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Explaining The Massive Shell Game That Is The Petrobras IPO
Last week, to much pomp and circumstance, Petrobras IPOed in a $69 billion offering of stock, which was promptly praised by Brazil president Lula as the "the biggest equity offer in the history of capitalism." Yet when one digs through the numbers it becomes glaringly obvious that not only was the "real" IPO one third the size of the vaunted amount, but that a major part of the offering is nothing less than a major shell game, which not only distorts the perception of end demand for the offering for other, more naive investors, but also allows the Brazilian government to lie in open public that it has met its primary account surplus of 3.3% of GDP. Market News has broken down the math works behind what is quickly becoming the biggest act of diversion since the days of Houdini.
As Market News explains, of that $69 billion "raised" in the IPO, "$43.5 billion came from Petrobras itself,
to pay the government for 5 billion barrels of undeveloped
ultradeepwater petroleum reserves, and that in turn was paid for using a
government loan. In sum, for $43.5 billion of the $69 billion capitalization, no
money changed hands, as the company essentially gave the government
shares in return for the petroleum reserves."
But it gets much worse:
However, R$24.7 billion ($14.4 billion) of the government's loan to
Petrobras came via the state BNDES development bank. The government is
lending $14.4 billion to the BNDES, which it is lending it to Petrobras,
to pay the government. But government accountants are booking this $14.4
billion as revenue.
Get that: the government, via two intermediaries, is paying tiself. All the while idiot investors get the impression that there is actual fund flow going into proper capital allocation. Poor fools.
And the piece de resistance:
With this revenue, the government will be able to officially "meet" its 2010 budget target of a primary account surplus of 3.3% of GDP.
"This is clearly an accounting trick," Roberto Padovani, chief economist for WestLB in Brazil, told MNI Wednesday. "The primary account balance no longer has any meaning."
Salto said the Petrobras operation was structured this way precisely in order to permit this accounting trick.
"It would have been simpler for the company to just give the government the shares to pay for the reserves," he said.
In something that by all appearances could have only been discovered by an administration thug out of Chicago, the final result ends up actually boosting government data!
Salto estimates that once this and other "accounting tricks" are discounted, the government will achieve a primary surplus of only 2.6%of GDP.
Over the last 12 months, the consolidated public sector has had a primary surplus of only 2.01%, and a nominal (cash flow) deficit of 3.38% of GDP, according to Central Bank data released Wednesday.
Such an ingenious way to pad the numbers could have only come from our own Bureau of Labor Statistics.
With current account deficits also expected to exceed 3% of GDP, Brazil is increasingly dependent on international capital flows, and another international crisis or a change in investor sentiment could cause a "sudden adjustment," he said.
"If the next government does not change course, and we do not expect it to, in the medium term, the risk of a crisis will grow."
WestLB's Padovani said this medium term is probably about two years.
"Right now, there is a lot of complacency in the markets surrounding Brazil, but once the rest of the world comes out of recession and there is more competition for capital flows, market agents will start paying attention to Brazil's fiscal problems," he told MNI.
"Brazil is building a risky scenario. Sooner or later things will explode," Padovani warned.
As Market News concludes, the entire scam is nothing less than the
latest brilliant Keynesian scam to "redistribute"the pain into the
future, while getting the benefits now. Of course, none of the excess
will actually ever be reinvested in the middle-class.
Of course, the government could take advantage of current strong
growth to impose fiscal austerity relatively painlessly, but Padovani
also doubts this will happen.
At the end of the day, the whole thing is nothing less than a way to fool the idiotic keynesian professors over at harvard and columbia (sorry, not even worthy of capitalization) that all is good, so they can rubberstamp their pathetic little reports that all is good in Keynesia. Until it all blows up.
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Only to be chased by Electrobras!!!
Umm, don't you mean electric bras?
http://www.zimbio.com/pictures/L2O0atyW5sQ/Triumph+Launch+Photovoltaic+Powered+Bra
This will look better on your wall CD
UNTITLED
http://picasaweb.google.com/lh/photo/EuOLfsfkPvwlFLt4MCifQsGTrtWlGStz_EA...
Should I post the photo? It has nothing to do with the thread?
Oh well you only live once, right?
Thanks for the link WB7.
Whoa!
What do you mean it has nothing to do with the thread? She is wearing a brazilian bikini!!
Thank you, when were you in Brazil last?
lllllooooooooooooooooooollllllllllll man!
Good observation, didn't even notice!
Brazil, bitchez!?
