. As part of the Ministry of Culture, all 16 sectors with 11 dedicated commissions are engaged now to prepare the groundwork for economic activity. 

The Cultural Development Fund, created by the Ministry of Culture last year, is also a vital tool for bridging the financial gap that exists between public and private sector funding for cultural programs. By using the Cultural Development Fund, a bridge of capital will be provided, he said. Through Invest Saudi and the Shareek program that has been announced across the private sector engagement in Saudi Arabia, all of the targets they have developed cannot be achieved without private capital, and they are contributing to creating the right conditions for capital to invest in the culture sector.

Altouq said that the culture sector should not be evaluated in the same way as other more publicly owned sectors. Nonprofit organizations conduct many private activities, such as the visual arts sector, in the country. Further opportunities exist for establishing infrastructure in digital platforms; such investments have already been initiated by media and other regional companies. 

In the museum sector, the ministry has held numerous discussions with its partners around the world. Soon, the dedicated museum of Saudi Arabia will launch its strategy and seek partnerships with other museums around the world. The Museum Commission will launch its own communication strategy in the coming months to further develop that.

In the national cultural strategy, three main aspirations are outlined: Culture as a way of life, culture as an economic growth tool, and culture as an exchange mechanism among cultures.

As a first step, culture has been developed as a lifestyle in Saudi Arabia through connecting local communities to ensure that all citizens and residents have access to an extraordinary range of diverse cultural offerings in the region while preserving the rich cultural heritage. As for the culture for economic growth, culture will be seen in creative industries, which will allow Saudi Arabia to witness an increase in its GDP by 3 percent by 2030. Lastly, culture for global exchange is engaging the Kingdom and participating in international platforms such as the G20 and UNESCO.     


Saudi Arabia’s Digital Government Authority approves first regulatory framework

It will work on developing the digital capabilities and talents of public sector employees. (Supplied)
It will work on developing the digital capabilities and talents of public sector employees. (Supplied)
Updated 01 August 2021

Saudi Arabia’s Digital Government Authority approves first regulatory framework

It will work on developing the digital capabilities and talents of public sector employees. (Supplied)
  • The framework is the first milestone after the approval of the Saudi Cabinet in March to launch the authority

RIYADH: Saudi Arabia’s Digital Government Authority (DGA) on Sunday said its board of directors approved the first regulatory framework of the digital government.

“The regulatory framework developed by DGA for the digital government will be the basis on which the authority will develop future regulations for the digital government,” DGA Gov. Ahmed Mohammed Al-Soyyan said in a statement. “The framework includes a set of principles, policies, standards, and user guides.”

He added that the DGA is seeking to issue regulations, policies, and standards that contribute to creating a regulatory environment, which enables reaching advanced levels of maturity in the government digital transformation, unify and institutionalize the concept of government policies and standards, provide recommendations to government agencies during implementation, and ensure the adoption of unified tracks for the development of government digital services.

The framework is the first milestone after the approval of the Saudi Cabinet in March to launch the authority. Abdullah Al-Swaha, the Saudi minister of communications and information technology and chairman of the National Digital Transformation Unit, told Arab News’ sister publication Asharq Al-Awsat in an earlier interview that the DGA will help in achieving key objectives, most important of which is augmenting returns on government digital assets and investments. It will also work on developing the digital capabilities and talents of public sector employees.

The framework is based on eight essential principles, including the “Once-Only Principle,” “Digital by Design,” and the “Mobile First.” In addition, it encompasses the Digital Government Policy, which enables and accelerates the sustainable digital transformation of the government sector and enables the successful implementation of the strategic directions of the digital government, DGA said in the statement.

The Digital Government Policy is supported by five sub-policies, including digital governance, it added.

DGA said in the statement that it aims to support the efforts of the government agencies through developing plans, programs, indexes, and measurements related to the works of digital government and integrated digital government services, as well as the government digital market platform. DGA is also responsible for regulating operational, administrational processes, related projects and monitor compliance, it said.