Petrobras gets into deep water

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.

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I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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