Petrobras to sell $65 bln stock in record offer-UPDATE 4

Trade the News

Saturday September 04, 2010 02:51:13 PM GMT

* Massive share sale to bankroll offshore plans

* Offer could expand by $10.2 billion with "greenshoe"

* Part of stock to be used in oil-for-shares swap

* Preferred shares open more than 3 pct higher (Updates with share price opening, adds details)

By Brian Ellsworth

RIO DE JANEIRO, Sept 3 (Reuters) - Brazilian state oil company Petrobras on Friday filed to sell up to $64.5 billion of new stock -- the largest in capital markets history -- sending its stock sharply higher after months of uncertainty that dragged on share prices

The offer could be expanded to as much as $74.7 billion if underwriters exercise a "greenshoe" option to sell an additional 564 million shares to meet extraordinary demand as the company raises funds for the world's biggest oil exploration program.

That would top the $22.1 billion IPO by Agricultural Bank of China earlier this year, as well as the $36.8 billion share offer by Japanese telecommunications company NTT in 1987.

The company said in a statement it will offer 1.59 billion new preferred shares and 2.17 billion new common shares, as part of a plan that includes a $43 billion state-backed swap of oil for shares.

The company's preferred shares, its most widely traded class of stock, opened up 3.26 percent higher at 28.50 reais following the announcement of the filing.

Petrobras expects to begin bookbuilding Sept. 3 and price the share sale on Sept. 23.

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 by tapping oil buried deep under the ocean floor in a region known as the subsalt.

At Thursday's closing prices, the company would raise 67.8 billion reais ($39.2 billion) from the sale of common shares and 43.8 billion reais ($25.4 billion) from the preferred shares.questioned the high price for the oil reserves to be used in the oil-for-shares swap, which has sparked fears Petrobras may be overpaying for the assets and diluting shares.

Under the terms of the $43 billion oil-for-shares swap, Petrobras said on Wednesday it agreed to exchange part of the stock to be issued for development rights to 5 billion barrels of valuable offshore reserves at a price of $8.51 per barrel -- far above the $5 to $6 per barrel that analysts saw as fair.

Government leaders have also said they plan to boost the state's participation in the company's capital to around 40 percent from current levels near 30 percent, which has left some investors nervous about greater state sway in the company.

Analysts said the large size of the swap of oil for shares with respect to the entire stock sale -- authorized by shareholders for up to $85 billion -- shows the government expects it will be able to pick up a considerable number of shares not purchased by private investors.

INVESTOR INTEREST

But some investors say those concerns have already been priced into the shares and that the company is still a compelling investment given its unique access to quality oil reserves in a world that is quickly running out of them.

"I think people are going to be surprised by the number of investors that subscribe," said Marc Fogassa, a managing partner at Hedgefort Capital Management, which owns shares in Petrobras.

After months of uncertainty over the plan that pushed Petrobras shares down by as much as 25 percent from the start of the year, progress advancing the issue has heartened some shareholders.

"The worst of the slaughter is behind us," said Marcio Macedo, who oversees about $40 million of assets at Humaita Investimentos in Sao Paulo. "The stock's value is now attractive."

He added that many investors spent the last several months selling or shorting Petrobras to go long in other sectors such as Brazilian banks or retail, and he expected many would take advantage of this offer to get back into the company.

Oil for the exchange will come from at least six fields in the subsalt region, most of which are adjacent to major offshore discoveries such as Franco and Tupi finds.

The offer will be led by Banco Bradesco in coordination with Bank of America Merrill Lynch, Citigroup, Banco Itau, Morgan Stanley, and Banco Santander Brasil. The offer will also be co-managed by BTG Pactual and Banco do Brasil. (Additional reporting by Elzio Barreto; Editing by W Simon and Steve Orlofsky)

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