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Brazil Privatizes Fuel Distributor in $2.3 Billion Offering

Brazil Privatizes Fuel Distributor in $2.3 Billion Offering

(Bloomberg) -- Brazilian oil giant Petroleo Brasileiro SA sold down a majority stake in its fuel distribution unit, effectively ending government control over the biggest player in the industry as part of a drive to privatize state-run assets and stoke competition.

The Rio de Janeiro-based energy producer raised 8.6 billion reais ($2.27 billion) selling shares in Petrobras Distribuidora SA, reducing its position to 41% from 71%, according to a regulatory filing. It’s Latin America’s biggest equity offering this year, topping the $1.98 billion sale of shares in reinsurer IRB Brasil Resseguros SA earlier this month.

President Jair Bolsonaro’s administration has vowed to divest state assets, with a goal of raising as much as $20 billion this year alone to help alleviate a fiscal deficit. Petrobras sold a natural gas pipeline network earlier this year while the government has offloaded stakes in IRB and software maker Linx SA.

BR Distribuidora, as the newly privatized fuel company is also known, operates the largest gasoline station network in Brazil, with more than 7,700 branches and more than 1,200 convenience stores. It controlled 27% of Brazil’s fuel distribution market in the first quarter, according to the country’s oil regulator. BR also supplies more than half of the fuel for the domestic aviation industry.

Brazil Privatizes Fuel Distributor in $2.3 Billion Offering

BR has already been shifting to market-driven policies over the past couple of years. It was 100%-owned by Petrobras until a 2017 initial public offering. Its chief executive officer, Rafael Grisolia, who previously worked for Exxon Mobil Corp. in Brazil, is seen as being aligned with private stakeholders’ interests.

The stake sale “reduces the chances of government interference in the company,” said Giovanni Loss, a lawyer specializing in the oil industry and a partner at Mattos Filho Advogados.

The transaction has raised concerns about possible job cuts at BR and the future of fuel distribution to isolated areas of Brazil, such as parts of the Amazon forest, where sales are limited and logistics costs are high. Brazil used BR to supply isolated regions as part of government policy.

BR sees current economic conditions as favorable for expansion through buying gas stations that don’t belong to a major brand, or so-called “white flags,” the company said in a filing. Oil regulator ANP said there were 17,862 of such stations in the country as of March, 45% of them with good sales volume and the potential to be acquired

Petrobras sold the shares of BR at 24.50 reais apiece, the same as the reference price used in the offering prospectus. They climbed as much as 5.3% in in Sao Paulo trading Wednesday, and were at 27.29 reais as of 11:13 a.m. local time, leading the gains on Brazil’s benchmark Ibovespa equity index.

Petrobras sold at least 291.3 million shares in the offering, with an additional 58.3 million offered in an over-allotment option. Another 43.7 million may be sold in a supplementary offering, which would bring the total raised to 9.63 billion reais and cut Petrobras’s stake in the company to 37.5%.

JPMorgan Chase & Co. was the deal’s lead coordinator, with Bank of America Merrill Lynch., Citigroup Inc., Credit Suisse Group SA, Itau BBA and Banco Santander SA also coordinating.

To contact the reporters on this story: Sabrina Valle in Rio de Janeiro at svalle@bloomberg.net;Vinícius Andrade in São Paulo at vandrade3@bloomberg.net;Felipe Marques in Sao Paulo at fmarques10@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net;Daniel Cancel at dcancel@bloomberg.net

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