Petrobras 'Reverse Privatization' Looms on Brazil (Update1)
2010-09-23 13:47:38.523 GMT
(Updates shares in sixth paragraph.)
By Peter Millard
Sept 23 (Bloomberg) -- Brazil is reclaiming part of the
Petroleo Brasileiro SA stake it sold to investors a decade ago
in a record $78 billion share sale today.
The government will boost its stake in Petrobras, Latin
America's second-largest company by market value, to as much as
55 percent from 39 percent now, Adriano Pires, head of the
Brazilian Center for Infrastructure, a research group based in
Rio de Janeiro, said yesterday in a telephone interview.
Petrobras slumped 29 percent this year, the second-worst
performing major oil stock after BP Plc., on concern the sale
will cut earnings and boost state interference after the company
discovered the largest oilfield in three decades. The Petrobras
transaction signals President Luiz Inacio Lula da Silva is
seeking a greater role for the state in the economy ahead of the
likely election of chosen successor Dilma Rousseff next month.
"Many are worried Petrobras is really becoming a policy
arm of the Brazilian government," Harold Sharon, who helps
manage $100 billion including Petrobras shares at Lord Abbett in
Jersey City, said in an interview. "As they sit back and look
at this entire development, it looks far too interventionist."
Petrobras is planning to sell as many as 2.718 billion
common shares and 1.983 billion preferred shares. The government
is buying about $42.5 billion-worth of stock in return for the
right to develop about 5 billion barrels of reserves. State-run
financial institutions such as the BNDES development bank will
likely buy additional shares for cash, UBS AG said Sept. 21.
Shares Rise
Petrobras rose 42 centavos, or 1.6 percent, to 26.40 reais
as of 10:42 a.m. in Sao Paulo trading. The stock declined about
28 percent this year.
The Petrobras sale would amount to more than 20 percent of
the value of all equity offerings already completed in 2010 and
be more than three times the record $22.1 billion raised by
Agricultural Bank of China in July, according to Bloomberg data.
Lula is strengthening control over the domestic oil
industry after the Tupi discovery in 2007, the largest find in
the Western Hemisphere since Mexico's Cantarell in 1976. Lula
says Brazil is relying on the country's oil wealth to help raise
the nation's 192 million people out of poverty.
"It's a clear process of reverse privatization," Rogerio
Freitas, who manages about $25 million at Teorica Investimentos
in Rio de Janeiro, said in a telephone interview. "The
Brazilian public sector will increase its participation, and
that's not good."
Government Agencies
The government and state agencies will buy 56 percent to 69
percent of the offering, allowing Petrobras to place all the
shares, Lilyanna Yang, an analyst at UBS AG in New York, said in
a Sept. 21 note to clients.
Telephone messages left at Lula's press office in Brasilia
were not returned. A spokeswoman at Petrobras's press office,
who declined to be identified under company policy, wouldn't
comment on the prospect of increased government control.
Brazil, the world's largest producer of orange juice and
coffee, is taking advantage of rising prices to exert greater
control over commodity companies. Lula has asked Vale SA, the
world's largest iron ore company, to invest in steelmaking
plants in Brazil instead of sending iron ore abroad, while
Dilma, a former Petrobras chairman, said Vale should face
tougher requirements for tapping Brazil's natural resources,
according to a February interview with Epoca magazine.
'State-Oriented Discourse'
Dilma "has a very state-orientated discourse," Roberto
Padovani, chief economist at Banco WestLB do Brasil SA in Sao
Paulo, said in a Sept. 22 telephone interview.
Brazil's government owns a 32 percent stake in Petrobras
and controls the company through 55.6 percent of voting shares.
The government holdings of Petrobras's voting shares will
probably rise to about 65 percent after the share sale,
according to the Infrastructure Institute's Pires.
Vale is Latin America's largest company.
Since the government sold more than a quarter of
Petrobras's shares for about $4.1 billion in 2000, the company
has invested in boosting the search for oil. State-owned rivals
Petroleos Mexicanos and Petroleos de Venezuela SA struggled to
stem declines and Pemex posted five straight years of lower
output. Petrobras expects to double output by 2020.
Brazil's development bank, known as BNDES, will buy enough
shares in the Petrobras offer to maintain its shareholding,
Andre Carvalhal, head of the international market department at
BNDES, said in a Sept. 15 interview. BNDES is the second-largest
shareholder in Petrobras after Brazil's government.
$379 Billion
About $379 billion has been raised by companies selling
shares this year, the same pace as a year ago, data compiled by
Bloomberg show. A total of 167 equity offerings valued at $29.5
billion have been postponed or withdrawn around the world this
year, the most since at least 1998, the data show.
