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Petrobras CEO Swap Sinks Shares, Stirs Brazil Market Worry

Lula's CEO change in Petrobras stirs market unrest, impacting shares, the real, and swap rates amid dividend and strategy concerns.

By Mackenzie Crow

5/15, 07:43 EDT

Key Takeaway

  • Petrobras CEO change by President Lula sends shares down 8.8%, affecting Brazilian real and swap rates, amid fears of political interference.
  • Dividend policy controversy as recent payout of 1.04 reais per share falls short of expectations, highlighting tension between government fiscal strategies and investor returns.
  • Financial performance misses analyst expectations with a net income drop to 23.7 billion reais, amidst strategic shifts towards renewable energy investments.

CEO Replacement Shakes Market

Brazil's 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, has sent shockwaves through the market. This move has reignited concerns about political influence over public companies in Brazil, affecting not just Petrobras shares, which are down 8.8% in pre-market trading, but also the Brazilian real and local swap rates. The change at the helm of Petrobras was unexpected, especially since Prates had retained his position through earlier controversies regarding dividend payments.

Dividend Policy Controversy

Petrobras recently announced a dividend of 1.04 reais per share for the first quarter, totaling 13.45 billion reais ($2.6 billion), which fell below analysts' expectations of $3.2 billion. This decision follows a period of tension over the company's dividend strategy, which saw Petrobras opting to distribute 50% of available cash to investors after debates within the company and criticism from President Lula. Lula has been vocal about his dissatisfaction with the high dividends paid to private investors, emphasizing the need for the company to support broader fiscal strategies over shareholder payouts. Petrobras's dividend policy has been a point of contention, reflecting the challenges of balancing investor expectations with government priorities.

Financial Performance and Strategy Shift

Petrobras's financial results have shown a deviation from analyst expectations, with net income reported at 23.7 billion reais, 38% lower than the previous year. The company's adjusted earnings before items were also below forecasts, at 60 billion reais. These results come amid strategic shifts within Petrobras, as CEO Jean Paul Prates had indicated plans to increase investment in renewable energy sources like wind, solar, and biofuels. This pivot towards less traditional energy sectors has raised concerns among investors about the potential impact on the company's profitability and dividend payouts. Petrobras's capital expenditures have increased, reflecting its commitment to diversifying its energy portfolio despite the financial and operational challenges involved.