OFFERING SEEKS TO TAP INTO LONG-TERM BRAZIL INTEREST / THE FINANCIAL TIMES ( RECOMMENDED READING )

Offering seeks to tap into long-term Brazil interest

By Leslie Hook in Beijing

Published: September 15 2010 20:12

Chinese investors are looking at the Petrobras share offering more closely than most.

Brazil and China have forged solid economic ties over the past few years, while the oil group’s relationship with Beijing – and the funding this has brought – has sustained it through difficult times.

The China Development Bank, China’s major resources lender, came to Petrobras’s aid in 2009 with a $10bn loan at a time when global credit was tight and Petrobras needed to fund a $174bn expansion plan.

The loan was to finance Petrobras investments as well as “the purchase of goods and services from Chinese companies”, according to Petrobras.

More importantly for China, it also secured a long-term export agreement between the two countries. Petrobras agreed to sell Sinopec 200,000 barrels of oil per day – roughly a tenth of Petrobras’s current oil production – from 2010 to 2019.

The oil will be bought at a market price but has the benefit of securing supply to Sinopec.
China considers access to oil and gas supplies a matter of national security as it is the world’s second-largest oil consumer, after the US, and produces less than half it needs domestically.

So, as Petrobras looks to raise capital with its secondary share offering, the decision to name Industrial and Commercial Bank of China as a bookrunner is being seen as a clear effort to further tap this Chinese interest.

“I’m sure that ICBC will be talking to the investment department at CNPC and Sinopec,” says Gordon Kwan, head of regional energy research at Mirae Asset Securities.

“The Chinese oil companies might invest [in Petrobras] not just for core business but also for investment income.”

Strategic investments by China in South America have multiplied in recent years, taking the form of oil-for-loan deals such as that struck between Petrobras and Sinopec and purchases of stakes in oilfields.

CDB struck a $20bn loan agreement this year with Venezuela and, together with CNPC, agreed a $25bn loan deal last year with Rosneft and Transneft. The bank has also negotiated a $1bn deal with Angola.

Cnooc purchased a stake in Argentina’s Bridas Energy in March for $3.1bn and a few months later Sinochem spent $3bn to buy a 40 per cent stake in a Brazilian oilfield from Statoil. Cnooc and Sinopec are also considering a bid for stakes in OGX, a Brazilian oil and gas company.

China’s oil majors are particularly interested in non-operating stakes in some of Brazil’s pre-salt fields, which could help them gain operating experience in technically challenging situations.

Sinopec and Petrobras struck a deal in April committing them to assess future partnerships, including the possible sale to the Chinese of two blocks off the north-eastern coast of Brazil which require deep water drilling.

Copyright The Financial Times Limited 2010.