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Petrobras (PBR) to Vend 100% Stake in 2 Fertilizer Units


Moving ahead with its divestment goals, Brazil's state-run energy giant Petróleo Brasileiro S.A. or Petrobras PBR recently announced plans to offload stakes in two of its fertilizer units. The move is in line with Petrobras’ strategy to exit fertilizer production and focus on developing core competencies to build a sound business model. The company, which is grappling with huge debt, intends to reinstate financial health through deleveraging efforts and divestment goals.

Petrobras has initiated the divestment process of its entire stake in Araucária Nitrogenados SA (‘’ANSA’’) and Nitrogen Fertilizer Unit III (UFN-III). ANSA is a wholly-owned subsidiary of Petrobras operating since 2013. The plant produces important organic compounds including ammonia, carbamide, carbon dioxide among others used by the fertilizer/chemical industries and industrial gas manufacturers. The UFN-III plant — the construction of which started in 2011— is around 80% complete and can produce 3,600 tons of carbamide per day and 2,200 tons of ammonia per day.

Petrobras is presently trying to come out clean of the money-laundering scandal that has led to a huge debt burden and scarred its credit metrics. The deal is in sync with the company’s plans to revive financial health through the divestment program of 2015-2018. The company has already sold more than $13.6 billion assets by the end of 2016 and intends to raise another $21.4 billion over the next two years. The move is in line with the company’s aim to generate $35 billion from asset sales. In July, Petrobras announced plans to divest around 30 assets by the end of 2017.

Petrobras intends to exit from its noncore segments including biofuels, LPG distribution, fertilizers and petrochemicals. Instead it has shifted its focus on sub-salt and pre-salt exploration and production. The divestment plans will also help the company gain additional liquidity as it intends to increase investment in ultra deepwater projects.

Further, since Brazil eased nationalist regulations and opened the market to competition, international oil companies have started considering the region as a viable investment choice. Thus, Petrobras is now entering into various strategic partnerships with foreign oil giants to drive its exploration momentum. In this regard, the company has inked deal with major players like Total S.A. TOT, Royal Dutch Shell plc RDS.A and Statoil ASA STO.

The changes in the regulatory environment along with rebalancing of priorities are likely to offer Petrobras various growth opportunities and reinstate the faith of investors in the stock.

Zacks Rank

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 gained 19% in the last three months compared with 8% growth of its industry.

Petrobras presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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