Why the Latest Petrobras Share Offering May Actually Be a Success

June 26, 2019 by Jon C. Ogg

Source: curraheeshutter / Getty Images
At a time when it is hard enough to make money investing in oil and gas stocks, some investors might wonder why anyone would bother, or dare, to invest in a state-run oil and gas giant. Petroleo Brasileiro S.A. (NYSE: PBR), or Petrobras, priced a global offering by Caixa Economica Federal of 241,340,371 common shares, including 69,302,000 common shares in the form of American Depositary Shares (ADSs).

According to SEC filings, the global offering consisted of an international offering of common shares and ADSs in the United States and other countries outside Brazil. There was also a concurrent public offering of common shares sold in Brazil. For investors who trade ADSs in the United States, that portion of the offering was sold at $15.84 per common ADS.

Rather than the funds going to assist Petrobras itself, the $1.9 billion or so in aggregate proceeds from the total offering went back to the Caixa Economica Federal as the selling shareholder.

Many of the firms in the underwriting syndicate may not be household names to U.S. investors. Caixa Economica Federal, UBS, Morgan Stanley and BofA Merrill Lynch acted as the global coordinators and joint bookrunners for the international offering.

Petrobras is a state-owned oil and gas giant which has been attractive to many investors in years past. Unfortunately for those investors, Petrobras does not treat its common shareholders the same in the capital structure as U.S. or European companies typically do. Petrobras has been subject to the political whims of Brazil, and it is no secret that Brazil seems to have an economic soccer match where the pendulum swings from socialism to capitalism and back toward socialism too frequently. There have also been scandals inside of Petrobras and many Brazilian entities that may scare off (or prevent) traditional investors from wanting to buy into the company.

In late 2018, Petrobras acknowledged that it needed to look at a lighter capital structure, a move to boost output and lower its on-balance-sheet debt. Its current capital ownership composition shows that over 50% of the shareholder structure is owned by the federal government of Brazil and another 9.9% direct ownership is held by the Brazilian Development Bank (BNDES). Only 18.6% of the shareholder representation was made up of the so-called Depositary shares that matter to U.S. investors.

The New York-listed ADSs for Petrobras were last seen trading down 0.7% at $15.87 on Wednesday with more than 48 million shares having traded hands by 2:30 p.m. Eastern Time. Its ADSs trade about 16 million shares on an average day, and they have a 52-week range of $9.71 to $17.90.

While another offering that doesn’t benefit the company itself may be viewed with less than enthusiasm, maybe it’s a good thing that the ADSs were down less than one-percent. That said, the ADSs were trading at $16.60 on Monday before the offering and market sell-off were able to be factored in.

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