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Petrobras new CEO cost in value
$19 billion
over two days

Petrobras Craters, Real Falls in Brazil's Worst Rout in Months

- Analysts downgrade stock after President named new CEO
- Interference risk might delay sale of the company's refineries

By Vinicius Andrade/Bloomberg

Petroleumworld 02 23 2021

A sell-off in Brazil's state-controlled oil firm Petroleo Brasileiro SA picked up on Monday after a group of analysts downgraded the stock within 24 hours, following the government's decision to replace the company's chief executive officer.

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Bradesco BBI , BTG Pactual , Credit Suisse , JPMorgan , Nau Securities , Santander , Scotiabank and XP Investimentos cut their ratings on the shares after Brazilian President Jair Bolsonaro on Friday decided to fire the oil company's CEO following a spat over hikes in fuel prices and moved to appoint Joaquim Silva e Luna, a former army general, as a replacement. Company's board still needs to confirm the decision.

Shares in Petrobras tumbled in Sao Paulo, erasing about 102.5 billion reais ($18.8 billion) in market value in the past two sessions. The company's American Depositary Receipts fell 21% in New York.

Investors are concerned the hasty appointment of a new CEO may signal a potential shift away from market-friendly policies. The oil company's discount to global peers is expected to widen and the sale of its refineries could also face delays as a result, hindering deleveraging plans, analysts said .

“Fundamentals are unlikely to be the main driver of the stock in the near term,” Morgan Stanley analysts led by Bruno Montanari wrote in a report dated Feb. 21, moving the stock to not-rated from overweight. “We will have to weigh the role of a much increased risk perception in the sector, the country, and PBR specifically.”

Read: Fuel prices move Bolsonaro to replace Petrobras CEO with a General

Here's what analysts are saying:

Bradesco BBI, Vicente Falanga

  • Potential sudden change in top management adds risks to investment case
  • Questions remain unanswered including what will be the firm's new diesel pricing policy and if recent hikes in prices could be reverted. There might be a delay to gross debt targets amid risks to the sale of refineries
  • Stock was cut to underperform from neutral; price target lowered to 24 reais from 34

Morgan Stanley, Montanari

  • Petrobras is in a better financial standing compared to prior intervention years, but risk perception has sharply increased
  • “An intervention bear case seems to be unfolding”. Shares traded at a 5-15% discount to international peers and are likely to trade at a bigger discount in the near future
  • Intervention may potentially affect the firm's divestment program, particularly the sale of refineries.
  • Stock was moved to not-rated from overweight; price target of $16.50 for ADRs was removed

JPMorgan, Rodolfo Angele

  • Announcement of a new CEO at this moment raises questions about Brazilian market working at parity
  • Sees uncertainties regarding capex budgets, capital discipline and sale of assets
  • Stock was downgraded to underweight from overweight; price target for ADRs lowered to $9 from $17

XP, Gabriel Francisco

  • Nomination of Silva e Luna is negative in terms of governance given risks to the firm's autonomy
  • Also mentions risks for the firm to keep adjusting prices to international rates
  • There are many uncertainties and stock should trade at a higher discount to historical averages and other global oil firms
  • Stock was cut to sell from neutral price target lowered to 24 reais from 32


By Vinicius Andrade from Bloomberg
02 22 2021



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