Peru announces “capital injection” for troubled state-owned oil firm

The Economy Ministry of Peru announced yesterday that it would make a PEN 4 billion (USD 1 billion) capital contribution to financially troubled state-owned oil firm Petroperú, amid fears that the firm might not have enough cash to pay for vital fuel imports.

The decision, which some in the Peruvian media described as a bailout, comes after credit ratings agencies Fitch and S&P stripped the company of its investment grade status — raising questions about the long-term viability of its rising debt levels.

That downgrade made Petroperú’s access to international markets more difficult, causing concerns about fuel imports for domestic consumption, leading to some reports about shortages in Peruvian gas stations.  Petroperú controls roughly 50 percent of the country’s fuel market.

In addition, the government also announced a USD 500 million credit line to cover the company’s short-term obligations. Petroperú bonds, which were trading close to historic lows, rose after the news.

Earlier this year, the government had already announced USD 750 million in credit to the firm, taking the total sum to aid the company to USD 2.25 billion.

Deputy Economy Minister Álvaro Contreras said that the funds will arrive today at the latest, and fuel distribution should be normalized throughout the country shortly, as the cash will help the firm pay its suppliers and raise its inventory levels.

“This was a necessary and urgent decision. Without it, the impact for the country would have been very large, because many cities would have been left without fuel. But this support will come with a series of structural reforms that will make the company sustainable,” Mr. Contreras said.

Mr. Contreras added that the option of selling shares to bring private capital into the firm is on the table, while the decree also stated that foreign consultancy agencies could be brought in to advise the company moving forward.

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