Petrobras Market Value Plummets After Bolsonaro Fires CEO

(Bloomberg) -- 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.

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 96 billion reais ($17.5 billion) in market value in the past two sessions. The company’s American Depositary Receipts fell as much as 22% 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.”

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

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