Brazil’s Petro­bras nears terms over TAG pipe­line sale

The Financial Daily - - MARKET SUMMARY -

NEW YORK: Brazil's state-con­trolled oil com­pany Petróleo Brasileiro could present a new sale and pur­chase agree­ment (SPA) be­fore the end of De­cem­ber for the sale of the Trans­porta­dora As­so­ci­ada de Gás (TAG) pipe­line, af­ter a US Supreme Court in­junc­tion in July stalled the sale.

The sale of TAG, which op­er­ates nat­u­ral gas pipe­lines in Brazil's north and north­east, could fetch Petro­bras as much as US$7bn, in one of the com­pany's largestever as­set sales, three sources fa­mil­iar with the process said. A new multi­bil­lion dol­lar syn­di­cated loan is ex­pected to fi­nance the ac­qui­si­tion, two sources said.

Petro­bras un­veiled a five-year in­vest­ment plan on De­cem­ber 5 which out­lined its plans to raise US$26.9bn via as­set sales and part­ner­ships and make US$84bn of in­vest­ments by 2023. The plan is de­signed to cut Petro­bras' debt of US$88bn which is one of the big­gest among oil ma­jors, Reuters re­ported.

Petro­bras was aim­ing to raise US$21bn from as­set sales in 2017 and 2018, but the com­pany is ex­pected to fall short by al­most US$10bn be­cause of the Supreme Court in­junc­tion, the sources said.

Sell­ing TAG would see Petro­bras scale back from the nat­u­ral gas dis­tri­bu­tion busi­ness as it pri­or­i­tizes more prof­itable in­vest­ments such as Brazil's deep­wa­ter oil and gas ex­plo­ration and pro­duc­tion seg­ments, while di­vest­ing mid­stream as­sets such as re­finer­ies and pipe­lines, as well as over­seas oil fields.

A con­sor­tium com­pris­ing French elec- tric util­ity Engie and Cana­dian pen­sion fund Caisse de dépôt et place­ment du Québec (CDPQ) were in talks with Petro­bras to buy TAG be­fore July's in­junc­tion or­dered that Brazil's Congress had to ap­prove the sale of any sta­te­owned as­set.

Engie and CDPQ have man­dated eight to 10 in­ter­na­tional banks to raise a loan to back the ac­qui­si­tion of TAG, two sources said. Three Brazil­ian banks - Banco do Brasil, Brade­sco and Itaú BBA, the cor­po­rate and in­vest­ment bank­ing arm of Itaú Uni­banco - are un­der­stood to be part of the club of man­dated banks, the sources said. The banks de­clined to com­ment.

If the Supreme Court in­junc­tion is lifted, the French-Cana­dian con­sor­tium will have to present a new SPA to the mar­ket and al­low time for counter of­fers from any other par­ties in­ter­ested in buy­ing TAG from Petro­bras, the sources said.

At least two other con­sor­tiums short­listed by Petro­bras in Fe­bru­ary could present counter-pro­pos­als, the sources said.

Agroup com­pris­ing EIG Global En­ergy Partners and the United Arab Emi­rates' sovereign wealth fund Mubadala and a sec­ond team made up of Aus­tralian in­vest­ment firm Mac­quarie, the Canada Pen­sion Plan In­vest­ment Board and Sin­ga­porean sovereign wealth fund GIC pre­vi­ously ex­pressed in­ter­est for the TAG pipe­lines, the sources said.

A con­sor­tium led by Brazil's Pá­tria In­ves­ti­men­tos and pri­vate eq­uity firm Black­stone also looked at the ini­tial pro­posal, but re­scinded in­ter­est ear­lier this year, ac­cord­ing to news re­ports.

Itaú BBA, the in­vest­ment bank­ing divi­sion of Brazil's Itaú Uni­banco, is ad­vis­ing Petro­bras on the sale of TAG, ac­cord­ing to the sources. The bank de­clined to com­ment.

SHIFT­ING PRI­OR­I­TIES Petro­bras be­gan mov­ing away from the nat­u­ral gas dis­tri­bu­tion busi­ness in Septem­ber 2016 when it sold pipe­line oper­a­tor Nova Trans­porta­dora do Sud­este (NTS), which runs nat­u­ral gas pipe­lines in Brazil's south and south­east, to a con­sor­tium led by Cana­dian in­vestor Brook­field As­set Man­age­ment.

Brook­field, along with Bri­tish Columbia In­vest­ment Man­age­ment Corp, the China In­vest­ment Cor­po­ra­tion and Sin­ga­pore's GIC agreed to pay US$5.2bn for NTS.

Petro­bras' de­ci­sion to sell TAG, which op­er­ates a sim­i­lar busi­ness in the north of Brazil, is part of the com­pany's plan to pri­or­i­tize ex­plo­ration and pro­duc­tion, which is con­sid­ered Petro­bras' most im­por­tant value gen­er­at­ing en­gine.

In Oc­to­ber, Petro­bras agreed to sell its 50% share in oil fields in Nige­ria for US$1.53bn to com­modi­ties trader Vi­tol, Africa Oil and Delonex En­ergy. It also net­ted ap­prox­i­mately US$823m last month when it off­loaded stakes in 34 on­shore oil fields in Brazil's Rio Grande do Norte and three shal­low wa­ter fields in the Cam­pos Basin.

Petro­bras de­clined to com­ment.

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