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Petrobras Debuts in Green Financing With $1.25 Billion Loan

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(Bloomberg) -- Petroleo Brasileiro SA debuted in the green financing market with a $1.25 billion sustainability-linked loan as Brazil’s oil giant looks to court environmentally conscious investors.

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With strong cash-flow generation in the first quarter, the Rio de Janeiro-based company has no plans to tap the bond market in the short term as high volatility clouds the environment for new issuances.

“We’re carrying out operations that make economic sense. The timing for issuance is quite volatile,” Chief Financial Officer Rodrigo Araujo said in an interview.

Petrobras Offers to Buy Back $1.5 Billion of Bonds for Cash

Petrobras signed the sustainability-linked loan with Bank of China, MUFG and The Bank of Nova Scotia in a transaction that has been negotiated since the beginning of the year. Previously, Petrobras didn’t have any credit lines linked to sustainability goals.

Petrobras Hires $1.25b Sustainability Linked Credit Line

Terms weren’t disclosed, but Petrobras will pay a lower interest rate if it improves on key measures of reducing per-barrel emissions of methane and other greenhouse gases. It will pay a higher rate if it misses the goals. Institutional Shareholder Services will act as a third party to monitor the company’s performance on the metrics.

The oil producer’s goal is to reduce carbon intensity by 16% in refining operations and 32% in exploration and production by 2025. After hitting the 2025 target for methane emissions, the state-run company is studying new metrics to be announced in the next strategic plan, said Rafael Chaves, Petrobras’s director of institutional relations and sustainability. “This loan shows that Petrobras is pursuing more challenging goals”, he said.

Petrobras Says 2021 Emission Cuts Were Thwarted by Hydro Crisis

Despite intense political pressure by Brazil’s President Jair Bolsonaro to contain fuel prices in an election year, Petrobras has become a cash cow and is cutting leverage at a rapid clip. After a $1.5 billion buyback of some of its global bonds last week, the company’s gross debt is already lower than the $58.6 billion reached by the end of the first quarter.

In 2023, the oil producer should see a “natural growth trajectory” in debt as a result of five new floating offshore production facilities starting operations, according to Araujo. He said the company will keep tracking future market windows for issuances -- including potential new sustainability-linked transactions -- as long as Petrobras’s gross debt range stays within $55 billion to $65 billion. A new bond buyback, though, is not on the immediate horizon.

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