RIO DE JANEIRO, Brazil -- A new lubricant is being injected into Petrobras' project finance deals: company pension fund capital.
As part of a new 10% allocation to project finance, the Brazilian state oil company's pension fund -- known as Petrobras de Seguridade Social, or Petros -- plans soon to invest in Petrobras projects.
In addition, the pension fund has taken over management of defined contribution assets for the Brazil-based employees of an Argentine oil company, the first time a Brazilian pension fund has taken responsibility for managing the retirement assets of a non-related firm.
Petros project finance involvement will begin with a $7.7 million investment in a special-purpose company or private equity fund that will invest in a $1.5 billion deal led by ABN AMRO Bank NV in conjunction with Brazil's National Development Bank that will provide the capital to more than double production by 2002 at the Campos Basin's Marlim field. The basin accounts for 70% of Petrobras' oil output.
Petros claims to have 11.3 billion reals ($5.8 billion) in assets, although 5.6 billion reals of that is money Petrobras owes to the pension fund.
Rio de Janeiro-based Petrobras, officially Petroleo Brasileiro SA, plans to arrange $6 billion in project finance, mainly with Japanese trading companies and Japan's Exim Bank, to develop its off-shore fields in the basin.
Petrobras needs to arrange the money because the less than $1 billion a year it gets from the government for oil exploration and production isn't enough to find and develop fields.
Petros also will take over the management this month of the first $50,000 collected for a new defined contribution plan for the 120 Brazilian employees of the Argentine oil company YPF Sociedad Anonima.
Petros, Brazil's second-largest pension fund, already administers the pension funds of Petrobras subsidiaries that range from petrochemical firms to oil product distribution companies on behalf of 48,000 workers and 42,000 retirees.
Carlos Flory, president of Petros, believes the pension fund can fill a huge pension fund asset management need in the Brazilian oil and oil products sectors, given the number of small Brazilian oil-sector firms and the new foreign oil company subsidiaries coming to Brazil.
A small portion of the YPF defined contribution money eventually might be injected into Petrobras project-finance vehicles.
But the bulk of the YPF assets will be invested in fixed- and variable-income instruments. YPF Brasil employees contribute 4% of their pay, which is matched by the company.
"YPF Brasil has no problem with Petros investing some of its pension fund money into Petrobras project-finance ventures, because Petros plans to make conservative investments with our pension fund assets, with the exception of investing in Petrobras project-finance deals," said Marcelo Nobrega, YPF's human resources director. "And we consider these project-finance deals only slightly riskier, because they involve putting money into developing fields where Petrobras has already found oil and has the know-how to extract more."
YPF Brasil employees do not have any say over how their money is managed by Petros, he said, because it is all being managed conservatively. But in the future, Petros plans to give YPF Brasil employees the option of investing conservatively, moderately or aggressively.
While the pension fund capital represents only a drop in the bucket, every little bit helps. Petros officials already are talking to three other oil-related company executives about managing their pension assets, and plans are to solicit assets from pension funds outside the oil sector.
"The more money we can bring to Petrobras to invest in its project finance deals, the more interested Petrobras will be in making us one of its partners in such deals," said Mr. Flory. "That's one reason that it's important to manage other pension fund assets. Their money will give us more investment clout."
The investments were prompted by the pension fund, not by Petrobras, Mr. Flory said. "The decision to invest in Petrobras project finance deals is exclusively a Petros one. Petrobras has posted 20% to 50% per year returns from investing its money in developing Campos Basin fields. It's the attractiveness of such investments that influenced Petros to study project finance partnerships with Petrobras."
But Edmo Chagas, the oil-sector analyst with Rio de Janeiro-based Pactual investment bank, suspects Petrobras officials urged Petros to invest the money.
"Petrobras has not had luck, so far, finalizing most of its project finance deals, especially with the Japanese, so I suspect that Petrobras asked Petros to contribute some money to get these deals started while the Japanese and others were dragging their feet," he said. "And Petros probably jumped at the chance because it can make far greater returns investing in such deals than most of its investments provide. After all, to be successful, the project finance deals simply need to pump more oil out of acreage where Petrobras has already found most of its oil."
Mr. Chagas estimated that Marlim field financing should provide 15% to 20% returns because that's what the National Development Bank estimates it will get from the deal.
Pedro Martins, the oil-sector analyst for the Sao Paulo-based Banco Patrimonio, said, however, "it's impossible to tell whether Petrobras is putting any pressure on Petros to invest in its project finance deals. Petros' interest in taking part in those project finance deals may simply be coming from its decision to refocus some of its investments so that the risk/return relationship from those investments will be more attractive than that provided by conventional fixed income. And while Petrobras is having trouble closing project finance deals with the Japanese, it expects to do so. So it's not feeling that hard-pressed looking for capital elsewhere, like Petros."
Defined benefit setup
The shift of defined benefit assets into oil project investments, comes as Petros is making other changes to its investments, all of which are managed in-house.
Plans include reducing to 30% its 56% allocation to fixed-income and reducing to 10% its 14% allocation to real estate.
Furthermore, Petros plans to overhaul the investments in its stock portfolio, which makes up 27% of the fund, to concentrate the money in stocks that have performed well, provide dividends and have strong cash flow.
The pension fund also wants to play a greater role in influencing the decisions of firms in which it has sizable shares -- from major petrochemical and poultry firms to telecom, energy and non-ferrous metals firms.
To that end, Petros is forming specialist teams to advise firms in which it has major share stakes. These include Perdigao SA Comercio e Industria, a poultry producer; Copene Petroquimica do Nordeste SA, a petrochemical producer; Paranapanema SA, a non-ferrous metals conglomerate; and Inepar SA Industria e Constucoes, an energy and telecommunications company.