Brazil’s Petrobras Sinks on Fears It Will Cut Dividends, Subsidize Fuel

Peter Millard and Martha Beck Tue, February 28, 2023, 12:10 PM ESTIn this article: 

(Bloomberg) — Brazil’s state-controlled oil company Petrobras sank on growing concerns that it will slash dividends and start subsidizing fuel under President Luiz Inacio Lula da Silva.

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The government will change the company’s dividend policy, using some of the hefty dividends it has rewarded shareholders with for investments focused on energy transition instead, a person familiar with the matter said. Some of the money will also be used to fulfill the company’s “social purpose,” the person said, asking not to be named because the information isn’t public.

Petrobras’ voting stock fell as much as 4%, the most in about a month. Preferred shares, which are more liquid, erased gains on the news, which was first reported by website G1.

The shares had already lost steam earlier after the company said it was cutting gasoline and diesel prices. The announcement came less than a day after Finance Minister Fernando Haddad said he would ask the company to lower them to compensate for a tax exemption on fuels that expired Tuesday.

Petrobras Cuts Diesel, Gasoline Prices Amid Fuel Tax Talks

Oil majors the world over are flush with cash after oil prices soared last year, putting them under scrutiny for windfall profits at a time consumers are suffering from inflation. Lula’s Workers’ Party has a history of having Petrobras subsidize diesel and gasoline when in office.

“It’s their old playbook,” said Fernando Valle, an analyst at Bloomberg Intelligence. “It harks back to the early 2010s, when Petrobras’s fuel pricing policy drove it to be the most indebted company in the world.”

The record dividends Petrobras has been paying are the result of a major turnaround over the past six years. It has slashed leverage, boosted production and curbed expenditures, leaving Lula with what analysts consider a well-managed company with a strong balance sheet.

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