This excerpt taken from the PBR 6-K filed Jan 19, 2007.
Petrobras is rated Investment Grade by S&P
(Rio de Janeiro, January 18, 2007). PETRÓLEO BRASILEIRO S/A - PETROBRAS, [Bovespa: PETR3/PETR4, NYSE: PBR/PBRA, Latibex: XPBR/XPBRA, BCBA: APBR/APBRA], a Brazilian international energy company, announces that Standard & Poors Ratings Services (S&P) assigned today its investment grade BBB- local and foreign currency long term corporate credit ratings to Petrobras, with a stable outlook.
According to S&P, the standalone ratings on Petrobras reflects its satisfactory business risk profile, characterized by the quality of its Exploration and Production (E&P) activities (quality, life, and replacement level of reserves), and a dominant market position in all aspects of the Brazilian hydrocarbon industry. In addition, the ratings are underpinned by Petrobras improving financial risk profile, which, nevertheless, remains aggressive-to-moderate.
While Petrobras would be significantly affected by Brazil country risk under an economic stress scenario, S&P views the operations and financial profile strong enough to partially mitigate this risk and, despite the controlling position exerted by the Brazilian government, believes Petrobras operates widely as a private company.
These positive factors are balanced by Petrobras limited geographic diversification, as the majority of its assets and sales are concentrated in Brazil; the companys marginal net export revenues (partly resulting from the company's need to import light crude oil to operate its refineries), and the expectation of marginal generation of free operating cash flow (FOCF) over the next several years, as Petrobras is committed to an aggressive capital expenditures budget that should consume a large portion of the companys projected funds from operations (FFO), according to S&Ps assessment .