Petrobras' (PBR) Asset Sales Suspended By Court Rulings

Petrobras’ (NYSE:PBR) divestment plans could be in jeopardy as the Brazilian Supreme court has issued injunctions suspending the sale of some major assets of the company. The court’s ruling suspends the sale of the TAG pipeline unit, eight refineries and the Araucaria Nitrogenous fertilizer business. Petrobras will be taking necessary legal steps to protect the interest of its shareholders.

It is not very clear how the ruling is likely to impact Petrobras, which had already inked a deal in April to jettison the TAG unit to Engie SA-led consortium for $8.6 billion and received regulatory approvals for the same. Markedly, the TAG sale is supposed to be the largest-ever single asset sale for the Brazilian energy giant, which has been making serious efforts to trim its huge debt burden.

For Petrobras, the divestment plans are is in sync with its aim of cutting debt levels. Notably, while the company’s net debt of $100 billion peaked in 2015, concentrated efforts to lower leverage, boost liquidity through operational efficiency and divestment of non-core assets have helped Petrobras in deleveraging to a considerable extent. Its net debt declined to $69.4 billion in 2018, decreasing from $84.9 billion a year ago and $96.4 billion in 2016.

The finalization of the sale of TAG assets and other divestments were likely to give a considerable boost to the company’s financials. With the latest ruling, things appear a bit uncertain, raising doubts whether Petrobras will be able to smoothly achieve its divestment goals.

As we know, Petrobras revved up its five-year plan in March, and now intends to offload $26.9 billion through 2023, streamline portfolio and sharpen focus on other profitable segments for achieving top-tier results. The firm is entering into various strategic partnerships with foreign oil giants to drive exploration momentum. In this regard, the Zacks Rank #3 (Hold) company inked deals with major players like TOTAL S.A. (NYSE:TOT) , Royal Dutch Shell (LON:RDSa) plc RDS.A and Equinor ASA (NYSE:EQNR) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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