Petrobras' Pension Fund Needs Cash Infusion Of $4.8 Billion

Brazil's state-run energy giant Petroleo Brasileiro S.A. or Petrobras (NYSE:PBR) announced that its employee pension fund, Petros, has accumulated 22.6 billion reais ($6.8 billion) in unfunded liabilities as of the end of 2015.

The shortage at the country's second-largest pension fund is the latest setback to Petrobras, which is one of the most indebted energy company in the world with more than $130 billion in long-term liabilities. Petrobras has been in suffering since its involvement in a multimillion dollar money laundering scam. Also, the business scenario for the energy players has been unfavorable for a long time now owing to the persistent weakness in oil and gas prices. Although crude costs have started to recover, the overall situation is yet to improve substantially.

The total amount of cash required to make up for the deficiency is estimated to be about 16.1 billion reais ($4.8 billion). Per the Brazilian law, half of this amount has to be infused by Petrobras, while the rest should come from higher retirement contributions made by the beneficiaries. The contributions needed to cover the shortfall can be spread out for up to 18 years starting in 2017.

The fund, Petros – with more than 75,000 beneficiaries – requires lower cash infusion than the amount of the unfunded liabilities due to a tolerance factor rule under the pension law of the nation.

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Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons. Apart from these, the other engages in energy-related activities.

In order to meet its liabilities, Petrobras slashed its investment program by more than half, thus jeopardizing its future income by limiting advancement of some of the world's largest oil discoveries. Attempts to raise cash and pay debt by selling about $14 billion of assets also failed to materialize owing to the company’s involvement in the corruption scandal.

Currently, the company carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the energy sector include McDermott International Inc. (NYSE:MDR) , Sasol Ltd. (NYSE:SSL) and Braskem S.A. (NYSE:BAK) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).