Petrobras Raises $67B in World's Largest Share Offer

RIO DE JANEIRO (Dow Jones Newswires), Sep. 24, 2010

Petrobras late Thursday finalized the terms for the world's largest share offer, setting its sights on turning the Latin American country into one of the world's top oil producers.

Petrobras said in a regulatory filing that it priced the issue of about 4.08 billion voting and preferred shares, raising approximately
$67 billion. That tops the previous record share offer set in 1987, when Japanese telecommunications company Nippon Telegraph & Telephone Corp. raised $36.8 billion.

The share sale is a key step in Petrobras' plans to develop offshore oil fields estimated to be the largest discovered in the past 30
years. Petrobras will invest $224 billion over the next five years to double oil output to 3.9 million barrels a day by 2014, making Brazil
the world's fifth-largest oil producer and likely placing it among the top 10 oil exporters.

Despite the technical challenges and heavy costs associated with the developing oil reservoirs 4 miles deep, the promise of the new fields has made demand for the share offer "enormous," said Don Gimbel, a fund manager at Carret & Co., echoing enthusiasm in the market. "This is a huge opportunity to participate in a very large deposit."

Demand for the offer was about $87 billion, a market participant with knowledge of the deal told Dow Jones Newswires. Another person
involved in the deal said the offering was increased by about 8.6% from the original size of about 3.76 billion shares. Petrobras had
said that it could sell up to 20% more shares if there was sufficient demand.

The cash generated from the share offer will also reduce Petrobras' net debt-to-equity ratio, which had bumped up against the company's self-imposed 35% limit. The fresh capital will once again allow the company to raise more money on the debt markets. Last year, Petrobras borrowed a record $30 billion, including debt issues, bank loans and an oil-for-loan deal with China Development Bank.

Petrobras' preferred shares closed sharply higher Thursday on the Sao Paulo stock exchange, advancing just over 4% to BRL27.05 Brazilian reals ($15.74). The company's American Depositary Receipts closed 3.6% higher at $35.97 on the New York Stock Exchange.

Petrobras shares have tumbled this year amid uncertainty about the size and timing of the offer, and concerns that the government will
start to exert more influence over the company's management. Until late August, Petrobras' stock had underperformed those of other major oil companies except BP, whose shares have been punished because of the oil spill in the U.S. Gulf of Mexico. Compared with
Brazil's benchmark Ibovespa index, which has climbed 1.4% during the year, Petrobras' shares plummeted 30%.

The share offer's success comes after months of delays as lawmakers bickered over the bill approving the share sale and the company
haggled with the government over an oil-rights transfer.

The government will purchase about $43 billion of the new shares in exchange for ceding rights to 5 billion barrels of oil. As a result,
its ownership of Petrobras is expected to increase from the current 30% stake and more than 50% of voting stock, a slice of the pie that
is expected to grow larger in the share offer as various public investment vehicles and state-owned banks buy up shares.

Some investors see the government's growing role as a reversal of the partial privatization of Petrobras in the late 1990s, a transaction
that was considered a benchmark for the country's effort to revamp its old, state-run industries and open them to foreign investment.

Rogerio Freitas, who manages $100 million for Rio de Janeiro-based investment fund Teorica Investimentos, said he was planning to sit out the offer because he believes greater state participation in Petrobras will hurt the company's productivity. A price above BRL26.00 a share wasn't likely to be a good deal for investors, he said.

The joint global coordinators for the deal are Bank of America Merrill Lynch, Morgan Stanley, Citigroup, Banco Itau, Banco Bradesco and Banco Santander.

Petrobras will sell 2.29 billion voting shares at BRL29.65 apiece and 1.79 billion preferred shares at BRL26.30, the company said in a
filing with the Brazilian securities regulator. That also includes common American Depositary Receipts, each representing two voting
shares, which were priced at $34.49, and preferred ADRs, priced at $30.59, the company said.

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