It should also be pointed out that Brazil's government owns a special super voting class of stock that effectively gives it total control of Petrobras, i.e. Petrobras and Brazil's government are one and the same. If you own the regular shares, you should prepare to be bent over whenever Lulu feels like it.
They have a sweet symphony orchestra...
http://www2.petrobras.com.br/cultura/ingles/musica/apoiogr/apoiogr_petro...
What part about a National oil company don't you understand? At least in Brazil the little people get to share in the oil bounty via subsidized fuel. Same goes for Mexico, Iran, Iraq, Saudi Arabia ..etc. As usual the US taxpayer gets bent over via tax subsidies to the oil companies and outrageous price increases whenever the "market" wants it.
There is no such thing as free market capitalism in the US. Profits are privatized and losses are socialized in this country. The oil and mineral companies also get leases at rock bottom prices.
Oops
Go back and review your training film -
http://manderson.us/FILM/ILLUMICORP.html
Sign me up.
BTW my need is the greatest, thus I get the most-est.
Well done video.
Thanks.
If you liked that one you might like this one also -
http://www.youtube.com/watch?v=z4Fjadh6S1g&feature=player_embedded
I thought Lula was socialism we could trust!! Bad Lula! Bad Lula! What do his flakyass supporters say now?
And I love this:
"he government, via two intermediaries, is paying itself."
Does this sound like any other government you've heard of? Lula must have gone to Harvard, or some place like that. Or perhaps he just attended their Summers school (a little punishment never hurt anyone).
However, this is garbage: "once the rest of the world comes out of recession and there is more competition for capital flows." Sorry honey, but the economy is over. "Once the rest of the world comes out of recession"=once pigs fly.
And by the way, what "benefits now." Since when is flat out looting a "benefit now." Leaky analysis.
That was some seriously funny stuff DavidS.
And classic eh? Tech arbitrage and price arbitrage those third worlders, but ZERO arbitrage when it comes to corruption.
Yes sir. If it's CRPT Ver. 7.1 in wall street, then it's CRPT Ver 7.1 in a magically instantaneous upgrade, globally.
ORI
http://aadivaahan.wordpress.com
I thought Lula was socialism we could trust!! Bad Lula! Bad Lula! What do his flakyass supporters say now?
Thats how it always is.. they fuck everything up and just disappear for awhile.
Earth = Keynesia
Is there a "how to" guide for becoming a mountain man? Perhaps with a handy Kit.
Wiki: Benton Mackaye
I feel IMO this is a poster child to be monitored and thanks for staying with it. What rigs have or may be involved in this GIGO expresso. Of course we wish to be proven wrong, and many express the social climate may eat one guest at the table IF they suck this sink hole to profit. Can or will the best be allowed to attempt. How deep was that water again?
" undeveloped ultradeepwater petroleum reserves " yep its that deep and some one will be dinner....
The farce goes global.
The farce is global. May the farce be with you.
Ahhhhhhh ..... Arthur Andersen redux.
Sounds like something only Milo Minderbinder could dream up!
I believe the lending to BNDS was in (then) current PBR shares owned by the government. Assuming the lending was legal (to start with), it was used to free up resources from other parts of the books and, in disguise, buy 1 share of the new issue with 1 share of the old and end up with 2. Accounting fraud?
Not the total sum, this far, but still...
http://www.bloomberg.com/news/2010-08-27/brazil-to-transfer-217-4-millio...
By Andre Soliani and Maria Luiza Rabello -
Brazil’s government will transfer 217.4 million Petroleo Brasileiro SA’s common shares to the country’s state development bank, known as BNDES, and Caixa Economica Federal, according to a presidential decree published on today official gazette.
Brazil will boost BNDES’s capital by 4.5 billion reais after transfering 139.8 million Petrobras shares, the decree says. Brazil will increase Caixa’s capital by 2.5 billion reais transfering 77.6 million common shares.
Brazil’s government will maintain its controlling stake in the company, according to the decree.
Given a choice between Asia or Latin America, when one looks at non-political factors, LatAm should be the place to be - demographics favorable to longer term growth, abundant natural resources including lots of fresh water, etc. However, until more gov'ts gain an appreciation and respect for property rights, and stop pursuing policies that actually are counter to the formation of a robust and sizeable middle class, we will continue to see socialist retread failure. Sadly, the past abject lessons found in the US's own backyard don't seem to be registering, as we have a gov't that wants to go down a road that has led countless others to ruin, and yet expects (?) to get a different outcome. Not exactly American exceptionalism at its finest.
