Oil prices fell and liquidity dried up. Nevertheless, Rio de Janeiro-based Banco Modal, in partnership with Caixa Econômica Federal (the Brazilian federal savings bank), are following through with their plan to launch a private equity fund (FIP) aimed at suppliers and service providers to Petrobras. The idea is to protocol registration of the fund with the Brazilian Securities and Exchange Commission in January or February 2009, so that the product is fully operational in the first quarter. The product is expected to start out with R$ 250 million to R$ 350 million in equity and raise up to R$ 500 million. The fund will have four years to select assets and another six to close them.

Announced in September, the FIP collided head-on with the worsening of the international crisis and, thus, its structuring calendar was postponed. But the financial shake-up had not have eliminated the interest of major institutional investors, such as pension funds, in this type of alternative investment, according to a source who is tracking the FIP's creation. “After the initial scare, the outlines of the crisis are becoming clearer”, said the source. Furthermore, as banks greatly reduced their lines of credit, the need for financing increased for the more than 200 companies targeted by the fund, all of them in the oil and gas industry. In theory, these circumstances make the assets more attractive for acquisition by private equity funds.

The fund will serve as a mitigator for one of the central problems faced by Petrobras: its suppliers' financing capability. As CAPITAL ABERTO was able to verify, Petrobras itself sought out Caixa Econômica Federal to request that it create the FIP. Caixa Econômica Federal assumed administration and delegated the fund's management to Modal, which has experience from having loaned R$ 9 billion to the Petrobras's production chain throughout Modal’s seven year history. As proof that they see the crisis as an opportunity for private equity investments, Modal has one more FIP almost ready to go, targeted at a different segment. The institution was contacted by our staff, but did not provide details on the new offering.