Petrobras, the Brazilian state owned oil firm, reported that it will be selling about $64.5 million of its new stock. In a filling to the Brazilian stock market, the oil firm announced its new stock selling plans that by far present the largest in capital markets history. With the announcement, Petrobras stock went up sharply, defying months of uncertainty that have affected share prices.

However, Petrobras could have the offer increased to highs of $74.7 billion if underwriters choose to use the “greenshoe” option to sell an additional 564 million shares to cater for the unexpected demand as Petrobras raises funds for its exploration programs. Petrobras’ exploration program is currently considered the biggest in the world, with huge investments to be undertaken.

If it goes through, the offer would beat Agricultural Bank of China’s initial public offering pegged at $22.1 billion, done earlier this year and the NTT offer of 1987, pegged at a staggering $36.8 billion. NTT is a Japanese telecommunications company. In a statement to the markets, Petrobras said it will offer 1.59 billion fresh preferred shares and 2.17 billion new common shares that are in line with the Brazilian government’s plan which includes a $43 billion swap for oil shares.

Petrobras preferred shares is its most commonly traded class of stock and with the announcement of the offer plans, opened about 3.26% higher at 28.50 reals. Petrobras expects to begin bookbuilding Sept. 3rd and price the share sale on Sept. 23rd. The fresh share stock offer is crucial to Petrobras’ $224 billion, five year investment plan that targets turning Brazil into one of the major oil exporters globally via exploring oil buried deep under the ocean floor, the subsalt. But even so, Petrobras is increasingly coming under criticism from investors who are questioning the high price for the oil reserve to be used in the oil-for-shares swap.

There are concerns that the state owned entity may be overpaying for the assets and diluting shares. The Brazilian government’s $43 billion oil-for-shares swap plan was agreed to by Petrobras and entails the exchange of part of the stock to be issued for development rights to 5 billion barrels of valuable offshore reserves at a price of $8.51 per barrel. That pricing is way more than the $5 to $6 per barrel that analysts have termed as fair.

7 Sep 2010.