Last November Jim Chanos spoke about his “two favourite shorts” at London’s Ira Sohn Value Investing Conference, both were Brazilian companies.
Today we’ll just talk about one —Petrobras, Brazil’s state oil company. This month it’s getting negative attention from journalists and investors alike.
But first, Chanos’ thesis (in case you don’t remember). He said that state management was suffocating Petrobras’ profitability. Basically, the company is drilling expensive oil fields with expensive machinery and hiring workers while the government suppresses oil prices.
It’s almost sounds like he wrote the profile of Petrobras in today’s New York Times (from NYT):
Saddled with a nationalist mandate to buy ships, oil platforms and other equipment from lethargic Brazilian companies, the oil giant is now facing soaring debt, major projects mired in delays and older fields, once prodigious, that are yielding less oil. The undersea bounty in its grasp also remains devilishly complex to exploit.
Now, instead of symbolizing Brazil’s rise as a global powerhouse, Petrobras embodies the sluggishness of the nation’s economy itself…
Until recently, Petrobras was second in value only to ExxonMobil among publicly traded energy companies. But its fortunes have tumbled to the point that it is now worth less than Colombia’s national oil company. That fall has accentuated an increasingly bitter debate here over President Dilma Rousseff’s attempts to use Petrobras to shield the Brazilian population from the nation’s economic slowdown.
Chanos put it more colorfully in November saying, “People worried that Lula was a socialist, well, Dilma is a socialist.” Since then the stock has fallen 22%.
Political leanings aside, Petrobras’ performance is obviously hurting investors. One Sao Paulo newspaper, Fohla De S. Paulo, calculated just how much.
According to calculations, provided to Folha, from the financial information company Comdinheiro, people who invested 10,000 reais (US $ 4,968.7) 12 months ago in the most traded stock (preferred shares, without voting rights) from the state-owned company, by March 19 of this year have 7,912.18 reais (US $ 3,931.2), considering already earnings (dividends, interest on company capital and income).
People who invested the same amount in common share (less traded, with voting rights) had more losses: the balance decreased to 7,021.70 reais US $ 3,448.5).
Shares fell during this period pressured by investors distrust in government interference in the company, which prevented, for example, the adjustment of gasoline prices due to inflation.
All this considered, it shouldn’t surprise anyone that Petrobras announced this month that it is trying to raise $9.9 billion through divestments. Fohla estimates that the company could get $200 million for each natural gas plant it sells — the company has 11.
So right again, Chanos.
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