EQUITY CAPITAL RAISING: THE SEO OF PETROBRAS 2010 (A) Harvard Case Solution & Analysis

This two-part case series is about the biggest equity-raising price in history, the Petrobras seasoned equity offering (SEO) of 2010. In June 2010, Brazil's national oil company, Petrobras was preparing a share issue to develop its pre- salt oil fields so called as they are immobilized under several kilometers of seawater, rock and also a hard-to-penetrate layer of salt. Brazil's offshore pre-salt place widely tipped to equal the North Sea in terms of size as well as relevance had been generating excitement in the energy world since its discovery in 2005. Six new pre-salt fields were ready for exploration and had been found more recently. The investments outlined in the strategy were huge and would transform Petrobras into one of the worlds largest manufacturers. However, this also introduced significant funding challenges for Petrobras, given its ability to generate cash from its current operations.

So, how could it raise the money? A bond issue so soon following the last one was a chance. It would subsequently be among the worlds biggest bond issues. Besides this there was a risk of not satisfying the need for capital. How will such an issue change its debt -to-value ratio and its rating? Would Petrobras be able to keep its investment grade status? A share issue was another possibility, but it would also be very huge. Would the market be prepared for such a big issue so soon after the fiscal crisis? Many issues that were open lay ahead. A lot was at stake and incorrect selections would have disastrous results for both Brazil and Petrobras

PUBLICATION DATE: January 01, 2014 PRODUCT #: IMD667-PDF-ENG

This is just an excerpt. This case is about FINANCE & ACCOUNTING

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