Petrobras Raises $2.3 Billion in Sale of Fuel Distributor Stake

Petroleo Brasileiro SA raised about $2.3 billion through the sale of its remaining stake in Brazil’s largest fuel distributor in the biggest equity transaction in Latin America this year.

Petrobras, as the company is known, fully exited Petrobras Distribuidora SA in an offering that priced at 26 reais ($5.23) a piece, according to company filings. The sale is part of a broader plan from the oil giant to exit non-core businesses, cut debt and focus on deep-water projects.

The downsizing is also part of the government’s strategy to divest state-run assets. The privatization drive, one of the main promises of Economy Minister Paulo Guedes when taking office in 2019, has been on hold for most of the past year after the pandemic upended the economy. The government recently scored a victory after gaining congressional approval to sell utility giant Eletrobras, stoking investor optimism.

The divestment comes amid a rally in Brazilian assets. The real is trading near its strongest level in a year, the Ibovespa stock index hit a record earlier this month and the government tapped the international bond market Tuesday. The South American nation, one of the world’s biggest exporters of raw commodities, is now expected to grow more than 5% in 2021.

Petrobras Raises $2.3 Billion in Sale of Fuel Distributor Stake

Wednesday’s transaction -- the biggest in Latin America so far this year -- raised about 11.4 billion reais. The stake, 436,875,000 voting shares, was equivalent to 37.5% of the company. It’s also one of the five-largest secondary offerings in the country since at least 1990, according to data compiled by Bloomberg.

Petrobras started divesting from BR Distribuidora in 2017 during the company’s initial public offering. Two years later, it sold control of the firm in a public equity offering, raking in about $2.2 billion and ending government control over the biggest player in the industry.

Further divestment brings a significant contribution to Petrobras’s asset-sale program, while also cementing BR Distribuidora’s independence, BofA analyst Frank McGann wrote in a report dated June 13.

BR Distribuidora, which owns over 8,000 gas stations and more than 1,000 convenience stores across Brazil, reported gains in the first quarter and has recently embarked on cost cutting measures, including staff reductions. Shares are up 21% this year, outperforming the country’s main stock gauge by about 14 percentage points.

Petrobras Raises $2.3 Billion in Sale of Fuel Distributor Stake

The stock is “set to continue to have a good run after the deal is completed, as it removes the overhang that weighed on the shares,” as well as risks tied to state-controlled firms, Credit Suisse analysts led by Regis Cardoso wrote in a report dated June 29. Cardoso reaffirmed an outperform rating and boosted his price target to 39 reais from 32.

Petrobras accelerated efforts to divest non-essential assets under former chief Roberto Castello Branco, who was replaced by former general Joaquim Silva e Luna earlier this year.

The shares, which account for about 10% of Brazil’s Ibovespa Stock Index, have trailed the benchmark’s advance so far this year, gaining about 4% in local currency terms compared with a nearly 7% rise for the gauge.

Still, analysts are mostly positive on Petrobras’s outlook after the oil company posted a profit and cut debt in the first-quarter results, boosting optimism for dividend payments under the company’s new direction. The preferred stock has 10 buy recommendations, three holds and one sell, Bloomberg data show.

The BR Distribuidora deal was led by Morgan Stanley, Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., Banco Itau BBA, JPMorgan Chase & Co. and XP Inc.

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