Energy

What the Petrobras Gas Distribution Sale Really Means

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Brazil’s state-controlled energy company, Petroleo Brasileiro SA (NYSE: PBR), commonly known as Petrobras, said on Tuesday that it is close to selling a 49% stake in its natural gas distribution assets to a Brazil-based subsidiary of Japan’s Mitsui & Co. Under the plan, Petrobras will roll its distribution assets into a holding company and sell the minority stake to Mitsui Gas e Energia do Brasil Ltda.

Petrobras did not disclose a sale price or valuation and a final agreement is contingent on approval by the Petrobras board and various regulatory agencies. BofA/Merrill Lynch has estimated proceeds from the sale of about $250 to $300 million (1 to 1.2 billion Brazilian reals).

Merrill Lynch estimates the enterprise value of 100% of the most significant Petrobras gas distribution assets at around $3 billion. The assets being sold to Mitsui are set to include Petrobras’s stakes in 19 state gas distribution companies. The analysts also believe the leverage for these companies is not significant.

Petrobras earlier this year announced a divestment plan totaling $57.7 billion, and while this may be the start of executing on that plan, it’s a pretty timid step. Merrill Lynch said:

The progress on selling these assets is positive and reflects some progress to raise cash and reduce the company’s debt levels and financing needs. It also confirms our expectations that early sales in the company’s US$57.7bn asset disposal program are likely to be in the assets with the most stable cash-flow and not as susceptible to near to intermediate term macro risk. That said, proceeds raised from this specific transaction are not likely to have a major effect on the company’s net debt position of US$104.5bn at June 30.

No kidding. Merrill Lynch said it is maintaining its Neutral rating on the stock, “given the very challenging macro scenario.”

Shares of Petrobras traded down about 5.9% in the mid-afternoon on Tuesday at $4.09 after posting a new 52-week low of $4.02 earlier in the day. The stock’s 52-week high is $17.64.

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