By Paul Kiernan 

RIO DE JANEIRO -- Brazilian state oil company Petróleo Brasileiro SA has agreed to settle lawsuits from Pacific Investment Management Co. and three other investors who alleged they were harmed by a corruption scheme that funneled billions of dollars from the company.

Petrobras' board approved agreements with investment funds managed by Pimco, Dodge & Cox, Janus Capital Group and Al Shams Investments Ltd., the company said late Friday, marking the first time it has settled with investors who sued in the wake of the so-called Car Wash scandal. The company added that it expects to take a provision of $353 million against its third-quarter earnings to cover these and other deals that are being discussed.

Though Pimco, a unit of German insurer Allianz SE, is one of Petrobras' largest bondholders and Dodge & Cox is among its biggest private stockholders, the oil company has a lot of negotiating left to do. It is still defending itself against 23 individual lawsuits. In addition, it faces one class-action suit claiming tens of billions of dollars in damages on behalf of dozens of plaintiffs, including the New York City firefighters' pension fund, the Bill & Melinda Gates Foundation, and investment giants such as Aberdeen Asset Management.

The lawsuits threaten Petrobras' high-stakes plan to reduce its $123.9 billion debt pile, the largest in the global oil industry. The company needs to strike a delicate balance of selling assets and reducing expenditures while maintaining sufficiently robust oil production to pay off more than $50 billion in debt coming due over the next three years or so. If it fails, Petrobras could be forced to dilute existing shareholders, seek a government bailout or restructure.

At the heart of its troubles -- and the lawsuits -- is a corruption scandal that has taken down some of the most powerful figures in Brazil's business and political establishment in recent years.

Contractors including Brazil's largest construction firms formed a cartel to drive up prices for ships, refineries and other Petrobras projects. In exchange for the inflated contracts, the contractors bribed high-level Petrobras executives, according to testimony from several participants in the scheme who entered plea deals. Prosecutors documented the witnesses' accounts with extensive paper trails linking former Petrobras executives and contractors to shell companies and Swiss bank accounts. Dozens of politicians and businessmen have been jailed, some of them with lengthy prison sentences.

Petrobras insists it was a victim of the scheme and said the settlements reached last week "do not constitute any acknowledgment of responsibility."

But investors say Petrobras was responsible. Senior company executives admitted to taking bribes in exchange for granting overpriced contracts. While the scheme was going on, Petrobras publicly countered allegations of irregularities, releasing communiqués saying that its procurement process was transparent and competitive. In addition, the lawsuits allege, Petrobras churned out years of misleading financial statements that failed to account for bribe payments and overstated its assets and earnings.

"In 2008, Petrobras was the world's fifth-largest company with a market valuation of $310 billion," Pimco alleged in its complaint, filed in October 2015. "Now, with the revelation of Petrobras' rampant money-laundering and kickback scheme, Petrobras has a market capitalization of just $33.13 billion."

Petrobras shares have rebounded in recent months, as the impeachment of former Brazilian President Dilma Rousseff brought a management shake-up to the company and more investor-friendly policies from the government. As of Friday, its market capitalization stood at $77.3 billion, according to FactSet.

But the company on Friday said "it isn't possible for Petrobras to make a reliable estimate on the outcome of the class action."

Petrobras said it "will continue firmly defending itself in the remaining lawsuits under way and has the objective of eliminating the uncertainties, onus and costs associated with continuing these disputes."

Write to Paul Kiernan at paul.kiernan@wsj.com

 

(END) Dow Jones Newswires

October 23, 2016 14:39 ET (18:39 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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