What's going on?
Petrobras, Brazil’s giant state-owned oil firm, agreed on Wednesday to pay nearly $3 billion to American investors who claim they were defrauded by the company between 2010-2015 (tweet this).
What does this mean?
According to the investors who filed a class-action lawsuit against Petrobras, the company’s management knowingly allowed its contractors to overcharge the firm for their services and pocketed billions of that money itself. More than 100 people in Brazil have been arrested so far over the so-called “Car Wash” corruption scandal — it was even a factor in the impeachment of Brazil’s former president!
The angry plaintiffs range from investment firm Pimco to Hawaii’s state pension fund. While they’d initially made claims in the tens of billions against Petrobras’ fraud, they’re now apparently prepared to accept a $2.95 billion settlement. Because, y’know, shaka.
Why should I care?
For markets: Shares in Petrobras have collapsed in value in the wake of the scandal.
Since the debacle became public nearly four years ago, the value of Petrobras’ stock has halved. Harrassed by both a collapse in oil prices in late 2014 and a chorus of aggrieved investors, Petrobras has only slowly regained market confidence despite changes at the helm of the company and extreme cost-cutting measures. However, while the $3 billion will certainly weigh on the firm’s finances, the settled amount was actually less than some had predicted.
The bigger picture: Energy companies’ debt loads are increasing again.
Petrobras has a lot of debt, which isn’t unusual for an energy company of its size. Back when oil was worth around $100 a barrel, energy companies around the world issued tens of billions in bonds to help fund their ambitious growth plans — but as the price of oil took a nosedive, those high debt levels pushed many into bankruptcy. Now that oil is recovering, energy companies have been issuing more bonds once again (in part to help repay some of their existing debts, but also for new projects).