S&P rates Petrobras notes BBB-

Standard & Poor's said it assigned a BBB- long-term corporate credit rating to Petroleo Brasileiro SA (Petrobras), a BBB- rating to the $500 million 6 1/8% global notes due 2016 issued by Petrobras International Finance Co. in October and a BBB- rating to Petrobras International's proposed $500 million reopening 6 1/8% notes due 2016, which will form a single fungible series with the original 2016 notes.

The outlook is stable.

The ratings on Petrobras are above the ratings of the Federative Republic of Brazil (BB/positive/B), the company's controlling shareholder, which reflects S&P's view that Petrobras has a level of autonomy and a moderate degree of government interference expected under a sovereign stress scenario.

The agency said the standalone ratings on Petrobras reflect its satisfactory business risk profile, characterized by the quality of its exploration and production activities; a dominant market position in all aspects of the Brazilian hydrocarbon industry; and the company's improving financial risk profile, which remains aggressive to moderate.

These positive factors are balanced by Petrobras' limited geographic diversification, as the majority of its assets and sales are concentrated in Brazil; the company's marginal net export revenues; and the expectation of marginal generation of free operating cash flow during the next several years, as Petrobras is committed to an aggressive capital expenditures budget that should consume a large portion of the company's projected funds from operations, S&P said.

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