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 yesterday. The stock fell 1.9 percent to 26.30 reais in Sao Paulo trading.
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.
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.
Petrobras said in a statement that the company doesn’t comment on investor opinions. Chief Executive Officer Jose Sergio Gabrielli said in a speech at the BM&FBovespa stock exchange today that the deal was done with “transparency” for investors.
“They can claim that Brazilians are well-subscribed and so on, but in reality in order to make sure this thing takes 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 yesterday.
The Brazilian government is increasing its stake to 48 percent from 40 percent, Finance Minister Guido Mantega said today 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.
Carlos Camacho, who helps manage the equivalent of about $2.1 billion at GAP Asset Management in Rio de Janeiro, bought shares in the offering and said that the government increased its stake simply because they thought it was a good investment.
“Any long-term investors would like it to be a private company looking for profit as its only objective,” said Camacho in a telephone interview. “Petrobras, as a state company, has other motives. In the short-term it may not be so profitable but, when you look at a five-year horizon, it’s a good investment.”
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 products -- 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.”
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.”