EFTA01380758.pdf

7 October 2015 Corporate Credit,Energy Petroleo Brasileiro S.A. IFigure 2: Outstanding Petrobras bond issues covered by Deutsche Bank Maturity AiTr1tAlI (VS itsidy/S&P/Eiti;11 DF) Rec. Dote of MiK Mid Pima Mori vkild Zenread Soy Sprit PETBFIA 2.000% Notes '16 20.May-16 USD 1,250m Ba2/ BB / BBB- Hold I 13-Jan-2015 96.57 6.94 656 535 PEMBA 3.675,11) Notes '16 27-Jan-16 USD 2.500m Ba2 BB / BOB. Hold 113-Jan.2015 98.77 6.30 601 532 PETEIRA 3.250% Notes '17 17-Mar-17 USD I.600m Eta2 / BB / BBB- Buy/ 7-Oct-2015 90.88 9.82 924 731 PETBRA 3.50CP,‘ Notes '17 6-Feb-17 USD 1,750m Ba2 / BB / BBB- Buy I 7-Oct-2015 91.85 9.79 923 736 PETBRA 5.875% Notes '18 1-Mar-18 USD 1,750m Ba2 / BB / BBB- Hold / 13-Jan-2015 90.76 10.07 925 690 PETBRA 3.000% Notes '19 15-Jan-19 USD 2.000m Ba2 / BB / BBB. Hold/ 13-Jan.2015 79.57 10.34 931 670 PETBRA 7.875% Notes '19 15-Mar-19 USD 2.750m Ba2 / BB / BEIB. Hold / 13-Jan-2015 92.14 10.48 944 679 PET/3RA 4.876% Notes '20 17-Mar-20 USD 1.500m Bat / BB / BBB- Hold / 13-Jan-2015 80.54 10.30 905 619 PETBRA 5.750% Notes '20 20-Jan-20 USD 2,500m Ila2/ BB / BBB- Hold / 13-Jan-2015 82.39 10)35 963 MO PETBRA 6.376% Notes '21 27-Jan-21 USD 5.250m Bat / BB / BBB- Hold / 13-Jan.2015 79.85 10.27 888 587 PETBRA 4.375% Notes '23 20-May-23 USD 3,500m Ba2 / BB / BBB- Hold I 13-Jan-2015 72.50 9.42 769 439 PFTBRA 6.250% Notes '24 17-Mar-24 USD 2,500m Bat BB / BBB- Hold / 13-Jan-2015 79.51 9.78 800 461 PETBRA 6.875% Notes AO 20-Jan-40 USD 1,500m Ba2 / BB / BBB- Hoed / 13-Jan-2015 72.88 9.76 751 324 PETBRA 6.750% Notes AI 27-Jan-41 USD 2,250m Bat / BB / BOB. Hold I 13-Jan.2015 72.16 9.66 740 310 PETI3RA 5.625% Notes A3 20-May-43 USD I.750m Bat / BB / BBB- /Midi 13-Jan2015 67.44 8.71 638 202 PETBRA 7.250% Notes A4 17-Mar-44 USD 1.030m B.32/ BB / BBB- Hold I 13-Jan.2015 74.39 9.91 766 326 PETBAA 6.850% Notes 2116 6-Jun-21I5 USD 2.500m Bat BB / BBB- Hold / 7.Oct-2015 69.00 9.65 761 736 Sena Caccia Bo* Mirka obis Mame*, Pin •Mas of Onobv 4 205 Idiosyncratic. technical and mallet lessons for the recent bounce After falling by 5.15 points (depending on where on the curve you look at, excluding the '165) since our last piece (Petrobras - The USD44bn Fallina Knife 15 September 2015) Petrobras' bonds rebounded by 4-13 points in the last six sessions on the back of 1) last week's domestic fuel price increase announcement (6% for gasoline and 4% for diesel at the refinery gates); 2) a ministerial reshuffling in Brazil aimed at pleasing the governments key coalition party (PMDB) and that could buy the government more time to negotiate its fiscal adjustment agenda in congress and avoid a presidential impeachment; and 3) a retracement in global risk aversion following more benign headlines in global credit (particularly on Glencore) and China (better- than-expected PMI), as well as a more dovish market view on future Fed hikes following a weak payroll number last Friday. Further enhancing the conviction of marginal buyers was a growing perception that forced index fund liquidation might be close to running its course and that the company would be close to announcing further capex and cost reductions, which happened on Monday. Still high execution risks for the Brazil-Petrobras complex serve to cap the neai tern) upside In our view, while the short-term momentum has improved for the Brazil- Petrobras complex due to the factors listed above, we believe the execution risks for the government to stabilize the fiscal and macro dynamics and for the company to significantly reduce its heavy cash burn and fund tens of USD billions of debt maturities in upcoming years remain important points of concern and serve to cap the near-term upside for Petrobras. Further weakness in the oil price and the BRL are also important risks here. We are thus not fully convinced that Petrobras is embarking on a sustained near-term spread tightening at this point, but rather believe that we will continue to see high price volatility without a clear trend. The fuel price increase announcement helps (by increasing revenue and EBITDA by about 2% and 9%, respectively, or USD1.7bn) but is not enough, in our view, to meaningfully reduce the company's cash burn (of about USD4.5bn per year with capex at USD19bn and Brent at USD50/bbl). Another fuel price increase might prove difficult to achieve in the near term due to political and economic constraints, in our view, as it would be non-accretive to inflation targets and would pose further stress on the already fragile domestic demand. Deutsche Bank Securities Inc. Page 3 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0079285 CONFIDENTIAL SDNY_GM_00225469 EFTA01380758