Latin America: Petrobras suspends TAG sale following Supreme Court ruling

05 July 2018 - 12:00 am UTC

State-run oil company Petrobras is suspending the sale of its stake in Transportadora Associada de Gás S.A. (TAG) and several other assets following a ruling from a Supreme Court judge blocking the privatizations.

Justice Ricardo Lewandowski said on 3 July that the planned divestment by Petrobras of its 90% stake in TAG and sale of several refineries and a fertilizer factory could not proceed without Congressional approval.

Justice Lewandowski’s decision came on the eve of a month-long recess at the Supreme Federal Court (STF). The ruling can only be reversed by the 10 other judges that make up Brazil’s highest court.  

“Petrobras is evaluating appropriate actions in favor of its interests and of its investors and stresses the importance of the Partnership and Divestiture Program to reduce its level of indebtedness and generate value through portfolio management, in line with its Strategic Plan and Business and Management Plan 2018-2022,” the company said in a statement on 3 July.

Petrobras did not return calls seeking comment.  

“Procedurally, the STF is the only body that can reverse the interim ruling of Minister Lewandowski,” said a source familiar.  “This ruling, while in effect, blocks the sale of TAG in its current form.”

As previously reported, the TAG pipeline had already been suspended by the Federal Regional Court of the 5th Region in Recife, in the state of Pernambuco, in early June. The regional court upheld a request for an injunction from five labor unions claiming the direct sale of Petrobras’ stake to French energy company ENGIE did not comply with Brazil’s Law of Tenders.

The latest ruling further reduces the likelihood of Petrobras meeting its target of raising BRL 21bn (USD 5.3bn) by the end of 2018.

“I’d put chances at 70% that [the TAG sale] still done this year,” said the source. “Since [former Petrobras CEO Pedro] Parente left and with general elections looming, the longer it takes the harder it becomes.” Parente resigned as CEO on 1 June after a nationwide trucking strike over high fuel process brought Brazil to a standstill and led to shortages in products ranging from fresh fruit and vegetables to medicines. State-controlled Petrobras sets fuel prices in the country.

Nevertheless, there is optimism in some quarters that the decision can be reversed and TAG sold before the end of the year.

A second source briefed on the divestment says the number of political appointees within Petrobras keen to reduce the company’s indebtedness and hire of Santander to structure the sale make it likely a sale can still take place before the end of the year.

“Petrobras hired Santander and is following all steps needed to be followed to have a proper sale,” the source said, also pointing to the high level of interest also shown by rival bidders Mubadala and Macquarie during the early stages of the sale process. “Everybody was spending top dollar on that process, so it would be very disappointing to see this process fully stopped.”

UAE sovereign Mubadala bid for TAG as part of a consortium including private equity fund EIG Global Energy Partners and Italian natural gas infrastructure company Snam. Australian-listed Macquarie is also interested in the asset and is working with local banks Bradesco and Itaú.

Should the TAG sale be restarted, both parties will have an opportunity to match or better the terms offered by Engie.  

JP Morgan, Goldman Sachs and Sumitomo Mitsui Banking Corporation are other lenders jostling to back a bid for TAG, as previously reported.