Brazil stakes future on $75bn Petrobras offer
By John Paul Rathbone in London
Published: September 6 2010 19:27 | Last updated: September 6 2010 19:27
Oil is hard to find. Money, in today’s credit-straightened circumstances, can sometimes even be harder for a company or a country to get its hands on. Even if you have got both – as does booming Brazil, which now counts on an oil reserve base that is bigger, on some counts, than Russia’s or Kuwait’s – you still have to get the two to work together in order to pump, produce, distribute and then use that oil.
That is why what may prove to be the world’s largest share-offering, by Brazil’s Petrobras later this year, says a lot about where the country is at the moment. At up to $75bn, the offer is huge. Given that markets are in something of a funk, the mere fact Brazil is attempting this now, and on the eve of a presidential election, is a sign of brazen confidence. However, the share issue also takes a lot on promise about what kind of country Brazil is shaping up to be – a promise it may or may not be able to meet.
Take the share issue’s size first. In essence, it has two parts. The first involves an issue of almost $43bn-worth of Petrobras stock which will be taken up by the government in return for 5bn barrels of oil. Last week, these undeveloped reserves, which lie under layers of salt hundred of miles offshore and at depths greater than BP’s now-notorious Macondo well in the Gulf of Mexico, were valued at an average $8.51 a barrel. This is far higher than the $6 or so most analysts had pencilled in, so the government will get more Petrobras shares than it would have for that oil. Minority investors have wailed.
Indeed, because of this some people now wonder if Petrobras will be able to get away with the second part of the transaction: a simultaneous issue designed to raise fresh cash from minority investors to fund its $224bn capital expenditure plan. As the issue could be for as much as $32bn, it would be the world’s biggest yet. That is a big reach, even for South America’s biggest quoted company by market capitalisation.
Capital flows
FT interactive graphic: Explore the flow of private capital to key emerging markets from 1995
Still, it is not impossible. After all, liquidity – both local and internationally – is abundant. No other quoted oil company can offer investors a reserve base that is growing as fast as that controlled by Petrobras. The Brazilian state, or one of its associated bodies such as the national development bank, BNDES, can always buy any unwanted shares that investors may not want to take up.
Most important of all, there is a price for everything. So if minority investors do feel as though they have been short-changed by the government on its oil reserves valuation, they can take it out on the price they are prepared to pay for Petrobras stock – both now and when it inevitably has to return to capital markets in the future.
The politics of the deal are also important. A low Petrobras share price may prove slightly embarrassing for Lula Inácio da Silva and his anointed successor, Dilma Rousseff, who is most likely to be Brazil’s next president. But more embarrassing still would have been to face accusations that the government had sold Brazilian oil on the cheap to “Wall Street”. Brazil’s oil, Ms Rousseff has said, is the country’s “passport” to developed world status.
Indeed, that is why under new legislation Petrobras will be the lead operator on all newly developed fields, with a stake of at least 30 per cent, and with multinationals taking a passive financial back seat. Even though Petrobras is a world-class operation, and its motto is “Challenge has always been our energy”, that is a lot for a company to have on its plate.
It is also why new regulations require that much of the equipment and labour to develop Brazil’s deepwater oil wealth has to be found locally. That is an especially tall order, given that Brazilian infrastructure is creaking under the strain of planning and building for the World Cup and Olympic Games. It is also why so few people believe Petrobras when it says it plans to double oil production to more than 5m barrels a day by 2020.
Brazil, as the old joke goes, is the perennial country of the future. In many ways, it remains so. |
