Petrobras has a new CEO, Aldemir Bendine. It also has five new division heads,
including a new CFO, Ivan Monteiro who held the same position at Banco do Brasil. The state chose the CEO with little regard
for minority shareholders, and it chose the division heads with little regard
for the CEO.
Market reaction has been negative, and understandably
so. Many had hoped for a name that would
galvanize investors and employees alike and offer a new framework for state
controlled national champions. That didn’t
happen. We still have a state company,
the question is, will it be the lite
version?
In retrospect, the choice of Mr. Bendine shouldn’t have
surprised. After all, the PT and its
leader had been dead set against the privatization of Petrobras in 2000, and
Dilma Rousseff, while an economist herself, is no Milton Friedman devotee. She also must worry about the petrolão corruption scandal and want a “friend”
at the helm of the company. Finally, it
seems that a number of well known private sector CEOs were not interested in
leading Petrobras through a potentially acrimonious restructuring, a global oil
crisis, and a huge corruption scandal all at the same time, while having to also
defer to government priorities.
On a more positive note, Mr. Bendine does have the
experience of managing a very large business organization, Banco do Brasil,
which was not the case of some of his predecessors (Mr. Gabrielli,
2005-2012, was an economist; Mr. Dutra, 2003-2005, was a geologist and
politician). He has experience doing
right for his company while dealing with political interference, as Banco do
Brasil shareholders fared better under his leadership than those who bought the
broad Ibovespa Index. Finally, it could
be argued that Petrobras is facing greater challenges in the financial than in
the technical area, and Mr. Bendine knows about finance.
Add to that Mr. Bendine's reported fondness for the rock group Queen, and I think we have a man with the potential to surprise those who expect bland bureaucratic loyalty.
Add to that Mr. Bendine's reported fondness for the rock group Queen, and I think we have a man with the potential to surprise those who expect bland bureaucratic loyalty.
Now what? I
expect that Mr. Bendine will soon
present his recovery plan. I expect
dividends to be cut, and that fresh capital could be raised if the stock price
starts to recover. But the keys to
success lie in the hands of the government: will Petrobras be allowed to operate as a for-profit corporation,
pricing its products accordingly, investing within its means, and rewarding
its shareholders (more or less) in line with international benchmarks?
I think that the government has little choice but to
oblige as long as Petrobras is in recovery mode which will take a couple of
years.
Investors are also awaiting the release of the
audited quarterly and annual financials of Petrobras. There is much discussion as
to whether the asset write-down will be $2 billion, $20 billion or more. Except for its indirect impact on income
taxes, the magnitude of the write-down has little impact on the company’s cash
flow generation. Refineries, drilling
platforms, pipeline networks won’t be any more or less productive whether their
book value is 100, 90 or 70.
As I suggested in a previous post, I suspect that the
government policy of imposing very high minimum local content will have resulted
in larger write-downs than outright bribery did. Sure, if the corruption
component turns out to be very high, it will be bad news for people involved
and will result in costly and lengthy litigation for Petrobras. But I don’t think that it will do much to the
next two years’ cash flows.
In conclusion, Petrobras is not going to be
privatized, it is not going to turn into a South American Total. Rather, it may morph into an estatal lite, not too free, not too
efficient, not too shareholder friendly, but not a new PDVSA either (although
it was on that track until the petrolão
blew open).
Investors must focus on what really matters: not the
size of the asset write-downs, not even the new management team, but the
government policy and actions. If I am
right, Petrobras stock is now priced as if it is the next PDVSA[1].
[1]
I also assume that global oil prices will return to
$70/barrel ± $10 within the next two years.
