Bankers Stressed as $45 Billion in Brazil Deals on the Line

(Bloomberg) -- A Brazil Supreme Court ruling scheduled for Wednesday that could decide the fate of some $45 billion in deals related to oil giant Petrobras is keeping investment bankers up at night.

Millions in fees may be lost if Petroleo Brasileiro SA, as the state-owned company is known, is forced by the Court to go into a slower, more bureaucratic bidding process typical of Brazil’s public sector. The decision could impact $30 billion in divestment plans by the Rio de Janeiro-based company, as well as a $15 billion sale of stakes that state-run banks BNDES and Caixa Economica Federal hold in Petrobras.

The nation’s Supreme Court is expected to meet in the afternoon to rule on the suspension of the $8.6 billion purchase by France’s Engie SA and Canadian pension fund Caisse de Depot et Placement du Quebec of 90% in Petrobras’s natural gas pipeline unit, know as TAG. The sale, the biggest-ever single asset for the oil company, was announced in April, and suspended by an injunction issued by Judge Edson Fachin.

“Fachin’s decision reinforces the environment of legal insecurity around Petrobras’s divestment plan,” LCA, a Sao Paulo-based consultancy firm, said in a report last week. The view was reinforced by analysts including Ciro Matuo at Banco Itau BBA SA, who said in a May 28 report the Supreme Court decision poses potential legal headwinds for Petrobras’s divestment plan.

Petrobras shares fell 1.3% as of 11:57 a.m. in Sao Paulo. They’re up 14% for the year, compared with a 10% advance in the country’s stock benchmark index.

In private conversations, some of the nation’s top investment bankers and private equity heads admit they are apprehensive ahead of the ruling, which was initially expected for the past week before a last-minute delay. The executives, who asked not to be identified discussing an unresolved ruling that could impact their business, remain hopeful the Court will decide against the injunction, betting that Chief Justice Jose Antonio Dias Toffoli wouldn’t have put the matter up to a full court vote if he wasn’t confident the decision would be positive for the government.

President Jair Bolsonaro’s administration is trying to sell assets held by state banks and companies in order to raise money to improve fiscal accounts. A negative decision from the Court could derail those plans, further hindering the outlook for Latin America’s largest economy. BNDES owns 14% of Petrobras shares and Caixa, 2.3%.

After Fachin’s injunction, a 34 billion-real payment tied to the TAG deal didn’t enter Petrobras’s books on Friday, as planned. The sale of eight refineries, gas-distribution unit Liquigas SA and of Petrobras Gas SA -- Gaspetro, a gas storage and processing subsidiary, are also affected. Investors involved in the public offering of fuel unit Petrobras Distribuidora SA, known as BR Distribuidora, a deal in which Petrobras aims to reduce its stake in the company to less than 50% from about 70%, are also cautious.

“If the court rules in favor of these injunctions, it would be negative for Petrobras, as it could significantly slow down the company’s sales of majority stakes in subsidiaries,” Banco Bradesco SA analyst Vicente Falanga said in a May 30 report.

Legal battles against sales of state-owned assets are common in Brazil, where privatization faces political hurdles. Last year, Petrobras had to halt negotiations to sell stakes in its refineries also because of an injunction.

©2019 Bloomberg L.P.

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