This excerpt taken from the PBR 6-K filed Dec 18, 2006.
Share buy back
(Rio de Janeiro, December 15, 2006) - PETRÓLEO BRASILEIRO S/A - PETROBRAS, [Bovespa: PETR3/PETR4, NYSE: PBR/PBRA, Latibex: XPBR/XPBRA], a Brazilian international energy company, announces that its Board of Directors, meeting today, according to Article 29, paragraph 2 of its By-laws, its Share Repurchase Policy, and existing pertinent legislation authorized the repurchase or Petrobras preferential shares in circulation for future cancellation using retained earnings as per the following conditions:
In accordance with its share repurchase policy, the Board of Directors concluded that the companys current liquidity position permits the implementation of a share repurchase program without comprimising its investment program or dividend payments, while at the same time safeguarding its operational and financial targets established in its Strategic Planning. Moreover, the Board understands that Petrobras shares would be currently undervalued in light of growth and profitability prospects.
Over the last three years there has been a marked improvement in Petrobras financial indicators. Leverage(net indebtedness/net total liabilities) in BRGAAP fell from 53% in December/2002 to 17% by September/2006 (55% to 18% in USGAAP), while financial targets set by its strategic planning suggest a level of 25% for this indicator. This improvement in the companys liquidity is also reflected by its risk classification by Moodys that, after a downgrade in August 2002 to Ba2, has been consecutively upgraded to Ba1 in September/2004, and Baa2 in October/2005, which is considered as investment grade.
In October/2006, the company raised US$500 million in the international capital market, for ten year maturity, offering a yield of 6,185% per annum, only 1,55% above US Government securities of similar duration. In light of these yields, its growth prospects compared to current market valuation of its shares, and current and projected conditions of the international oil market, among other alternatives that were considered, the Board of Directors considered share repurchases to be the most attractive alternative to reduce Petrobras financing costs in the short run.
Almir Guilherme Barbassa