Petrobras May Divest Majority Stake In Gas Pipeline For $6B

Brazil's state-run energy giant Petroleo Brasileiro S.A. or Petrobras (NYSE:PBR) is reportedly planning to divest an 81% stake in a natural gas pipeline network to a group led by Brookfield Asset Management Inc. The value of the transaction is approximately $6 billion and is expected to be finalized by next month.

Citing unnamed sources, the Bloomberg report says that the consortium of buyers also includes the Singapore sovereign-wealth fund GIC Pte; the Chinese sovereign-wealth fund China Investment Corp.; and the Greenwich, CT-based private equity firm First Reserve Corp.

Petrobras, with more than $130 billion in long-term liabilities, is the most indebted energy company in the world. Hence, the company is focusing on massive asset divestitures to reduce its debt and strengthen its balance sheet. To this end, the company is trying to sell the network of gas pipelines – Nova Transportadora do Sudeste SA – to address issues such as deteriorating net income, high debt management risk, disappointing return on equity and weak operating cash flow.

The company, which is knee-deep in a corruption scandal, had entered into a 60 day period of exclusive talks with Brookfield, which is the largest alternative asset manager in Canada, regarding the sale of the gas pipelines. Notably, the negotiations can be extended by 30 more days.

The transaction, if completed, could be the only divestment in Brazil for Petrobras this year. The company’s other two divestment deals, namely BR Distribuidora and Transpetro, are not expected to close by this year given their complexity and slow pace.

Given that the last few years were extremely challenging for oil companies worldwide, Petrobras is taking initiatives to stabilize its financial performance. The oil giant plans to raise roughly $15.1 billion through asset sales by the end of 2016. The company has already sold about $2.1 billion in assets since last year, mainly by spinning off its assets in Chile and Argentina.

Headquartered in Rio de Janeiro, Petrobras is one of the largest energy players in Latin America. Currently, the company carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players from the broader energy sector are PBF Logistics LP (NYSE:PBFX) , McDermott International Inc. (NYSE:MDR) and Sasol Ltd. (NYSE:SSL) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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