IHS Global Insight Perspective | |
Significance | Petrobras's share offering has raised around US$67 billion, of which around US$24.5 billion will be available to help fund its ambitious 2010–14 business plan. The remainder corresponds to a reserve-stock swap with the federal government that will see the company receive 5 billion barrels of reserves in unlicensed areas of the pre-salt layer. |
Implications | The share sale has been an important test of investor confidence in the prospects of the state oil company and its recent discoveries, as well as an indicator of the impact of increased state intervention in the sector under the new regulatory framework proposed by the government for the development of the pre-salt layer. In the event, the operation appears to have been a success. |
Outlook | Although some of the concerns over increased state intervention in the oil sector are valid, Brazil is unlikely to go as far as neighbouring Venezuela or Bolivia in terms of reasserting state control over the sector. A strong and profitable state oil company with the financial and operational capacity to meet the challenges posed by its newfound oil riches is ultimately in the government's best interests. |
Petrobras Raises Almost US$70 Bil.
The Brazilian state oil company Petrobras on late Thursday last week set the price for shares offered in its initial public offering (IPO) at 29.65 reais (US$17.29) per common share and 26.30 reais per preferred share being offered to the public in Brazil. The price of common and preferred shares (in the form of American Depositary Shares) being offered to international investors were put at US$34.49 per share and US$30.59 respectively. In total 2,293,907,960 common shares and 1,788,515,136 preferred shares were included in the global offering. The company said that the aggregate proceeds of the sale after underwriting discounts and commissions (before expenses) will be equivalent to approximately US$67 billion. The global offering is scheduled to close on Wednesday this week (29 September), which means that additional shares might be sold in the coming days. Petrobras's existing minority shareholders were given priority in the Brazilian offering. The offering also includes the shares due to be sold to the government in exchange for the direct transfer of 5 billion barrels of reserves in unlicensed acreage in the pre-salt exploratory frontier under a broader capitalisation programme approved by Congress earlier this year (see Brazil: 3 September 2010: Petrobras's Capitalisation Plan Moves Ahead with Setting of Price). Speaking on Friday, the Finance Minister Guido Mantega said that following the sale the government will increase its total shareholding in the company from 40% to 48% (including participation by the state owned banks, BNDES and Caixa Econômica Federal, and shares bought by Brazil's Sovereign Wealth Fund). Meanwhile, the ceremony held at the BM&FBOVESPA stock exchange on Friday to mark the launch of the shares also saw the announcement that, since the end of trading on 23 September, the Brazilian exchange has become the second largest in the world in terms of market capitalisation. Its market value stands at a total of US$17.7 billion, 25% larger than the New York, London, and NASDAQ exchanges combined, and second only to Hong Kong's bourse.
Ownership Structure Prior to Capitalisation* | |
Shareholder | Total % |
Federal Government | 32.13 |
BNDESPar | 7.66 |
Banco do Brasil pension fund | 3.17 |
Blackrock | 2.60 |
Other** | 54.44 |
Total | 100 |
Total number of shares: 8,774,076,740 of which common shares 5,073,347,344; and preferred shares 3,700,729,396. | |
Source: BM&FBOVESPA | |
Outlook and Implications
President Luiz Inácio Lula da Silva and his Finance Minister have described the IPO as a success, with the results exceeding expectations. Indeed, a fall in the value of Petrobras' shares of almost 30% over the course of this year, along with the divestment of some of the shares held by the Brazilian state oil company's largest foreign minority shareholder, Blackrock, and the decision of George Soros' investment fund to pull out of the company altogether had been regarded by many observers as indicative of the uncertainty surrounding the sale. This uncertainty stemmed not only from repeated delays, but from fears that existing shareholders could see the value of their shares reduced and that the capitalisation plan could result in increased state intervention in the company. In the event there seems to have been strong demand for Petrobras' shares mainly from domestic investors, and possibly also from foreign sovereign wealth funds. This means that the company has succeeded in meeting its objective of raising additional funds to help finance its ambitious US$224-billion investment plan. It also reduces the risks of it breaching its debt-to-equity ratio limit of 35% and endangering its investment-grade status. However, the news that the government has increased its stake, although to be expected, will result in continuing concerns over the potential for greater state intervention in the company's affairs, especially as the likely winner of next month's presidential elections—the former Minister of Mines and Energy and ex-Chief of Staff Dilma Rousseff—supports a strong state role in strategic sectors of the economy.
There has already been an increase in state involvement in the oil sector under President Luiz Inácio Lula da Silva's government. In his early years, the company was still afforded considerable autonomy in its operational decisions but it was encouraged to adopt policies that were in line with broader national development objectives. This is evident in the increase of local content in oil platforms used by Petrobras, the tender of contracts to build oil tankers in Brazil, and the firm's participation in a programme to support the growth of crops by small-scale farmers for the production of biodiesel. However, since the announcement of the Tupi find, the government's discourse has become more nationalistic even to the extent of calling for the navy's capabilities to be beefed up to protect the pre-salt layer. This was also apparent in President Lula's speech at the São Paulo stock exchange on Friday, where he said that, "in contrast with the past, we are not here to weaken the state or to sell off public assets". Indeed, some sectors of the media have described the capitalisation as a "reverse privatisation", depicting it as the undoing of a move by President Lula's predecessor, Fernando Henrique Cardoso (1995–2002), to open up the state oil company to private investors through the sale in August 2000 of a 28.5% stake in Petrobras.
The practical materialisation of the recent increase in state intervention in the sector is most evident in the package of pre-salt legislation submitted by the government to Congress last year, most of which has been approved in recent months. Of particular concern to investors is the increase of the state's share in Petrobras and a proposal to implement a new contract model for pre-salt areas not already under concession that will make Petrobras the operator of new blocks with an automatic 30% stake. Petrobras itself alludes to the risks posed by state intervention in the prospectus for the share sale, and in the risks section of its 20-F filing with the U.S. Securities and Exchange Commission. Nonetheless, one should not be alarmist. The company's listing of shares on the New York stock exchange means that more transparency is required of it than for instance the Venezuelan state oil company, whilst the continued presence of minority shareholders on the company's administrative board means that it will continue to face more scrutiny than NOCs that are 100% state-owned. In addition, the enormous financial, logistical, and technical challenges posed by a series of large discoveries in the pre-salt layer means that Brazil will continue to require the involvement of foreign oil companies in the sector.
Related Links
- Brazil: 20 September 2010: Petrobras Expands Share Sale
- Brazil: 6 September 2010: Petrobras Outlines Share Ambitions in Brazil; World's Largest for a Decade
- Brazil: 3 September 2010: Petrobras's Capitalisation Plan Moves Ahead with Setting of Price
- Brazil: 26 August 2010: Differences Between Brazilian Government, Petrobras Persist over Capitalisation Plan
- Brazil: 11 August 2010: Brazilian Oil Regulator Hopeful on New Find As Differences Emerge with Petrobras over Capitalisation Plan
- Brazil: 1 July 2010: Brazilian President Sanctions Bill to Capitalise Petrobras As Total Moves Into Pre-Salt Area
- Brazil: 23 June 2010: Petrobras Postpones Share Issue to September, Waits on Classification of Sub-Salt Oil Rights
- Brazil: 10 June 2010: Brazilian Senate Approves Two Pre-Salt Bills
- Brazil: 12 March 2010: Pre-Salt Bills Complete Passage Through Brazil's Chamber of Deputies, Attention Turns to Senate