Shares in Brazil’s Petrobras plunge 20% (February 22nd)

RIO DE JANEIRO, BRAZIL – The Brazilian president’s move to name a new CEO for the company is sparking a crisis of confidence in his administration’s commitment to free-market policies—and investors are fleeing.

Oil giant Petrobras lost almost a fifth of its market value Monday after Brazil’s President Jair Bolsonaro named an army general to take over the company in an apparent bid to control fuel prices, sparking a crisis of confidence as investors soured on his administration’s commitment to free-market policies.

Under ousted CEO Roberto Castello Branco, Petrobras had increased fuel prices four times so far in 2021, a cumulative rise of nearly 35%.

The increases came as international oil prices, which hit all-time lows last year, returned to pre-coronavirus pandemic levels, pushed higher by output cuts in oil-producing countries and optimism that vaccines against Covid-19 will spur a global economic recovery.

But the price hikes have triggered backlash in Brazil, particularly among truckers, who threatened a crippling strike.

Bolsonaro’s plan to appoint General Joaquim Silva e Luna, who served alongside the president decades ago under Brazil’s military dictatorship, came as a blow to the oil producer. Petrobras had spent the past few years trying to regain investors’ trust and selling billions of dollars of assets following an overspending binge under prior administrations that nearly drove the company bankrupt.

“Bolsonaro’s impetuous decision to replace the CEO of Petrobras with an army general is a red flag indicating a turn towards populist policies,” TS Lombard, an investment-research firm, said on Monday in a note to investors. The London-based company said the president’s plans indicate a shift toward the generous fuel-price subsidies that marked the leftist government of Dilma Rousseff, impeached in 2016.

Since Friday, Petrobras has lost close to US$20 billion in market value. The price for its preferred shares fell from R$27.33 at the close on Friday to R$21.45 by Monday’s close. The decline was the single biggest fall in Petrobras shares since March 9th last year, when oil prices plummeted at the start of the coronavirus pandemic.

As investors fled Brazilian assets Monday, the country’s Bovespa stock index fell nearly 5%, while Brazil’s currency lost more than 1% against the dollar. Prices of bonds tied to Petrobras also fell.

Shares in state-owned electricity company Eletrobras initially dropped 8% before recovering, amid fears Bolsonaro would also target rising electricity prices. The president had said on Saturday that he was also looking at “putting a finger” on electricity costs, amid ongoing discussions on privatizing Eletrobras.

Source: The Wall Street Journal