September 24, 2010 by LIAM DENNING
Take two large, state-controlled companies, both of them in old industries. Each is, in some way, emblematic of their country. Both are tapping the public market.
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Petroleo Brasileiro, also known as Petrobras, has just raised $67 billion in the world’s biggest equity offering ever. General Motors, meanwhile, is expected to relist in November after last year’s bankruptcy filing. How much it will raise, however, is anyone’s guess, with its majority owner, Uncle Sam, treading a fine line between selling as much of its stake as possible without flooding the market.
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Brazilian state oil company Petrobras raised $67 billion on Thursday in the world’s biggest share offering. Above, a Petrobras gas station is seen at Copacabana Beach in Rio de Janeiro Sept. 24.
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In fairness, Petrobras’s huge stock sale was partly helped by having its major shareholder, the Brazilian government, buy a big chunk of it. Even so, the minimal discount at which the new shares were sold suggests high demand.
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Moreover, oil is a sector in which investors have long had to deal with political risk. So even though Petrobras’s offering boosts the government’s stake from 40% to 48%, investors aren’t running scared. It’s a safe bet that if Saudi Aramco announced a stock offering tomorrow, investors would line up around the block.
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GM’s offering is less about financing growth in output, as Petrobras’s is, but rather about reducing political influence.
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That’s laudable. But it’s a weak selling point. Whether the government owns 61% or 6.1% of GM, it still operates in a global industry where political objectives keep old factories open in the West and help open new ones in emerging markets like China. The resulting excess capacity makes for poor returns on capital.
The paradox of Petrobras’s and GM’s relative positions is that the world needs more oil; cars, not so much.
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Write to Liam Denning at liam.denning@wsj.com
Source: Proshare
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