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Petrobras unveils world’s largest public share offering, but there are questions…

Saturday, September 4th 2010 - 05:24 UTC
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The Brazilian oil and gas company needs the money to develop huge sub-salt offshore deposits The Brazilian oil and gas company needs the money to develop huge sub-salt offshore deposits

The Brazilian state managed oil company Petrobras unveiled on Friday plans to sell up to 64.5 billion US dollars of new stock, in one of the world's largest public share offerings.

The transaction could be expanded to as much as 74.7 billion if there were heavy demand, the company said. The money will fund the development of recently-discovered huge oil reserves off the coast of Rio de Janeiro.

Shares in Petrobras rose 4% in late afternoon trade in Sao Paulo. Petrobras stock is also traded in New York, Madrid and Buenos Aires.

The company said it would issue 2.17bn common shares and 1.58bn preferred shares. The price of the new shares will be announced on 23 September.

A pubic share offer had been expected earlier this year but was delayed while a deal was sorted out over how many shares the Brazilian government would receive in return for giving Petrobras access to up to 5bn barrels of oil.

Some investors have questioned the price of 8.51 US dollars per barrel eventually agreed in the oil-for-shares swap, believing that 5 to 6 USD would have been fair.

International Finance Review in a release to its subscribers said that the figures of the offering made headlines on Friday, but “as investors sifted through the 620-page preliminary prospectus it became clear that what will actually reach the market is a far smaller amount. More importantly, while the number of shares held in the market will increase, the percentage of the company that is owned by the public is being reduced”.

Meanwhile OGX Petroleo & Gas Participacoes SA, controlled by Brazilian billionaire Eike Batista, fell the most in more than two months is Sao Paulo trading, 5.7%, as investors sold shares ahead of the equity offering from Petrobras.

The Ontario Teachers’ Pension Plan Board said in a filing today that it cut its stake in OGX to 4.77% on Septembeer first after previously holding as much as 10.67%, according to data compiled.

Petrobras gained 4.4% to 28.80 Reais after losing 25% this year through Thursday. The company is raising money to fund a 224 billion USD plan to develop offshore fields and expand refineries. OGX, which doesn’t yet produce any oil, surged 20 percent in the same period.

Finance minister Guido Mantega said the Brazilian government will “act strongly” to prevent the national currency from appreciating too much because of a flood of US dollars into the country from the massive offering of state-run Petrobras.

Brazil's Real gained in the week for a fourth session and traded at its strongest level since December on Friday as investors positioned their bets for a rally for the currency because of dollar inflows.

Overseas investors normally buy two-thirds of share sales in Brazil, raising concerns of large capital inflows as fund managers exchange dollars for Reais to buy the stock.

“Since we are getting closer to the offering, I believe it's interfering with the exchange rate the past days or past weeks,” Mantega said in a conference call with reporters. “This is temporary and the government intends to act strongly” to prevent an appreciation.

Categories: Investments, Brazil.

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