Brazil's Petrobras poised for record share sale

A general view shows the P-51 oil rig of Brazilian oil giant Petrobras at Angra dos reis in Rio de Janeiro in this August 21, 2008 file photo. Petrobras could raise up to $79 billion later on September 23, 2010 in what would be the world's biggest share offering, pushing the South American country into the elite of global finance.

SAO PAULO (Reuters) - Brazilian oil company Petrobras could raise up to $79 billion later on Thursday in the world's biggest share offering, giving the company the financial muscle it needs to tap vast offshore oil reserves.

The cash portion of the offer, valued at $36 billion, received so much investor interest that it was oversubscribed by twice the available amount, according to International Financing Review. The optimism displayed by investors overshadowed concerns about growing state involvement in the company's affairs.

The share sale will raise funds for the world's largest oil exploration plan, which aims to turn Brazil into a major energy exporter, and follows a prolonged sell-off of Petrobras shares that shaved more than $70 billion off its market value.

"Remove all the elements of uncertainty and markets will feel lighter, so a successful pricing of the deal will be good for everyone," said Jorge Simino, who oversees $10 billion in assets for Sao Paulo-based pension fund Funcesp.

The offer is scheduled to price this evening after markets close. The company said its board will hold an extraordinary meeting at 7:00 p.m. local time (2200 GMT) in Sao Paulo to vote on the final pricing.

Petrobras preferred shares (PETR4.SA), the company's most widely traded class of stock, rose as much as 5.23 percent in afternoon trading in Sao Paulo, outpacing a 1.5 percent rise by the Brazil's benchmark Bovespa stock index .BVSP.

A successful share sale will prove a boon to the wildly popular President Luiz Inacio Lula da Silva as he seeks to usher his anointed successor, former chief of staff Dilma Rousseff, into office in a presidential vote on October 3.

Lula, who leaves office on January 1, has campaigned in favor of the offering with an eye on capitalizing Petrobras, whose growing stature is a source of pride for many Brazilians and mirrors Brazil's rise on the global stage.

"All of my political life they've been calling me a socialist, and now I'm going to do the biggest capitalization that the capitalist world has ever seen," Lula said Tuesday.

Brazil's government will use oil reserves to buy $43 billion in new Petrobras stock, while minority shareholders including institutional investors and state pension funds will pay cash for as much as $36 billion in shares.

That barter will give Petrobras 5 billion barrels of oil in one of the world's most promising energy prospects -- the deep waters off Brazil's southern coast that are believed to hold more than 50 billion barrels of crude.

GOVERNMENT SWAY

Some analysts complained that the oil-for-shares swap could be dilutive to private shareholders because the oil was valued at a higher price than investors expected.

Others said the company was spending too much on refining, transportation and distribution, which offer greater benefits for local economies but lower returns for shareholders.

Rousseff, one of the main architects of the transaction, has insisted that it will allow the state to boost its share of the total capital in Petrobras, though the government already controls a majority of the voting shares.

She led last year's proposed overhaul of Brazil's oil legislation to give the government greater control over new reserves and put Petrobras in all major deep-water projects, possibly stretching the company too thin in the opinion of analysts.

Despite such concerns, the demand was such that Petrobras expanded the offer last week, doubling the "greenshoe" option that increases the number of shares available to an extra 20 percent.

If successful, the deal will easily top Japanese telecommunications firm NTT's (9432.T) $36.8 billion 1987 share sale and Agricultural Bank of China's (601288.SS) $22.1 billion initial public offering earlier this year.

That would thrust Brazil, a growing economic and diplomatic power, to the forefront of global capital markets at a time when the finance industry is still struggling to fully recover from the worst crisis since the 1930s.

AMBITIOUS PLANS

The offering will provide Petrobras with cash for its $224 billion, five-year investment program that would lay the groundwork to develop the vast reserves buried deep beneath the ocean under a layer of salt in a region known as the subsalt.

Petrobras expects that tapping those reserves will in the coming years help push its production above that of the world's biggest private oil companies, including Exxon Mobil (XOM.N) and Chevron (CVX.N).

Some analysts estimate that, regardless of the result of the offering, Petrobras will end up borrowing up to $60 billion in bonds and loans to pay for the massive capex plan.

The company has filed to sell 1.59 billion new preferred shares and 2.17 billion new common shares (PETR3.SA) -- figures that do not include a "greenshoe" option that would expand the offer on extraordinary demand.

At Wednesday's closing prices, the sale of those shares could fetch 106 billion reais ($61.5 billion). The greenshoe option could take that up to $79 billion.

Banco Bradesco BBI, the investment banking arm of Banco Bradesco (BBDC4.SA)(BBD.N), is the lead manager of the offering. Bank of America Merrill Lynch (BAC.N), Citigroup (C.N), Santander (SAN.MC), Morgan Stanley (MS.N) and Itau BBA, the wholesale banking arm of Itau Unibanco (ITUB4.SA)(ITUB.N), will act as global bookrunners of the deal.

($1=1.719 reais)

(Additional reporting by Brian Ellsworth and Denise Luna in Rio de Janeiro, Elzio Barreto in Sao Paulo and Clare Baldwin in New York; Editing by Todd Benson and Dave Zimmerman)