Chillin' out till it needs to be funded
Yes, while the world goes up and down the camel’s back trying to make sense and clear the sand out of its eyes, the world’s greatest petroleum company has found a novel way to fund its shareholders in its upcoming IPO. Petrobras is buying oil reserves from the Brazilian Government admittedly at a 33% premium over its expected price of $6 per barrel. The Brazilian is first selling 5 billion barrels from the oil reserve towards Petrobras new exploration plans for 2010-14 for a whopping $8.51 per barrel for oil in the Pre Salt region.
Oil for the exchange will come from six fields, including key deep water discoveries such as Franco and Tupi that are buried under a layer of salt in a region known as the subsalt that President Luiz Inacio Lula da Silva has called a "gift from God."
A Tragedy without end is better than a tragic end…
From the $40 odd billion collected, it will buy more equity worth $21.95 billion as Petrobras issues 2.7 billion common equity and 1.59 billion preferred equity including a public issue to retail shareholders. As a greenshoe option Petrobras will further raise his offering by 564 million equity and for any gaps in demand the Brazilian government gets a further option on the Petrobras stake, buying another $20.8 billion ( 36 billion Reais ) worth Overall according to Reuters reports Petrobras could be raising nearly $75 billion or Reais 128 billion
Investors worry that the high price per barrel will leave Petrobras overpaying for the assets and dilute shares. The company had pushed for a price closer to $6 per barrel.The plan has become the financial cornerstone of the company's $224 billion five-year investment plan meant to turn Brazil into a major oil exporter.Petrobras hopes to complete both the swap and the share sale within its September target to avoid overlapping with national elections on Oct. 3.Petrobras in the coming days will likely hold a roadshow to convince skeptical investors to join the operation. Uncertaintyabout the plan has pushed its shares down 25 percent since the start of the year.The share offering is so large it is already helping strengthen Brazil's real currency on the expectation of massive capital inflows.
In a seemingly complex transaction that robs Peter to pay well, another Peter..the transaction simplifies the task of emerging market governments to maintain public control over resource rich businesses that have become the mainstays of economies such as Australia, Brazil and China where all the three have moved into a realm where state control is mostly fiscal support and aided by professional managers with well skilled risk taking and intelligence gathering giving them their unique capabilities to compete in new services businesses and global trade without losing the price competitiveness of their exports in a continuing global depression.
The largest IPOs till date have been ICBC in 2007, SagBank both from China and the upcoming GM IPO all in the above $20 billion range. Moody’s appreciates the capital offering and is mulling upping Petrobras credit ratings.