For Petrobras CEO – Out of the frying pan then into the...

For Petrobras CEO – Out of the frying pan then into the fire

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The ongoing reports have so far claimed Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR)’s new chief executive officer to be nearly resolving his initial main bottle neck aspect by getting auditors for approval of financial results.

In future he is likely to target in generation of required cash required for paying oil industry’s biggest debt load which could be simultaneously developing a huge offshore fields.

It has also been found that Petrobras, embroiled in a corruption scandal that has all but locked it out of credit markets, has rallied 60% in the past month, making it Brazil’s best stock. Rio de Janeiro-based Petrobras said in a statement this week it will present audited results to the board for approval on April 22.

Once auditor PricewaterhouseCoopers LLP and the board provide it a full consent, further validation of Brazilian President, Dilma Rousseff’s decision for appoint state bankers(CEO Aldemir Bendine and Chief Financial Officer Ivan Monteiro ) would likely to take place. Not to mention, Bendine took over the Petrobras helm after decades at state-controlled Banco do Brasil SA.

According to Adriano Pires, the head of Rio de Janeiro-based consultancy CBIE:

“In the short term, a major problem will be resolved. The government is selling this idea that after the results are published that all is resolved, but we know better. The fundamentals are still bad.”

Also, Petrobras is slashing investments and reviewing production targets in the face of lower crude prices, a weaker currency that’s boosting debt costs and a supply chain that’s in disarray after the company halted new contracts with more than 20 contractors cited in the corruption investigation.

The cash strain at Petrobras, whose refining division posted more than US$40 billion in operating losses from year 2011 through mid of year 2014 because it was subsidizing gasoline and diesel imports, may force it to sell new shares to the government to help finance operations. That would punish minority shareholders, who would see their holdings diluted.

For consideration, Petrobras’s ratio of debt to annual trailing earnings before interest, taxes depreciation and amortization is 5.89, compared with 1.81 among integrated oil and gas companies.

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I am a lecturer at the University of Economics in Bratislava, department of Banking and International Finance. I have a Ph.D. academic degree, my dissertation was focused on major markets. Commodities and stock markets are also the main focus of my research and publication activities. I have approximately 10 years of investing experiences. My investments mostly focus on small- to mid-cap companies of energy sector, financial and technology.

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