Petrobras: Petrobras got its cash and shattered a 23-year record for the largest-ever share sale. But in supporting the partial re-nationalization investors took a leap of faith. In their excitement over the Brazilian oil giant's bumper reserves they may be overlooking the pitfalls that accompany one consequence of the deal - greater state ownership.
With giant oil discoveries a precious rarity it is no wonder investors found grounds for enthusiasm in Petrobras.
Including Tupi - possibly the largest offshore field ever - Brazil can boast four of the ten biggest oil finds of the last decade. This alone helps explain why demand for freshly minted Petrobras shares was more than double the offering and why no meaningful discount to share prices was needed to entice investors. Having added around $27 billion to its war chest, Brazil's largest company can be more confident it will have enough cash to extract this hard-to-reach deep sea oil.
Yet important concerns linger. The Brazilian state - already the controlling shareholder - has tightened its grip on the company through the stock offering and simultaneous exchange of reserves for shares. Throw in various official entities and 48 percent of Petrobras' dividends will now flow to the federal government, up from 40 percent before the deal.
Brasilia has shown itself more than willing to use its muscle — forcing investors to overpay for new oil reserves and insisting on massive spending on low return refineries. Investors must hope this more statist approach doesn't spill over into other Brazilian corporate champions, like Vale , the mining company in which the government retains a deal-blocking golden share.
Moreover, Brazil's heavy reliance on Petrobras to monetize the country's resource windfall raises additional risks. The requirement that Petrobras is always lead operator will strain the firm's human and financial resources and may slow the nation's progress toward becoming a big oil exporter. Even after this record deal, Petrobras will still need to pass the hat around again to fund its $224 billion five-year capital spending plan.
Petrobras certainly looks in financially fine fettle after this glitch-free stock deal. But there are still many hurdles to be jumped before the firm reaches its 2017 target of surpassing Exxon as the world's largest publicly traded producer of oil. Along the way investors need to prepare for the possibility their needs will come second to those of Brazil's voters.
