Brazil Official:No Need For Govt To Up Petrobras Stake

Brazil’s government already holds voting control of state-run energy giant Petroleo Brasileiro SA (PBR), so there’s no need to “dominate” the company’s shares, a key energy official said Thursday.

“The government has no intention of dominating Petrobras shares by increasing our stake. We don’t need to,” said Mauricio Tolmasquim, president of the government’s Energy Research Co., or EPE.

“We already have voting control, and that’s not going to change. We are not going to own 60% or 70% of Petrobras unless minority shareholders start reducing their positions,” Tolmasquim added.

Tolmasquim made the comments during a meeting with foreign press in Sao Paulo.

The government and affiliated entities currently hold 57.6% of voting shares in Petrobras and 39.8% of total outstanding shares.

The comments could help reduce minority shareholders’ concerns about dilution in the wake of the government’s plan to inject capital into Petrobras.

The infusion is part of proposals aimed at changing the regulatory framework governing Brazil’s oil and natural gas sectors. The measures will also define how recently discovered offshore oil reserves will be developed.

The so-called subsalt finds were made under a thick layer of salt in the Santos Basin off the coast of Sao Paulo and Rio de Janeiro states. The oil lies under more than 2,000 meters of water and a further 5,000 meters under sand, rock and a shifting layer of salt.

Brazil’s government plans to cede rights to explore and produce 5 billion barrels of oil in the subsalt region to Petrobras. Petrobras will pay fair-market value for the oil with a share offering, and the company has pledged minority shareholders’ rights will be maintained.

The share offer will be proportional to the value of the 5 billion barrels, with the total value of the offer about three times the value of the oil. The government will get roughly one-third of the shares, with minority shareholders getting the rest.

Brazil’s government, however, will be allowed to buy any shares that minority shareholders decline to subscribe, Petrobras officials have said. In addition, the government hasn’t yet decided whether the government’s unemployment fund, which holds 3.7% of voting shares and 2.1% of total shares, will be allowed to subscribe to the offer.

That would also be a way for the government to increase its stake in Petrobras while staying within rules dictated by local and overseas stock exchanges.

While Tolmasquim discarded government plans to increase its participation in Petrobras, he echoed comments made last week by company officials that proceeds from the share offer would give Petrobras greater financial flexibility.

“The share offering ultimately means Petrobras’ debt-to-capital ratio will be reduced greatly, which will give Petrobras room to borrow more against that capital,” Tolmasquim said. “That extra leverage will allow Petrobras to invest even more.”

Petrobras’ leverage is currently about 28%, within the 25%-30% range that the company defines as optimal. Last week, Chief Financial Officer Almir Barbassa said the company would look to tap global capital markets after the share offer and likely return to this leverage level.

Petrobras’ locally traded shares reacted positively Thursday, with preferred shares advancing 1.0% to 33.34 Brazilian reals ($18.31). Petrobras’ common shares, which carry voting rights, rose 0.9% to BRL40.17.