Economy

Brazil's Petrobras sees analysts downgrade shares recommendation after Bolsonaro nominates CEO

Bolsonaro announced the nomination of former General Joaquim Silva e Luna to replace current CEO Roberto Castello Branco

Photo: Roberto Parizotti/FotosPublicas
  • XP analysts stressed the negative signal with Bolsonaro’s announcement about a change in the company’s command;
  • Itaú BBA analysts calculated that operating with fuel prices below international parity could generate heavy losses for Petrobras in 2021.

Market analysts downgraded their recommendations for Brazil’s Petrobras‘ shares in the past few days, after the announcement by President Jair Bolsonaro of the change of CEO at state-controlled oil company.

Bolsonaro first announced the nomination of former General Joaquim Silva e Luna to replace current CEO Roberto Castello Branco to head Petroleo Brasileiro SA, as the company is formally known, on social media after the market close Friday.

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Brazilian XP Investimentos cut the recommendation for Petrobras’ papers from “neutral” to “sale” on Sunday, in a report entitled “There is no way to defend it.”

BTG Pactual downgraded the recommendation to “neutral”, while Bradesco reduced it to “underperform”. Credit Suisse lowered the recommendation for “underperform” and halved the target price for the papers, from BRL 16 to BRL 8, citing “many uncertainties.”

The nominee for Petrobras, Luna told Reuters over the weekend to “seek a balance” for the state’s pricing policy, citing interests of shareholders, the market, and the “people”, due to the impact of prices on the productive chain.

XP analysts stressed the negative signal with Bolsonaro’s announcement about a change in the company’s command, even though he still doesn’t know what news Luna will bring.

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“What matters in our opinion is the message that is being transmitted to the market: it is becoming increasingly difficult from a political point of view for Petrobras to implement a price policy in which fuel prices vary according to variations in exchange and oil barrel prices (mainly in the case of diesel, given the pressure from the truck driver category).”

Analysts at Itaú BBA put the recommendation for the state-owned’s papers “under review”, citing a sense of “déjà vu” and pointing out that “once again, the government intervened in the oil company’s policies.”

In a report, the Itaú BBA team recalled that the State Law (13,303 / 2016) and Petrobras’ bylaws should shield the company from political use, which subjects the company to process risks if its operations are run in disagreement with its economic interests.

“The new statute was approved in late 2017, and its potential non-compliance could raise litigation risks for the company and its representatives.”

They also calculated that operating with fuel prices below international parity could generate heavy losses for Petrobras in 2021. They would be $1.8 billion if prices were 5% below par, and 5.4 billion if any mismatch of 15%, with an impact on leverage, which would increase.

(Translated and co-written by LABS)

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