The share sale is putting the state's interests above those
of minority shareholders, said Ed Kuczma, an emerging markets
analyst at Van Eck Associates in New York, which manages $21
billion and sold Petrobras shares this quarter.
"We vote with where we put our funds and decided to get
out," Kuczma said in a telephone interview. "A lot of the
investment is going toward downstream facilities like refining,
which tend to have lower returns."
Petrobras plans to spend $73.6 billion on refining and
distribution in the five years through 2014. Profit margins
there are typically lower than in its exploration and production
business. That's about one third of planned spending of about
$224 billion. The company will "assist" the government in
meeting Brazilian fuel demand, it said in a Sept. 3 prospectus.
'Big Offering'
"This big offering is coming at a time when there's more
concern about the government moving to the left," said Nick
Robinson, who helps manage $25 billion in emerging-market assets
at Aberdeen Asset Management Inc. and owns Petrobras shares.
"Most of the refineries are in the north and the current
government gets most of its support from the north."
Brazil ended Petrobras's monopoly on exploration and
production in 1997 to create competition and encourage the
discovery of oil to fuel the domestic economy. The company also
sold shares to finance exploration, with the government
retaining control of the company's voting shares.
"The Brazilian federal government, as our principal
shareholder, may cause us to pursue certain macroeconomic and
social objectives," Petrobras said in a Sept. 3 prospectus.
"We may engage in activities that give preference to the
objectives of the Brazilian federal government rather than to
our own economic and business objectives," the company said.
Petrobras on Sept. 17 doubled the amount of stock that can
be issued in an additional allotment to as much as 20 percent of
the main sale. That's on top of an already announced
supplementary over-allotment of as much as 5 percent.
The offering has "very strong support from domestic
pension funds and the government," Christopher Palmer, who
oversees about $5 billion as head of global emerging markets at
Gartmore Investment Management Ltd. in London, said in a Sept.
21 telephone interview. "The government thinks this is a good
investment."
Top Stories: {TOP<GO>}
--With additional reporting by Alexander Cuadros in Sao Paulo
and Tal Barak Harif in New York. Editors: Dale Crofts, John
Viljoen.
To contact the reporter on this story:
Peter Millard in Rio de Janeiro at +55-21-2125-2531 or
Pmillard1@bloomberg.net
To contact the editor responsible for this story:
Dale Crofts at +54-11-4321-7735 or
dcrofts@bloomberg.net
2010-09-23 13:47:38.523 GMT
(Updates shares in sixth paragraph.)
By Peter Millard
Sept 23 (Bloomberg) -- Brazil is reclaiming part of the
Petroleo Brasileiro SA stake it sold to investors a decade ago
in a record $78 billion share sale today.
The government will boost its stake in Petrobras, Latin
America's second-largest company by market value, to as much as
55 percent from 39 percent now, Adriano Pires, head of the
Brazilian Center for Infrastructure, a research group based in
Rio de Janeiro, said yesterday in a telephone interview.
Petrobras slumped 29 percent this year, the second-worst
performing major oil stock after BP Plc., on concern the sale
will cut earnings and boost state interference after the company
discovered the largest oilfield in three decades. The Petrobras
transaction signals President Luiz Inacio Lula da Silva is
seeking a greater role for the state in the economy ahead of the
likely election of chosen successor Dilma Rousseff next month.
"Many are worried Petrobras is really becoming a policy
arm of the Brazilian government," Harold Sharon, who helps
manage $100 billion including Petrobras shares at Lord Abbett in
Jersey City, said in an interview. "As they sit back and look
at this entire development, it looks far too interventionist."
Petrobras is planning to sell as many as 2.718 billion
common shares and 1.983 billion preferred shares. The government
is buying about $42.5 billion-worth of stock in return for the
right to develop about 5 billion barrels of reserves. State-run
financial institutions such as the BNDES development bank will
likely buy additional shares for cash, UBS AG said Sept. 21.
Shares Rise
Petrobras rose 42 centavos, or 1.6 percent, to 26.40 reais
as of 10:42 a.m. in Sao Paulo trading. The stock declined about
28 percent this year.
The Petrobras sale would amount to more than 20 percent of
the value of all equity offerings already completed in 2010 and
be more than three times the record $22.1 billion raised by
Agricultural Bank of China in July, according to Bloomberg data.
Lula is strengthening control over the domestic oil
industry after the Tupi discovery in 2007, the largest find in
the Western Hemisphere since Mexico's Cantarell in 1976. Lula
says Brazil is relying on the country's oil wealth to help raise
the nation's 192 million people out of poverty.
"It's a clear process of reverse privatization," Rogerio
Freitas, who manages about $25 million at Teorica Investimentos
in Rio de Janeiro, said in a telephone interview. "The
Brazilian public sector will increase its participation, and
that's not good."
