RIO DE JANEIRO (Dow Jones Newswires), Sep. 23, 2010
Shares in Brazilian oil giant Petrobras soared on Thursday, amid expectations that there's plenty of demand for the world's largest ever share issue, despite fears of government meddling.
"Demand is enormous and well oversubscribed," said Don Gimbel, a fund manager at Carret & Co, echoing the enthusiasm in the market. "This is a huge opportunity to participate in a very large deposit."
Petrobras' preferred shares trading in Sao Paulo rose sharply from the open, and were up 4.8% at 27.23 Brazilian reals ($15.85) at 1637 GMT on the Sao Paulo Stock Exchange, while in New York, the company's American Depositary Receipts were up 3.6% at $35.97.
Petrobras' one-of-a-kind access to some of the largest oil deposits discovered in the world over the past 30 years is enough to lure investors to the share offer, despite concerns about growing government meddling in the company.
Before Thursday's stunning gains, Petrobras was expected to price the share offer at between BRL25.00 and BRL26.00 per share. That would generate between $68 billion and $74 billion for the company, making the share offer the world's largest. Japan's Nippon Telephone & Telegraph held the previous record, raising $36.8 billion in 1987.
Now, expectations are growing that the offer could price at or above the top end of the range because of strong demand. The development puzzled some fund managers who had watched the offer closely.
"We expect the pricing to come in at BRL25.50, but this movement is strange," a fund manager who declined to be named said about the jump in Petrobras' shares. "That could indicate that the pricing will come in closer to BRL26.00 per share."
Petrobras may be able to set the price nearer to Thursday's rally point because of the strong demand, said Daniel Gorayeb, of Sao Paulo-based Accerta Investimentos.
"We're working with BRL27.00 a share," Gorayeb said. "Indications are that the bookbuilding has been successful and there's the demand [to support this price]. The offer's big, but we believe they're going to sell it all."
It's a sharp turnaround in Petrobras' fortunes, which had been clouded by uncertainties surrounding the share offer and an oil-rights swap with the government. Petrobras shares have been hammered throughout 2010, plummeting nearly 30% compared with 1.4% rise for the benchmark Ibovespa stocks index.
The slide in Petrobras shares compared with other emerging-market stocks represents "a big opportunity," said one U.S.-based fund manager. The fund manager, however, expects a slight discount to the market rally, "otherwise there is no point to buy [the shares]."
But many investors remain concerned about Brazilian President Luiz Inacio Lula da Silva's plans to increase the government's stake in the company.
Brazil, which currently owns 30% of Petrobras' shares and more than 50% of its voting stock, is expected to buy a majority of the offer directly or indirectly via state pension funds and state-owned banks such as Caixa Economica Federal, Banco do Brasil (BBAS3.BR) and the Brazilian National Development Bank, or BNDES.
A greater government stake in the company is seen as a reversal of the privatization that took place in the 1990s, which turned Petrobras from a sleepy state-owned company to a cutting-edge oil giant that has undertaken some of the most difficult and challenging exploration and production work in the world.
"The way the stocks are moving, it would imply pricing towards the upper range...probably around where it's trading when the offer is announced," said one portfolio manager, who asked not to be named. The portfolio manager added that with all the money and work the company has to put in to develop massive recent oil funds, he sees little value in the stock for the next five years.
Rogerio Freitas, who manages $100 million for Rio de Janeiro-based investment fund Teorica Investimentos, echoed those comments, saying he would sit out the offer because Petrobras' efficiency and productivity will likely be crimped, thereby undercutting investor returns. A price above BRL26.00 per share was not likely to be a good deal for investors, according to Freitas.
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