Petrobras CEO Change Causes 8.8% Share Drop, Market Stir

Brazil's markets react as President Lula replaces Petrobras CEO, raising concerns over political influence and impacting shares and the real.

By Mackenzie Crow

5/15, 11:24 EDT

Key Takeaway

  • Petrobras shares dropped 8.8% after President Lula replaced CEO Jean Paul Prates with Magda Chambriard, stirring market concerns over political influence.
  • The company's lower-than-expected dividend payout of 1.04 reais per share, totaling 13.45 billion reais ($2.6 billion), disappointed investors.
  • Amidst a strategic shift towards renewable energy, Petrobras reported a net income fall of 38%, missing analyst expectations and raising doubts about future dividends and profitability.

CEO Replacement Shakes Market

Brazil's financial markets experienced turbulence following President Luiz Inacio Lula da Silva's decision to replace Petrobras CEO Jean Paul Prates with Magda Chambriard, a former head of Brazil’s National Oil Agency. This move has intensified concerns regarding political influence on public companies, notably affecting Petrobras shares, which saw an 8.8% decline in pre-market trading. The Brazilian real and local swap rates also felt the impact, signaling a broader apprehension about the government's market-friendly stance. The CEO change, particularly unexpected given Prates' survival of earlier dividend-related controversies, has reignited debates about the autonomy and governance of state-owned enterprises in Brazil.

Dividend Policy Controversy

The recent announcement of a dividend payout of 1.04 reais per share, totaling 13.45 billion reais ($2.6 billion), by Petrobras fell short of market expectations, which were around $3.2 billion. This decision highlighted ongoing tensions regarding the company's dividend strategy, which has been a contentious issue between the government and investors. President Lula has criticized the company's practice of distributing high dividends to private investors, arguing for a reallocation of resources to support broader fiscal strategies. This stance reflects the inherent conflict in balancing the demands of private shareholders with the government's economic and social priorities.

Financial Performance and Strategy Shift

Petrobras reported a net income of 23.7 billion reais, marking a 38% decrease from the previous year and falling short of analyst expectations. The company's adjusted earnings before items also did not meet forecasts, coming in at 60 billion reais. These financial results occur amidst a strategic shift by Petrobras towards renewable energy investments, including wind, solar, and biofuels. This pivot, championed by the outgoing CEO Jean Paul Prates, has sparked investor concerns regarding its impact on the company's future profitability and ability to maintain its dividend payouts. The increase in capital expenditures reflects Petrobras's commitment to diversifying its energy portfolio, despite the financial and operational challenges this transition may entail.

Street Views

  • Marcelo Assalin, William Blair Investment Management (Neutral on Petrobras):

    "From a domestic perspective, the Petrobras news may increase uncertainty about fuel pricing policies, leading to negative investor sentiment."

  • Patricia Urbano, Edmond de Rothschild (Neutral on Brazilian assets):

    "The risk perception over Brazilian assets should deepen on the news amid uncertainty about the company’s transparency when it comes to its investment policy and future dividend payouts."

  • William Snead, Banco Bilbao Vizcaya Argentaria (Neutral on Brazil's economic impact from flooding):

    "Obviously there is political noise on the back of the Petrobras headlines, and some investors might also be wondering about the actual economic impact of the flooding."

  • Alejandro Anibal Demichelis, Jefferies (Bearish on Petrobras):

    "Prates’ ouster appears to be an escalation of the push to intervene in the company," which is likely to raise questions among investors over the company’s governance. The news prompted the firm to downgrade the stock to hold from buy, slashing the price target of its ADRs to $17.70 from $21.20.