Jose Sergio Gabrielli, chief executive officer of state-controlled oil producer Petroleo Brasileiro SA, said he expects to tap global demand for a $25 billion share sale and that the offering will be open to new shareholders. Investors are “looking for Petrobras right now,” Gabrielli, 60, said in an April 30 interview in Sao Paulo. The sale will now be “public, it’s going to be open to everybody. We think there is no problem in demand.” Petrobras, based in Rio de Janeiro, is seeking Congress’s approval for a plan to swap new shares for 5 billion barrels of oil reserves at a price determined by the government. Gabrielli said the company will do a traditional stock issue by end-July if Congress fails to approve the plan, testing investor demand for Brazilian share sales after five of seven initial public offerings this year raised less than originally sought. “What you are seeing is Petrobras preparing for any eventuality based on the decisions of Brasilia,” Gianna Bern, who follows the oil industry as president of Brookshire Advisory & Research in Flossmoor, Illinois, said in a May 1 telephone interview. “They’ll see ample demand from global investors.”

Petrobras fell in Sao Paulo trading after the change of plans for the sale cast doubts on whether the government will invest in the offering to make up for lack of demand. It declined 4 percent to 31.50 reais, the lowest closing price since Aug. 31.

‘Sizeable Overhang’

“The announcement of a global share offering validates fears of sizeable overhang,” JPMorgan Chase & Co. analyst Sergio Torres said in a note to clients today. “It is possible that the government could not fully become the investor of last resort as we had assumed.”

JPMorgan cut the stock to “neutral” from “outperform” today and lowered the nine-month target price for Petrobras American depositary receipts to $48 from $57.

Petrobras, with a market value of 309 billion reais ($178 billion), expects to spend $200 billion to $220 billion through 2014, more than any other oil producer in the world. Most of the investment will go into developing Brazil’s pre-salt area in deep South Atlantic waters where Petrobras found Tupi, the Americas’ largest oil discovery since 1976.

The size of the sale “will depend on our capex plan that we are going to approve next month,” Gabrielli said. “We are finishing our evaluation of our different projects and the cash flow that we can generate, and after that we can decide how much we need in equity issuance,” he said.

NO VALUE YET

Petrobras said in a regulatory filing today that it hasn’t yet set a value for its share sale and business plan.
OSX Brasil SA of Rio de Janeiro raised $3.9 billion less than it initially sought in its share sale on March 18. Billionaire owner Eike Batista also called off plans to take another of his companies public last month.

Existing Petrobras shareholders will be given “priority rights” in accordance with their shareholding in the forthcoming sale, the company said in an April 30 statement, without giving further details.

Petrobras expects to sell $60 billion-worth of new shares, including the stock to be swapped for the government-owned reserves, O Estado de S. Paulo newspaper reported May 1, citing Chief Financial Officer Almir Barbassa. Foreign investors may buy $20 billion in shares, Barbassa told Estado.

On March 24, Gabrielli said that the sale may raise between $15 billion and $25 billion from minority shareholders. Credit Suisse Group AG of Zurich said the company may raise $20 billion to $25 billion, according to a note to clients on April 15.

Biggest in Decade

At $25 billion it would be the biggest share sale in the Western Hemisphere since 1999 and be equal to about 2 percent of the market capitalization of all publicly traded shares in Brazil, according to data compiled by Bloomberg.

Petrobras does not plan to sell bonds this year because it is reaching “the upper limits” of how much debt it can have before it puts the company’s investment grade debt rating at risk, Gabrielli said.
Brazil’s National Petroleum Agency, known as ANP, has hired Petrobras to explore for the 5 billion barrels of reserves the government plans to exchange for shares.
* *This news was published by  Bloomberg.com . Monday, 3 May ,2010