An electronic board shows the index chart at the Sao Paulo Stock Exchange (B3) in Sao Paulo, Brazil, on Feb. 22, 2021.
NELSON ALMEIDA/AFP/Getty ImagesBrazil’s stocks tumbled on Monday as spooked investors reacted to President Jair Bolsonaro’s intervention in the state-controlled oil company.
Bolsonaro replaced the CEO of Petroleo Brasileiro (ticker: PBR), also known as Petrobras, in an action that surprised analysts. Stocks in Brazil fell 5% earlier on Monday, with Petrobras down almost 21%.
Petrobras shares are down 39.3% over the past year.
JPMorgan analyst Rodolfo Angele cut his rating on Petrobras stock to Underweight from Neutral, and lowered his price target to $9 from $17.
“The changes bring uncertainties about key variables such as capex budgets, capital discipline, portfolio management (asset sales, including the refineries) and others,” Angele’s note said. “We move to the sidelines until we hear more from new leadership at the company.”
Bank of America also downgraded the shares, to Underperform from Neutral with a price target of $11. And Scotiabank cut to Sector Perform from Sector Outperform, with a $14 price target.
On Friday, Bolsonaro nominated General Joaquim Silva e Luna to take over from Roberto Castello Branco, who had been cheered by investors for cutting the company’s debt. The nomination needs to be approved by the company’s board.
Petrobras said in a Securities and Exchange filing on Monday that it received a letter from the Ministry of Mines and Energy requesting to convene an extraordinary general meeting to decide on the CEO change.
The move was done after a fight over the cost of fuel. Truckers have threatened a strike over rising diesel prices, according to reports, which also say Bolsonaro is trying to shore up his right-wing political base after a drop in popularity.
JPMorgan analysts said increased government interference is seen as a negative for credit, and advised reducing exposure to Petrobras bonds.
“Prior to the recent events, some select Petrobras bonds were among our top picks” in Latin America, said the note from Barbara Halberstadt.
She downgraded five sovereign bonds to Neutral from Overweight, “until we have more clarity on the future path for the company’s business strategy.”
While the CEO change is a negative, Goldman Sachs reiterated its Buy rating on Petrobras stock. It has lagged behind the oil majors this year, analyst Bruno Amorim said, and thus is an attractive opportunity.
But, he cautions, investors need to heed the added risks of the current political drama.
“While President Bolsonaro affirmed that he does not intend to interfere with the fuel pricing policy of Petrobras, the appointment of a new CEO amidst a series of fuel price hikes brings uncertainty to the investment case,” he said.
“The market might not be willing to give PBR the benefit of the doubt in the near term until the potential changes in the policies mentioned above are better understood,” Goldman’s Amorim said.
Write to liz.moyer@barrons.com
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