Government Agencies
The government and state agencies will buy 56 percent to 69
percent of the offering, allowing Petrobras to place all the
shares, Lilyanna Yang, an analyst at UBS AG in New York, said in
a Sept. 21 note to clients.
Telephone messages left at Lula's press office in Brasilia
were not returned. A spokeswoman at Petrobras's press office,
who declined to be identified under company policy, wouldn't
comment on the prospect of increased government control.
Brazil, the world's largest producer of orange juice and
coffee, is taking advantage of rising prices to exert greater
control over commodity companies. Lula has asked Vale SA, the
world's largest iron ore company, to invest in steelmaking
plants in Brazil instead of sending iron ore abroad, while
Dilma, a former Petrobras chairman, said Vale should face
tougher requirements for tapping Brazil's natural resources,
according to a February interview with Epoca magazine.
'State-Oriented Discourse'
Dilma "has a very state-orientated discourse," Roberto
Padovani, chief economist at Banco WestLB do Brasil SA in Sao
Paulo, said in a Sept. 22 telephone interview.
Brazil's government owns a 32 percent stake in Petrobras
and controls the company through 55.6 percent of voting shares.
The government holdings of Petrobras's voting shares will
probably rise to about 65 percent after the share sale,
according to the Infrastructure Institute's Pires.
Vale is Latin America's largest company.
Since the government sold more than a quarter of
Petrobras's shares for about $4.1 billion in 2000, the company
has invested in boosting the search for oil. State-owned rivals
Petroleos Mexicanos and Petroleos de Venezuela SA struggled to
stem declines and Pemex posted five straight years of lower
output. Petrobras expects to double output by 2020.
Brazil's development bank, known as BNDES, will buy enough
shares in the Petrobras offer to maintain its shareholding,
Andre Carvalhal, head of the international market department at
BNDES, said in a Sept. 15 interview. BNDES is the second-largest
shareholder in Petrobras after Brazil's government.
$379 Billion
About $379 billion has been raised by companies selling
shares this year, the same pace as a year ago, data compiled by
Bloomberg show. A total of 167 equity offerings valued at $29.5
billion have been postponed or withdrawn around the world this
year, the most since at least 1998, the data show.
The share sale is putting the state's interests above those
of minority shareholders, said Ed Kuczma, an emerging markets
analyst at Van Eck Associates in New York, which manages $21
billion and sold Petrobras shares this quarter.
"We vote with where we put our funds and decided to get
out," Kuczma said in a telephone interview. "A lot of the
investment is going toward downstream facilities like refining,
which tend to have lower returns."
Petrobras plans to spend $73.6 billion on refining and
distribution in the five years through 2014. Profit margins
there are typically lower than in its exploration and production
business. That's about one third of planned spending of about
$224 billion. The company will "assist" the government in
meeting Brazilian fuel demand, it said in a Sept. 3 prospectus.
'Big Offering'
"This big offering is coming at a time when there's more
concern about the government moving to the left," said Nick
Robinson, who helps manage $25 billion in emerging-market assets
at Aberdeen Asset Management Inc. and owns Petrobras shares.
"Most of the refineries are in the north and the current
government gets most of its support from the north."
Brazil ended Petrobras's monopoly on exploration and
production in 1997 to create competition and encourage the
discovery of oil to fuel the domestic economy. The company also
sold shares to finance exploration, with the government
retaining control of the company's voting shares.
"The Brazilian federal government, as our principal
shareholder, may cause us to pursue certain macroeconomic and
social objectives," Petrobras said in a Sept. 3 prospectus.
"We may engage in activities that give preference to the
objectives of the Brazilian federal government rather than to
our own economic and business objectives," the company said.
Petrobras on Sept. 17 doubled the amount of stock that can
be issued in an additional allotment to as much as 20 percent of
the main sale. That's on top of an already announced
supplementary over-allotment of as much as 5 percent.
The offering has "very strong support from domestic
pension funds and the government," Christopher Palmer, who
oversees about $5 billion as head of global emerging markets at
Gartmore Investment Management Ltd. in London, said in a Sept.
21 telephone interview. "The government thinks this is a good
investment."
Top Stories: {TOP<GO>}
--With additional reporting by Alexander Cuadros in Sao Paulo
and Tal Barak Harif in New York. Editors: Dale Crofts, John
Viljoen.
To contact the reporter on this story:
Peter Millard in Rio de Janeiro at +55-21-2125-2531 or
Pmillard1@bloomberg.net
To contact the editor responsible for this story:
Dale Crofts at +54-11-4321-7735 or
dcrofts@bloomberg.net
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