SAO PAULO (Reuters) � Brazilian state oil company Petrobras raised $70 billion on Thursday in the world's biggest share offering, giving the company the financial muscle it needs to tap vast offshore oil reserves.
The cash will help fund the world's largest oil exploration plan, which at $224 billion for the 2010-2014 period aims to turn Brazil into a major energy exporter.
The Rio de Janeiro-based company sold 1.87 billion new preferred shares (PETR4.SA) at 26.30 reais each, the company said in a regulatory filing. It sold 2.4 billion new common -- or voting -- shares (PETR3.SA) at 29.65 reais each.
Uncertainty that the offering might not come off had brought a prolonged sell-off of Petrobras shares that shaved more than $70 billion off its market value. But the optimism displayed by investors seeking exposure to one of the world's largest oil finds in recent decades outweighed worries about growing state involvement in the company's affairs.
"The deal priced at a very tight discount, which is comforting to know because the market expected it to price lower," said Marcio Macedo, who manages about $40 million of stocks for Sao Paulo-based Humaita Investimentos. "After this very successful deal, markets will be in a good tone tomorrow."
The deal's 2 percent discount to Thursday's closing price was much smaller than what investors expected, Macedo said.
This year, the preferred shares -- the company's most widely traded class of stock -- slumped 27 percent partly because of worries of mounting state interference as well as uncertainty over the fate of the offering.
The record-setting stock sale, which was larger than what the company originally planned but fell short of the maximum it had filed to sell, had total demand of $87 billion, a source with knowledge of the deal told Reuters. The bids included 98 billion reais ($57 billion) from existing shareholders and $30 billion from institutional investors, a source with knowledge of the transaction said.
Sovereign wealth funds from the Middle East and Asia were among the investors buying into the offering, the source said on condition of anonymity.
The offering had "tremendous demand" from U.S. mutual funds, the source added.
Petrobras said in the filing that it may sell another 188 million new shares to meet demand in the next 30 days.
BOON FOR LULA
Banco Bradesco BBI, the investment banking arm of Banco Bradesco (BBDC4.SA)(BBD.N), was the lead manager of the offering.
Bank of America Merrill Lynch (BAC.N), Citigroup (C.N), Santander (SAN.MC), Morgan Stanley (MS.N) and Itau BBA, the wholesale banking arm of Itau Unibanco (ITUB4.SA)(ITUB.N), acted as global bookrunners of the deal.
Petrobras preferred shares (PETR4.SA), the company's most widely traded class of stock, rose 3.2 percent to 26.80 reais, outpacing a 0.7 percent rise by the Brazil's benchmark Bovespa stock index (.BVSP). That was the share's largest single-day gain since September 3.
The deal, comprising a $43 billion oil-for-shares swap with the government and the cash offer that investors settled, topped Japanese telecommunications firm NTT's (9432.T) $36.8 billion 1987 share sale and Agricultural Bank of China's (601288.SS) $22.1 billion initial public offering earlier this year.
The share sale is a boon to the wildly popular President Luiz Inacio Lula da Silva as he seeks to usher his anointed successor, former chief of staff Dilma Rousseff, into office in a presidential vote on October 3.
Lula, who leaves office on January 1, campaigned in favor of the offering with an eye on capitalizing Petrobras, whose growing stature is a source of pride for many Brazilians and mirrors Brazil's rise on the global stage.
The capital plan was devised by the government to give Petrobras exclusive rights to develop 5 billion barrels of oil in one of the world's most promising energy prospects -- the deep waters off Brazil's southern coast that are believed to hold more than 50 billion barrels of crude.
GOVERNMENT SWAY
Some analysts complained that the oil-for-shares swap with the government was dilutive to private shareholders because the oil was valued at a higher price than investors expected.
Others said the company was spending too much on refining, transportation and distribution, which offer greater benefits for local economies but lower returns for shareholders.
Rousseff, one of the main architects of the transaction, has insisted that it will allow the state to boost its share of the total capital in Petrobras, though the government already controls a majority of the voting shares.
Analysts expect the federal government will increase its grip of the company, Brazil's largest, from 32 percent of the total capital before the offering.
She led last year's proposed overhaul of Brazil's oil legislation to give the government greater control over new reserves and put Petrobras in all major deep-water projects, possibly stretching the company too thin.
Petrobras needs fresh cash to develop the vast reserves buried deep beneath the ocean under a layer of salt in a region known as the subsalt. Tapping those reserves could in the coming years help push Petrobras' production above that of the world's biggest private oil companies, including Exxon Mobil (XOM.N) and Chevron (CVX.N).
But the plan may require the company to heavily tap debt markets and borrow more in loans soon, according to some analysts who predict that Petrobras will have to raise up to $60 billion to finance its hefty investment plan.
($1=1.72 reais) (Additional reporting by Clare Baldwin in New York, Brian Ellsworth in Rio de Janeiro, and Denise Luna, Cesar Bianconi, Reese Ewing, Jose de Castro and Marcelo Teixeira in Sao Paulo; Editing by Todd Benson, Toni Reinhold, Gary Hill and Valerie Lee)
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