The board of directors of the Brazilian oil giant Petróleo Brasileiro S.A. or Petrobras (PBR - Free Report) recently approved the corporate restructuring of its fuel distribution arm Petrobras Distribuidora S.A. The restructuring will involve a capital contribution by Petrobras to its subsidiary and a partial spin off. The capital injection will be used for the pre-payment of debts contracted by Petrobras Distribuidora and guaranteed by Petrobras.
The state-run integrated major is set to invest R$ 6.3 billion (or 2 billion in USD) into its fuel distribution subsidiary which is grappling with heavy debt for years. The move comes after the Brazilian government proposed to sell the controlling stake in Centrais Elétricas Brasileiras SA or Eletrobras on Aug 22 to balance the budget deficit and promote competition and efficiency to the business.
Petrobras supplies gas to the state-controlled utility and the latter owes Petrobras and its various subsidiaries around R$10.4 billion. The capital investment is expected to strengthen the balance sheet of Petrobras Distribuidora thus enabling it to attract investors for its initial public offer (IPO).
Petrobras Distribuidora has been planning to go public since 2015 but its plans have been stalled by the heavy burden of the invoice receipts that Eletrobras owes it for fuel sales. Petrobras renewed the IPO plans in June and is concentrating on lowering debts and capital spending. The company which aims to revive its financial health through divestments and spin offs, intends to divest around 30 assets by the end of the year.
With the current restructuring, Petrobras Distribuidora is now set to launch its IPO in December. Major financial service provider Citigroup Inc. (C - Free Report) is likely to be the lead underwriter of the offering along with seven other banks. Further, the spun off unit is likely to merge with another subsidiary of Petrobras — Downstream Participações Ltda.
Zacks Rank and Key Picks
Headquartered in Rio de Janeiro, Petrobras is the largest Latin American oil and gas integrated company. It is involved in the exploration, production, refining, retailing and transportation of petroleum and its byproducts, both domestically and internationally .Petrobras has lost 13.4% of its value in the last six months compared with 6.5% loss of its industry.
However, the company delivered an average positive earnings surprise of 51.49% in the previous quarter.
Petrobras currently carries a Zacks Rank #3 (Hold).
Some better-ranked players in the energy space are TransCanada Corporation (TRP - Free Report) and Range Resources Corporation (RRC - Free Report) . Both the companies sport a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
TransCanada delivered an average positive earnings surprise of 4.06% in the last quarter.
Range Resources delivered an average positive earnings surprise of 51.82% in the last quarter.
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