beyondbrics

Petrobras has revealed the details of its proposed share issue later this month, set to raise as much as R$55bn ($32bn) from minority shareholders in a much-needed boost to its chances of fulfilling its ambitious $224bn capital expenditure plan for 2010 to 2014.

The offer is likely to be the biggest of its kind in global corporate history. (The details, in Portuguese only, are available here.) Yet Petrobras could easily find itself soon coming back to capital markets for more.

Exactly how much Petrobras will raise this month from minority shareholders will be known as book building takes place over the coming three weeks.

What we know now is that, irrespective of price, the government and BNDESPar, the investment arm of the national development bank, will subscribe to shares worth R$74.8bn – the value of the 5bn barrels of oil it will sell to Petrobras as part of the capitalisation plan, which were priced at R$14.96 ($8.51) per barrel on Wednesday evening.

Given the number of shares to be issued, at current prices that leaves about R$55bn to be picked up by minority shareholders.

That looks ambitious to say the least. Most analysts had previously expected minority shareholders to be asked to supply about $25bn under the offer. Even on that basis, it was feared that investor appetite would fall short, leaving the government to soak up the excess, diluting other shareholders and increasing its control over Petrobras.

It is not clear how much the issue will boost Petrobras’s capacity to invest. Proceeds will be used to pay for its capex programme – though cash from minority shareholders, along with the 5bn barrels that it can book as assets, will also boost its balance sheet and allow it to raise fresh debt without jeopardising its cherished investment grade status.

But Petrobras’s plans go far beyond its 2010 to 2014 capex programme. For a start, it will have to invest huge amounts to bring the 5bn barrels to the surface. And that is before it begins exploring the rest of the pre-salt province.

Under legislation now before Congress, Petrobras would be the sole operating company in any consortia formed to explore the pre-salt fields, and would provide at least 30 per cent of all investment capital.

Once it starts shouldering burdens like those, this month’s share issue may begin to look a lot smaller.

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