Brazil's Rio at mercy of Pimco, Dodge & Cox as oil cash
dries up
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[April 22, 2020] By
Gram Slattery
RIO DE JANEIRO (Reuters) - Already
grappling with one of Brazil's most severe outbreaks of the novel
coronavirus and a budget deep in the red, Rio de Janeiro state faces a
potential threat to its solvency at the hands of investment giants PIMCO
and Dodge & Cox.
The U.S. asset managers have the right to a 2.5 billion real ($470
million) accelerated loan repayment in mid-May from Brazil's
third-largest state, known for its dramatic coastal capital, officials
told Reuters.
The state, whose public hospitals are nearing capacity as they treat
over 4,500 confirmed cases of the coronavirus, faces an estimated $3
billion in lost revenue this year, partly from a broad plunge in tax
intake stemming from quarantine measures and in part due to lost revenue
from oil, its key industry.
Royalty payments from oil producers operating off Rio's coast, including
state-run behemoth Petroleo Brasileiro SA <PETR4.SA>, were supposed to
secure the loans, of which the first installment was extended in 2014.
![](http://archives.lincolndailynews.com/2020/Apr/22/images/ads/current/remington_daily_sda_022614.png)
While the loans do not mature for years, PIMCO and Dodge and Cox have
the option of demanding early payments if crude dips below $40 per
barrel. For over a month, Brent </LCOc1> has been trading at under $35
as demand has fallen off a cliff amid worldwide stay-at-home orders,
while some contracts for West Texas Intermediate, the benchmark U.S.
crude, have gone negative.
That has put this sweltering mega-state of over 16 million people in a
tight spot.
Rio's situation reflects the cruel dilemma of many oil-dependent
governments, which are seeing revenues plummet as social spending soars
amid widespread unemployment and stressed public health systems. The
burden is particularly acute in Latin America, where the novel
coronavirus has a firm foothold. Brazil has over 40,000 confirmed cases,
according to the Health Ministry.
"Because of the loans, in addition to a very large drop in revenue,
we're facing an increase in expenses," said Rio finance minister Luiz
Claudio Rodrigues de Carvalho, who is negotiating with the funds in a
bid to keep them from demanding immediate payment.
Newport Beach-based PIMCO declined to comment. San Francisco-based Dodge
& Cox did not respond to a request for comment.
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![](../images/042220pics/2020-04-22T111759Z_1_LYNXNPEG3L0XA_RTROPTP_4_BRAZIL-RIO-PIMCO_small.JPG)
People wear protective face masks after Rio de Janeiro's mayor
decreed using masks in public places following the coronavirus
disease (COVID-19) outbreak, at Ipanema beach in Rio de Janeiro,
Brazil, April 20, 2020. REUTERS/Pilar Olivares
![](http://archives.lincolndailynews.com/2020/Apr/22/images/ads/current/graue_20SILVERADO_041320.png)
Elsewhere in Latin America, Colombia's director of public credit told Reuters
this month that the country may have to take out more multilateral loans than
previously expected as revenue dries up.
Last week, oil-reliant Ecuador, where the virus has overwhelmed public services,
reached a deal to delay interest payments on nearly $20 billion of sovereign
bonds. Nine Latin American countries are expected to receive emergency funds
from the World Bank or International Monetary Fund.
In Rio, Carvalho said he is optimistic about reaching a deal with the U.S.
funds, which have shown an eagerness to negotiate. He added that the state
believes the current terms of the loans are attractive to the funds in the
long-term.
Among the possibilities being floated is a 12-month delay in any early
repayment. But, Carvalho added, once a deal is reached, more measures will be
needed.
Rio is also considering negotiating a delay in a 3.9 billion real payment owed
on another loan, from French bank BNP Paribas SA <BNPP.PA> in December, and the
state is set to attempt an initial public offering of its water utility this
year, Carvalho said. BNP Paribas did not respond to a comment request.
Rio is also seeking a bailout from the federal government.
![](http://archives.lincolndailynews.com/2020/Apr/22/images/ads/current/charrons_bch041713.png)
But with the central government itself looking at a $95 billion shortfall, any
help from the administration of far right President Jair Bolsonaro is likely to
take time.
"No state," Carvalho warned, "is able to survive this crisis alone."
(Reporting by Gram Slattery; Additional reporting by Rodrigo Viga Gaier; Editing
by Dan Grebler)
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