BS
Minerals and oil/gas/water are the property of the people of the US, not private corporations. What right does private corporations have to pay bribes to politicians so they can buy minerals rights at bargan prices? I am sick and tired of being raped by private corporations looting national resources.
Hypothetical situation - let's say that land that has been owned and farmed in my family for 4 generations is found to have natural gas on it. Does the nat gas belong to me, or is it " the property of the people of the US", which I am reading (perhaps incorrectly) you to put in a communal sense. Just curious.
Socialist internationale economies ran the Bank NWO FASB government taxpayer shuffle for decades, disappearing nationalized African, Argentinian, Iranian, Mexican et al reserves. America now.
Lulu soon to be replaced by radical woman Dilma in another sign of the times. Funny how MSM reporting Brazil Government Treasury buying 2/3 of IPO. DR's Harvard Thesis was Fabian Socialism...
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/29/AR201009...
http://www.reuters.com/article/idAFN2819838020100928?rpc=44
http://en.wikipedia.org/wiki/David_Rockefeller
I'm waiting for the next installment of McClean and Elkin's "The Smartest Guys in the Room, Pt 2", featuring Fuld and other former masters of the universe, along with H. Paulson, Timmay, Bernanke, the ratings agency heads, Franklin Raines and others of similar public-private ilk, and the Glass-Steagall deconstructionists. I'm sure I'm leaving out many deserving others as well. Some think the book is coming out this Nov. Sadly, I will probably have to wait another couple of years to get my hands on a copy. But hope springs eternal.
However, from this story, it's pretty clear that their techniques are not going unnoticed in other countries. Lucky them. Not.
TAKE ONE DAILY
http://williambanzai7.blogspot.com/2010/09/petrobras-ipo.html
This is what I think the investors are getting...with soft, pre-lubricated comfortip, of course, because they're "special".
http://www.medexsupply.com/incontinence-care-enema-fleet-enema-adult-4-5-oz--x_pid-6127.html
Now we know why Mark Mobius recoiled from this steaming, flyblown turd of a deal.
How long will people tolerate a few technocrats stealing the future from their children, their labor from themselves, and destroying the good of the planet for a paltry few?
What part about a National oil company don't you understand? At least in Brazil the little people get to share in the oil bounty via subsidized fuel. Same goes for Mexico, Iran, Iraq, Saudi Arabia ..etc. As usual the US taxpayer gets bent over via tax subsidies to the oil companies and outrageous price increases whenever the "market" wants it.
There is no such thing as free market capitalism in the US. Profits are privatized and losses are socialized in this country. The oil and mineral companies also get leases at rock bottom prices.
LOL invest in Brazilian Socialism now on the ground floor!
Whats funny is Brazil is intending to finance a national public healthcare program from the profits generated from their national oil company.
Who invests in a company targeted for state looting?
O that's right the US treasury.
Brazil has to raise hundreds of billions of dollars over the next 20 years so they can get at the oil located in super deep water and way below the sea floor. Brazil also has to invent, design and build all the equipment to do the job. This is the Brazillian equivalent of the US space program or the manhattan project. There is no commercial oil company in the world who could raise the money to do this. There will not be large amounts of cash generated for a long time until they recover the oil.
No large amounts of cash generated? Probably true, but lots of potential eco-disasters generated. Try BP times 3, 4, 100times. At least the space program, if, and when, it did go wrong didn't have any negative bearing on the ecology of the planet. I don't have much faith in the Brazilian's ability to pull this job off safely without a few accidents.
Oh, c'mon, guys--Lula is just trying to "spread the wealth around"...
How can a governmental company can be thrusted if the government itself is one of the most corrupt of the world???
Let me stop right here to not get sick of it again...
It is pretty clear from the article that the Brasilian government is inflating its books via the Petrobras IPO, but what on earth does that have to do with Keynesian economics?
So, every government the uses dodgey methods to hide deficits, or finance current expenditures by borrowing is Keynesian? That would make the last Bush administration Keynesian from almost day 1. Hardly.
They are all Keynesians now, brent.
I never know anything, but I'm sure something really interesting must be going on tomorrow.
Morgan Stanley bought just over 4 million Petrobras preferencial stocks on the market close up. Total of R$488 million of the R$2 billion total stock volume, R$400 million more than the second on the line, Santander.
It's been a while since the last time I saw something like that over here.
Every country is running their own scheme to keep the game going. And thats because they don't know what comes next if the whole thing implodes. Eventually it will, but they need to control their piece of the pie.
The offering was not an IPO. Petrobras was already listed on the Bovespa and its ADRs were already trading on the NYSE and probably elsewhere.