Petroperú again received the rating of “junk bond“After a recent evaluation of Fitch Ratingswhich placed it below investment grade.
The agency Fitch Ratings upgraded the state oil company’s long-term issuer default ratings (IDRs) in dollars and soles to BB+ from BBB- and maintained the company’s outlook at negative.
Why was Petroperú’s rating lowered?
According to the rating agency, this reduction reflects a “weakening in the liquidity of Petroperupersistently high leverage, insufficient government support, and uncertainty about its ability to maintain its credit lines.
With the downgrade, Fitch argued that the finance unaudited revealed by Petroperú.
In addition, the company disclosed that $1.2 billion of its $2.9 billion uncommitted revolving line of credit is under review with lenders.
Although the Government has extended the loans given to the state oil company, which has a grace period to pay until August 2024, they considered that this support falls short given the need for liquidity of Petroperu.
It should be remembered that this is the second time that the rating of “junk bond” to Petorperu. In mid-March of this year Standard & Poor’s Global Ratings (S&P) reduced the credit rating of the state company to BB+ from BBB-.
The state oil company’s current rating is the lowest of investment grade, but what does this mean?
What does “junk bond” mean?
Los Junk bondsalso known as high yield, are those of low credit quality, which have a non-investment grade according to the rating agencies.
These are issued by entities or governments with a bankruptcy risk higher than that of investment grade bonds.
According to BBVAthe main characteristic of these bonds is that they present a high risk of non-payment of both capital and interest, although, to compensate, they offer a high return.
In the case of Fitchbonds considered junk or non-investment grade are those that are rated BB, B, CCC, CC, C and D.
Definitions of these ratings range from “Most prone to changes in the economy” for BBs to “Has defaulted and is generally considered to default on most” for Ds.
Risk for Petroperú
The former president of Petroperú, Carlos Paredes, explains that according to the rating agencies, the oil company can no longer pay its debtsnot even with Talara’s reference in operation.
Paredes points out that this reduction means that the state company cannot issue bonds in the international market at the most favorable rates, since it could only do so at very high rates.
“It is not convenient for you to finance yourself in this way. The only thing left for you is to ask the MEF to write him a check, as he did in May by giving him US$750 million, and he has another US$330 million debt due in the coming months, so he will have to ask for resources again,” he told the newspaper Gestión .
Paredes indicates that if the MEF does not grant more resources to Petroperuthe oil company is at risk of going into default because it has additional debt maturities and does not have the liquidity to pay them.