Tags: Mobius | Petrobras | Share | Offering | Abomination | Mark

Mobius: Petrobras Share Offering an ‘Abomination’

Monday, 27 Sep 2010 08:46 AM

Petroleo Brasileiro SA’s $70 billion stock sale was an “abomination” that treated minority shareholders unfairly and may signal share offerings are overvalued, said Mark Mobius, who oversees about $34 billion as executive chairman of Templeton Asset Management Ltd.

“The entire Petrobras issue is an abomination and a terrible violation of shareholder rights,” Mobius said in a telephone interview from Kazakhstan. “We may be entering an IPO bubble. It means that people are just not looking at the values and irrationally buying these things.”

Petrobras, based in Rio de Janeiro, sold 2.4 billion common shares for 29.65 reais each and priced 1.87 billion preferred stock at 26.30 reais a piece in the world’s biggest share sale, according to a statement late Thursday. The stock fell 0.8 percent in Sao Paulo trading Friday at 12:55 p.m. New York time.

The oil company is spending about $224 billion over the next five years to boost production to 5.38 million barrels a day by tapping deposits trapped under a layer of salt beneath the ocean floor. As part of the sale, Petrobras issued about $42.5 billion of stock to Brazil’s government in exchange for the rights to develop 5 billion barrels of oil reserves.

“The whole idea of the government not putting any cash in and setting a price on these reserves that’s questionable at best is unfair,” Mobius said.

Shares Slump

Petrobras slumped 28 percent this year, the second-worst performing major oil stock after BP Plc, on concern the sale will cut earnings and boost state interference after the company discovered the largest oilfield in three decades. The Petrobras transaction signals President Luiz Inacio Lula da Silva is seeking a greater role for the state in the economy before the likely election of chosen successor Dilma Rousseff next month.’

A Petrobras official, who declined to be identified in accordance with policy, said the company will make a statement shortly.

“They can claim that Brazilians are well-subscribed and so on, but in reality in order to make sure this thing take off the government is making sure its organizations” invest in the deal, said Mobius. “The question is: Who were the buyers?”

The company sold 115 billion reais ($67 billion) of shares and banks have an option to buy another 5 billion reais, according to a statement sent late Thursday.

The Brazilian government is increasing its stake to 48 percent from 40 percent, Finance Minister Guido Mantega said at an event in Sao Paulo. Before the sale, the government controlled the company through 55.6 percent of voting shares. Petrobras didn’t disclose the government’s voting stake after the offering.

Local Buying

Mobius says another policy that will trim earnings prospects for the company is its so-called local content policy, in which preferential treatment is given to domestic companies that provide products for the nation’s oil industry.

“If this money was being spent on internationally competitive services and product — fine,” said Mobius. “But they are constrained to buying local, which means they’re going to be paying more than they should to get that oil out of the ground.”

Chief Executive Officer Jose Sergio Gabrielli plans to double output to 5.38 million barrels a day by 2020, from 2.7 million barrels in 2010.

Will Landers, who oversees about $8 billion in Latin American stocks at BlackRock Inc., says that whether investors disagree with the terms of the deal or not, it’s positive for Brazil’s stock market.

“The fact that Petrobras was able to raise the largest equity offering ever done in the world, 10 days before a presidential election shows how far this market has come,” Landers said in an e-mail. “I continue to be very positive on the Brazilian stock market, and removing this huge overhang from the market has to be seen as positive.”

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Petroleo Brasileiro SA s $70 billion stock sale was an abomination that treated minority shareholders unfairly and may signal share offerings are overvalued, said Mark Mobius, who oversees about $34 billion as executive chairman of Templeton Asset Management Ltd. The...
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Monday, 27 Sep 2010 08:46 AM
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