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Oil and Gas

UPDATE 4-Petrobras raises huge stock offer to up to $79 bln

 * Company ups greenshoe offer to 20 pct from 10 pct
 * Share sale to be largest in capital markets history
 * Increase is a sign of potential strong investor demand
 (Updates share price)
 SAO PAULO/RIO DE JANEIRO, Sept 17 (Reuters) - Brazilian oil
giant Petrobras said on Friday its massive share issue could
reach $79 billion, expanding what was already the largest stock
offer in history in a possible sign of strong investor demand.
 State-controlled Petrobras PETR4.SAPBR.N said it could
exercise a "greenshoe" option to sell an additional 940 million
shares to meet extraordinary demand, compared with an original
option to sell 564 million shares, as the company raises funds
for the world's biggest oil exploration program.
 That could be a sign that investors are overcoming concerns
about a $43 billion oil-for-shares swap with the government
that is included in the operation -- an arrangement analysts
called disadvantageous to Petrobras' private shareholders.
 "It's a positive sign. It could mean that there is a big
buyer out there like a sovereign wealth fund that has expressed
interest," said Marcio Macedo, who oversees about $40 million
of assets at Humaita Investimentos in Sao Paulo.
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
 For full coverage of share offer:          [ID:nPETROBRAS]
 Details of capitalization plan:            [ID:nN02ETROBR]
 Brazil oil graphic:         link.reuters.com/wec82j
 Shareholder Graphic:        link.reuters.com/quf29k
 Graphic of oil discoveries: link.reuters.com/fyh84m
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 The massive offer would dwarf the $22.1 billion initial
public offering by Agricultural Bank of China 601288.SS
earlier this year, as well as the $36.8 billion share sale by
Japanese telecommunications company NTT 9432.T in 1987.
 Petrobras preferred shares PETR4.SA, the company's most
widely traded class of stock, were down 0.23 percent at 26.30
reais in early afternoon trading on Friday.
 The company earlier this month filed to sell 1.59 billion
new preferred shares and 2.17 billion new common shares
PETR3.SA -- figures that do not include the greenshoe option.
At Thursday's closing prices, the sale of those shares could
fetch 107 billion reais ($62.5 billion).
 The record size of the issue will create a windfall for
underwriters, which will be led by Brazil's Banco Bradesco
BBDC4.SA in coordination with Bank of America Merrill Lynch
BAC.N, Citigroup C.N, Itau Unibanco ITUB4.SA, Morgan
Stanley MS.N, and Banco Santander Brasil SANB11.SA.
 The offer will also be co-managed by Brazilian investment
bank BTG Pactual [BTG.UL] and state-owned Banco do Brasil
BBAS3.SA.
 Completion of the massive sale is expected to pave the way
for stock offers by other companies that did not want to
compete with Petrobras, including Spanish energy firm Repsol's
REP.MC planned share offer on Brazilian capital markets.
 GREATER STATE CONTROL
 Access to huge crude reserves buried deep under the ocean
floor in a region known as the subsalt and domination of
Brazil's rapidly growing fuel markets have made the company's
stock a top emerging market pick in recent years.
 But uncertainty over the transaction, which was delayed for
two months from its original July launch date, has weighed
heavily on the company's shares. As of Thursday's close, the
stock was down more than 27 percent this year.
 Petrobras will price the offer on Sept. 23, less than two
weeks before Brazilians vote in a presidential election that
polls say will likely favor Dilma Rousseff, President Luiz
Inacio Lula da Silva's anointed successor.
 The transaction is expected to increase the state's
percentage of the company's total capital, a move that is
vigorously backed by Rousseff, who favors a strong government
role in the economy.
 Critics say greater government interference in a company
could upset the delicate balance between state needs and
investor interests, a balance that has turned Petrobras into
one of the world's most respected state-run firms.
 Petrobras has faced skepticism from some investors who
questioned the price of $8.51 per barrel for the reserves to be
used in the oil-for-shares swap, a price considerably higher
than the $5 to $6 per barrel that analysts said was fair.
 The share offer will raise money for the firm's $224
billion, five-year investment plan meant to turn Brazil, which
in 2006 became self-sufficient in crude oil, into a major crude
exporter.
($1=1.713 reais)
  (Editing by Todd Benson, Dave Zimmerman)


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