When Brazil’s largest and most valuable company saw a corruption scandal threaten its financial health, it called on China for help. China was happy to provide needed funds, as it has been doing throughout Latin America in recent years.
The bail out of energy giant Petroleo Brasileiro SA (Petrobras) is the most recent example of how China has leveraged its financial aid in Latin America to gain political clout while acquiring valuable resources and new markets.
Petrobras has been in dire straits. Prior to last Friday’s surge on news of the financing provided by China, its foreign shares on the New York Stock Exchange were down 55 percent in the last 12 months.
Even before the recent oil price collapse, Petrobras was the most debt-burdened energy company in the world with more than $120 billion in borrowing.
The corruption investigation embroiling Petrobras led to a national political scandal and the resignation of its CEO. Last month the company’s former director of services was arrested on corruption and money laundering, the fourth company executive charged in the investigation.
Due to probable writedowns on contract values resulting from the investigation, the company’s auditors refused to sign off on the 2014 earnings release and financial statements.
Fallout from the scandal could have been disastrous, as without audited financials, Petrobras would be cut off from raising debt or equity from the capital markets.
That’s when China stepped in, with China Development Bank bankrolling the struggling petro giant with a $3.5 billion bridge loan. The loan, announced April 1, is part of a two-year cooperation agreement between the Brazilian state-owned company and China’s infrastructure-financing arm.
The funding is only the most recent financing deal between China and Brazil. According to the China-Brazil Business Council, in the five-year period between 2007 and 2012, China invested in 60 projects worth $69 billion in Brazil. A majority, 47 of the 60 investments, was partially or fully funded by China’s state-owned enterprises (SOEs).
In 2013, state-owned China Construction Bank paid $716 million for a controlling stake in Brazil’s Banco Industrial e Comercial. Today, PetroChina Co. and CNOOC Ltd. have a 20 percent combined stake in Petrobras’s offshore oil field in the Santos Basin south of Rio de Janeiro.
In December 2014, China pledged $250 billion for investment in Latin America over the next 10 years.
