Petrobras loses more than $10 billion in market value after dashing dividend hopes

Written by Marta Nogueira and Fabio Teixeira

RIO DE JANEIRO (Reuters) – Investor frustration with a meager dividend from Brazilian state-run oil company Petrobras saw it lose more than 50 billion Brazilian reais ($14 billion) in market value on Friday after government-appointed board members voted On more generous distributions.

The nearly 10% drop in shares reflects investors' biggest frustration yet with Chief Executive Jean-Paul Prats, who has tried to balance the interests of minority shareholders with a left-wing government keen to see more capital spending.

Petrobras has been a major cash cow for its shareholders in recent years, including the Brazilian government, with previous management paying far more than its major Western oil counterparts.

Under the new management chosen by President Luiz Inacio Lula da Silva, the company reduced its payouts, but the extraordinary dividend was still widely expected in the market.

On Thursday, the company's management proposed distributing 50% of the extraordinary profits allowed under its articles of association for the fourth quarter. Prats said he proposed the additional dividend but abstained from the board vote, as government-backed board members voted against it.

In its fourth-quarter earnings statement, Petrobras said it would only pay a routine dividend of 14.2 billion reais ($2.9 billion) to shareholders, while another 43.9 billion would be set aside in a fund for “capital rewards.”

Goldman Sachs analysts told clients that investors expressed expectations for an exceptional dividend of $3 billion to $4 billion in addition to previously scheduled year-end payments.

The lack of additional dividends led to a series of cutbacks, including at Bank of America, Bradesco BBI and Santander, as analysts questioned how the company would spend its growing cash reserves.

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The decision “increases the risk perception at Petrobras, particularly with respect to government influence regarding key capital allocation decisions,” Bank of America analysts wrote in a note to clients while downgrading the stock to neutral.

Chief Financial Officer Sergio Caetano tried to dispel concerns that increased reserves allocated for the “capital bonus” would be used for investments.

“Some doubts have been raised about the possibility of using it for investments,” he said in a call with analysts. “It cannot be used for investments. The purpose of this reserve is to distribute profits.”

Cayetano added that there is no deadline for the release of those funds, but it could happen at any time. The decision on the distribution of extraordinary dividends will continue to be made at the end of each financial year.

Following his remarks, Petrobras' preferred shares pared some earlier losses but fell 9% to 36.66 reais in Friday afternoon trading in Sao Paulo, responsible for pulling the benchmark Bovespa share index down 0.7%.

Petrobras reported a 6.3% decline in its fourth-quarter net recurring profit to 41 billion reais, beating expectations of 35.3 billion reais among analysts polled by LSEG.

($1 = 4.9769 riyals)

(Additional reporting by Marta Nogueira and Fabio Teixeira in Rio de Janeiro and Peter Frontini in São Paulo; Editing by Gabriel Araujo, Brad Haynes and Jonathan Oatis)

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