Petrobas

Petrobras of Brazil & their Cost of Capital

Doaa Soliman AbdEl M oity

Fundamentals of M ultinational Finance 40B

Petroleo Brasileiro ( Petrobras)

 National oil and gas companies of Brazil  1954: established by the government  1997: privatized  1997: listing on the Sao P aulo stock  2000: The stock listings on the New Y Stock ork exchange (NYSE)  The Government of Brazil remains a major shareholder in control  Objective P etrobras:

 Brazilian reduce dependence on oil imports   impact on international diversification   absence of capital costs that are not competitive

Petrobrás Suffers an Uncompetitive Cost of Capital

I nternational Diversification

December 2001: P etrobras and Repsol-YPF A rgentina to exchange operational assets worth $ 500 million October 2002: P etrobras to buy 58.6% stake in P erez Companc (P ecom) A rgentina

I nternationalization of Capital Costs

 Global oil and gas markets denominated in U.S . dollars  When oil and gas companies have done a listing of its shares on the NYSE, the calculation of the cost of capital denominated in dollars more acceptable  Then how is the cost of capital-in U.S dollars-for . Brazilian companies?  The global market has the opinion that the Brazilian country risk is high  main indicators: sovereign spread

The Brazilian Sovereign Spread ( December 1 9 9 7 –August 2 0 0 5 )

Petrobras Debt Costs

The approach can be used to estimate the cost of debt in U.S dollars P . etrobras (kd) is to adjust the cost of government debt in the U.S dollar . against the Brazilian credit spread of private company: kd = US T reasury risk-free rate + Brazilian sovereign spread + P etrobras credit spread kd = 4% + 4% + 1% = 9%

Petrobras Cost O f Equity

 The cost of equity of P etrobras is also influenced by country risk-adjusted risk-free interest rate (risk-free rate)  Estimated cost of equity of P etrobras in the U.S dollar . (to) can be done by using the Capital A sset Pricing...