Petrobras Seems The Winner in China's $10 Billion Loan (PBR, SNP, XOM, CVX)

The $10 billion loan from the China Development Bank to Brazil’s Petroleo Brasiliero SA, known as Petrobras (NYSE: PBR), has been finalized.  This deal has been in our pending file since late February.  Many of yesterday’s reports had this as a fresh deal, which technically it is and technically it isn’t.  Under the deal, Petrobras will supply China Petrochemical Corp., known as Sinopec (NYSE: SNP), with 150,000 barrels/d for the first year of the deal and then 200,000 barrels/d for the next nine years.

You can compare the terms to what we noted back in February to see that this is not exactly a new award.  China does not receive any stake in any Brazilian oil field or any contracts for providing services in the oil fields. The loan carries an interest rate of 6.5% and will be repaid in cash, not oil. Sinopec will end up paying for the oil in cash too.

Fears that China will lock up all the world’s resources are not founded, at least in this deal. If anything, this loan looks like a better deal for Petrobras than for either the Chinese bank or Sinopec.  We had speculated that perhaps Exxon Mobil Corporation (NYSE: XOM) or Chevron Corporation (NYSE: CVX) could also toss money into the pot here.  If you consider investments and other liquidity along with cash, Exxon has about $50 billion sitting around and Chevron has over $30 billion sitting around.

Petrobras shares are up a bit more than 1% in the pre-market this morning, at $40.75, after a 2% rise yesterday. The company’s 52-week range is $14.73 to $77.61.

Paul Ausick
May 20, 2009