Investor Frustration Wipes Out $14 Billion from Petrobras Stock
Rio de Janeiro, Brazil
Decreased Dividend Triggers Market Turmoil
Investor frustration with Brazil’s state-run oil firm, Petrobras, led to a massive sell-off and wiped out over 50 billion reais ($14 billion) from the company’s market value. This unprecedented drop followed the rejection of a more generous dividend payout by government-appointed board members. Chief Executive Jean Paul Prates, who has been striving to balance the interests of minority shareholders with a government keen on capital spending, currently faces the dissatisfaction of the investor community.
Disappointing Dividend Payout
Petrobras has been a profitable investment for shareholders in recent years, including the Brazilian government, as it consistently paid out higher dividends compared to Western oil major peers. However, under the new management appointed by President Luiz Inacio Lula da Silva, the company has significantly reduced its dividends. While the market had anticipated an extraordinary dividend, the management proposed a payout of 50% of the allowed extraordinary dividend for the fourth quarter. Unfortunately, the government-backed board members voted against it. As a result, Petrobras declared a routine dividend of 14.2 billion reais ($2.9 billion) for shareholders, allocating an additional 43.9 billion reais for “capital remuneration.”
Investor Downgrades and Growing Concerns
The absence of an extraordinary dividend has sparked concerns among investors, resulting in multiple downgrades by major institutions such as Bank of America, Bradesco BBI, and Santander. Analysts from Bank of America voiced concerns over the increased risk perception at Petrobras, especially regarding vital capital allocation decisions influenced by the government. The decision to reduce the stock’s rating to neutral further emphasized the apprehension.
Company’s Response and Future Outlook
Chief Financial Officer Sergio Caetano attempted to alleviate concerns regarding the purpose of the reserve set aside for “capital remuneration.” During an analyst call, Caetano emphasized that the allocated funds cannot be used for investments and asserted that their sole purpose is to distribute dividends. He further confirmed that the release of the reserve has no specific deadline but can occur at any time. The decision regarding extraordinary dividends will be made annually, at the end of the fiscal year.
Market Reaction and Financial Performance
Following Caetano’s remarks, Petrobras’ preferred shares managed to recover slightly from earlier losses, but still experienced a significant 9% plunge to 36.66 reais during Friday afternoon trading in Sao Paulo. This decline in Petrobras shares subsequently dragged down the benchmark Bovespa stock index by 0.7%. In terms of financial performance, Petrobras reported a 6.3% drop in its fourth-quarter net recurring profit to 41 billion reais, surpassing the analyst consensus of 35.3 billion reais.
(Reporting by Marta Nogueira and Fabio Teixeira in Rio de Janeiro, Peter Frontini in Sao Paulo; Editing by Gabriel Araujo, Brad Haynes and Jonathan Oatis)
