The $64bn offering well surpasses the $36bn raised by Japanese telecoms firm NTT in 1987
Brazil's state-controlled oil company Petrobras is aiming to sell a record-breaking $64bn (£41bn) worth of shares to investors this week – the latest and biggest sign of the developing nation's recent ascent through the ranks of world finance.
The offering is set to become the largest issue to date, surpassing the $36bn raised by Japanese telecoms company NTT in 1987 and the $24bn raised by the Royal Bank of Scotland in June 2008, when the lender rushed to inflate its corporate buffers as the credit crunch started to deepen.
Investors are flocking to emerging markets, bonds and natural resources as they escape moribund equity markets in Europe and the US. Meanwhile, developing economies such as Brazil are booming as they sell oil, minerals and metals at record prices. Their financial systems have also been less battered by the credit crunch than those in the west, as their more traditional banks avoided the complex sub-prime lending deals that led to the global recession.
Rio-based Petrobras, an offshore oil driller, will use the funds raised to help finance its $224bn investment plan through 2014. As many as 26 investment banks have been appointed to distribute the shares, including Goldman Sachs, Bank of America, Merrill Lynch, Banco Santander and Citigroup.
Petrobras, already the fifth largest publicly listed oil and gas firm, aims to make Brazil one of the world's biggest oil exporters. It plans to tap oil buried under the sea floor in a region known as the subsalt.
Deals such as Brazilian ethanol and sugar company ETH's purchase of rival Brenco have lifted Brazil to the world's number five rank in mergers and acquisitions this year – up from eighth over the same period last year – according to Dealogic. Only the US, Britain, China and Canada have struck more deals than the South American country. Brazil is also ranked seven in terms of equity issues – up from 10th last year – and 21st in debt transactions, a jump from its 29th rank in 2009.
Banks are expanding their operations in Sao Paulo, Brasilia or Rio as they try to exploit the country's rich mineral reserves, including iron ore, aluminium or copper. Brazil is also rich in soya beans, fruit, coffee, sugar and cotton.
The Petrobras sale is also expected to attract interest from energy investors, who have rushed into natural resource companies as they perceive them to be safer than the recently volatile credit and equity markets. Gold last week reached a record of $1,274 per troy ounce, while Exchange Traded Funds have proliferated in stock markets across Europe as investors seek exposure to commodities and energy. In the meantime, the FTSE 100 has barely gained 1.8% this year.
Utility and energy is the second biggest generator of equity issues in Europe so far this year, with $8.4bn worth of transactions. Only banks have issued more, worth $17bn.
Copyright Speakers Corner 2017