Today, after taking a beating on Monday, Petrobras due for more turbulence. Increased coronavirus cases lead states to more restrictive measures. Increased productivity is the goal as Brazilian companies plan to invest in 2021.
The Petrobras debacle set to run and run
We expected turmoil, but Monday’s trading session was carnage for Brazilian assets. In the first business day since President Jair Bolsonaro announced he will change the command of Petrobras, shares of the state-controlled oil giant dropped an eye-watering 20 percent — the second-worst single-day rout since Petrobras went public in 1997. Since Friday, the company has lost BRL 100 billion (USD 18.3 billion) in market value.
- Other companies also performed badly. Fears that the government will no longer observe governance principles in state-controlled firms led energy producer Eletrobras and retail bank Banco do Brasil to lose a combined BRL 113.2 billion in market value.
- Questions over the government’s economic policy fuel mistrust with Brazilian assets in general, including private ones. In New York, 51 of the 58 Brazilian companies trading American Depositary Receipts (ADRs) suffered losses.
Why it matters. The loss in value may give Petrobras’ minority shareholders grounds to sue the company for failing to respect its fiduciary obligations. After all, Mr. Bolsonaro’s announcement of intended changes to the CEO position came via Facebook, in a clear violation of securities regulations.
Board meeting. Petrobras’ board of directors meets today to discuss whether to call an extraordinary shareholders’ meeting to replace CEO Roberto Castello Branco with Mr. Bolsonaro’s preferred appointment, retired Army General Joaquim Silva e Luna. Directors are between a rock and a hard place, with the president on one side and investors on the other.
- “The board members have a fiduciary responsibility to the shareholders, and to them alone,” says Carlos Portugal Gouvêa, a commercial law professor at the University of São Paulo and partner at PG Law. “Investors in the U.S. have had recent success [in lawsuits] against companies whose board members failed to meet those responsibilities.”
Pressure. Mr. Bolsonaro signed a decree forcing gas stations to report which factors are used to set their prices at the pump — a clear attempt to put pressure on Petrobras to breaking with its current policy of pegging fuel prices to international rates.
Legal backlash. The Brazilian Securities Commission (CVM) opened an investigation into the case. A federal judge ruled that the president must explain, within 72 hours, the rationale behind his move.
States turn to tougher restrictions amid hike in coronavirus cases
Intensive care unit occupancy rates in at least 13 of Brazil’s 27 states are currently above 80 percent, which is considered a “critical” level. Meanwhile, the 7-day rolling average of new daily deaths in the country has remained above 1,000 for 33 consecutive days.
Why it matters. Experts say the numbers are proof that the coronavirus is spreading quicker across the country — and call for tougher restrictions.
Response. Multiple states are rolling back their reopening plans. São Paulo should enforce more restrictions on Wednesday, while Bahia extended its curfew laws, with state capital Salvador shutting down beaches and social clubs. Other states in the Northeast have passed similar curfew measures.
Vaccines. Multiple cities have suspended vaccinations due to a lack of jabs. The Brazilian government received a shipment of 2 million doses from India this morning and is awaiting the necessary inputs to produce another 2 million, but supplies continue very low.
- The government has so far resisted buying vaccines from Johnson & Johnson and Pfizer, as the companies want to be exempt from any responsibility for potential side effects experienced by patients. After a meeting with representatives from both labs, Senate President Rodrigo Pacheco proposed a way of splitting the baby, with states and municipalities sharing responsibility for potential risks.
Meanwhile … Prosecutors in Brasília opened a criminal inquiry against Health Minister Eduardo Pazuello for misconduct in office. They will investigate a wide range of alleged wrongdoings, including illegally allocating funds to purchase unproven treatments, failing to act in the face of the health crisis, and employing inadequate measures in buying vaccines.
- Mr. Pazuello is already targeted by a Federal Prosecution Office probe for allegedly allowing the city of Manaus to run out of oxygen supplies earlier this year. Opposition senators filed a request to launch a parliamentary hearings committee to investigate his conduct.
Brazilian industries plan to invest in 2021
Brazilian industries are set to jack up investment following a dreadful 2020. A survey by the National Confederation of Industry (CNI) shows that 82 percent of the sector’s players want to spend in order to enhance productivity.
Why it matters. In 2020, only 69 percent of industries in the country were able to invest — the lowest rate since 2016, another recessive year.
- Companies kept a tight hold of their purse strings following a massive drop in domestic demand, caused by growing unemployment, a loss of revenue by Brazilian households, and an uncertain economic scenario. Moreover, a currency crisis made inputs more expensive and the pandemic created input shortages for many sectors.
Reasons to smile. Industrialists say that even if vaccination efforts are slow in Brazil, they should nevertheless hold consumer demand at acceptable levels.
Production. At least 33 percent of surveyed companies say they intend not only to increase productivity but also enhance their output. That rate had been kept below 30 percent since 2011, signaling that the sector has positive expectations for the long-term future.
Yes, but … According to Marcelo Azevedo, chief economic analyst at CNI, that willingness to invest could wane if uncertainty levels continue to rise. In a piece of data that seems to contrast with that willingness to invest, industries’ confidence levels in the economy have now dropped for two straight months.
What else you need to know today
- Aid. To make room for the new Covid-19 emergency aid program for workers, Congress is set to allow federal and local governments to slash spending on education and health, as well as freezing civil servants’ salaries for up to two years. As things stand, states and municipalities must allocate 25 percent of their revenue to education spending, meaning the measure would open up significant space for wealth-transfer policies — however, it could have lasting negative consequences on public policymaking.
- Corruption. Samsung Heavy Industries signed a leniency deal with the Federal Comptroller’s Office and Solicitor General’s Office to settle investigations into “illicit activities in contracts with Petrobras.” The company will pay BRL 811 million within 30 days. According to the government, 13 leniency deals have been signed in Brazil since the Anti-Corruption Law passed in 2013. So far, companies committed to paying BRL 14.5 billion — of which BRL 4 billion have already been paid.
- Stocks. The Brazilian National Development Bank (BNDES) has sold its remaining stock in mining giant Vale. Since the beginning of the year, the bank has sold off 11 million shares, currently valued at BRL 11 billion (of the company’s BRL 504 billion market value). Under current management, BNDES has shed BRL 60 billion in stocks owned by the bank.
- Amazon. The government authorized the transfer of BRL 450 million to the state of Acre, which is facing a perfect storm of problems: Covid-19 and dengue fever epidemics, severe floods, and a migrant crisis, with hundreds of Haitian refugees blocked at the Peruvian border while trying to leave Brazil. Governor Gladson Camelli declared a state of emergency and requested federal assistance over the weekend.
- Torture. The government appointed former Navy officer Eduardo Freire de Melo to the National Committee to Prevent Torture. Mr. Melo has a history of quotes relativizing the torture perpetrated by state agents during the military dictatorship — often equating it to acts of violence by left-wing resistance groups, which he describes as “terrorism.”[/restricted]