The clock is ticking on the giant share offering of Petrobras which could raise as much as $78BN on Thursday. The stock has rallied in recent days thanks to increases in oil prices. Even so, it is still down 25% on the year as investors digest the price put on the five billion barrel transaction of $8.51, above their preferred area of $5-6.50 but below worst estimates of $10.
Warning bells have been going off for months. Brazilian investors saw this coming and many had expressed significant scepticism at the end of last year on prospects for the deal. Back then Walter Mendes, Chairman at the Association of Investors in Capital Markets, was robustly critical of the government's role and the short period given for the cost evaluation of the barrels commissioned by the National Petroleum Agency. "Uncertainty related to the deal is the reason the stock has suffered so much. We would have liked minority shareholders to vote on this issue in the General Assembly with the government excluded as it is the majority shareholder," he said.
Mauro Cunha, head of equities at Mauá Sekular in São Paulo, betrayed equal frustration, believing that the government had bypassed CVM rules and dealt with the capital raising opaquely while Rafael Sales, a fund manager at Constellation in São Paulo, had suspected that there would be a drop in preference shares and that valuations looked expensive to international norms.
The deal has at set back the cause of Brazilian corporate governance and given smaller companies a bad example of the power that a controlling shareholder can but should not wield. The likely election of Dilma Rousseff on October 3 suggests that further interventions in other state and formerly state-owned companies will be an unwelcome part and parcel of the development of Brazilian capital markets.