What benefits might Petrobras have obtained from cross-listing its shares on the NYSE? What might the costs be?

Harvard Case: Drilling South: Petrobras Evaluates Pecom

Let us value Pecom from the perspective of one of the holders of Petrobras ADRs. Assume a market beta of 0.9 for Pecom with respect to the global market. Assume market debt to assets at the time the beta is measured is 0.4. The Treasury rates in exhibit 18 are US Treasury rates. Assume the sovereign risks in exhibit 18 are the difference between the yield on the countrys dollar denominated sovereign debt and the US Treasury rates of the corresponding maturity. Assume the market risk premium is 7% and the expected return on Pecoms debt is 10%. Finally, assume that Petrobras believes a target debt to capital of 0.3 is appropriate after take over. State any additional assumptions you make in arriving at your answers.

Exhibit 18 Market Valuation Indicators (as of 2002, unless noted otherwise) Petrobras 0.69 0.94 $26.47 Pecom 0.77 0.87 S8.12 Market Indicators Beta 1 Year Beta 3 Years Market price Brazilian Sovereign Risk Argentine Sovereign Risk Treasury 10 Years Treasury 30 Years 718 5,013 5.40% 5.80% Exhibit 18 Market Valuation Indicators (as of 2002, unless noted otherwise) Petrobras 0.69 0.94 $26.47 Pecom 0.77 0.87 S8.12 Market Indicators Beta 1 Year Beta 3 Years Market price Brazilian Sovereign Risk Argentine Sovereign Risk Treasury 10 Years Treasury 30 Years 718 5,013 5.40% 5.80%