Optimism that Petroleo Brasileiro SA (PETR4) will benefit if President Dilma Rousseff is voted out of office is unfounded, said Jim Chanos, founder of short-seller Kynikos Associates LP.
“The economics are just so poor at Petrobras, that we really have called it a scheme, not a stock,” Chanos said in an interview on Bloomberg Television today.
“If Neves wins, this is underwater. If Dilma wins, this is really underwater.” Petrobras, as the state-controlled oil company is known, regularly misses production guidance and has persistent negative cash flow from deep-water projects, according to a presentation accompanying Chanos’s speech at the Robin Hood Investors Conference in New York today.
Net debt has increased and Petrobras’s returns on assets have fallen to 4.5 percent, below its 15 percent cost of capital, he said.
The presentation notes that no Brazilian president has lost a re-election campaign since a 1997 constitutional amendment allowed for them to serve more than one term consecutively, and no South American incumbent has lost a presidential election since 1980.
The presidential runoff election scheduled for Oct. 26 is statistically tied between Rousseff and Aecio Neves, according to a poll released today. Chanos said in November 2012 that Rio de Janeiro-based Petrobras was one of his favorite shorts.
Shorts bet against a stock by selling borrowed shares with the plan to repurchase them at a lower price and pocket the difference. Petrobras didn’t immediately respond to an e-mail seeking comment. The shares fell 6.1 percent to 17.92 reais at the close in Sao Paulo today.They have gained 4.9 percent this year.
‘Economic Policy’
Fuel price controls, an “instrument of economic policy” for Rousseff that discounts gasoline and diesel from international levels, have caused 37.8 billion reais ($15.4 billion) in losses at Petrobras’s refining unit in the past two years, according to the Chanos presentation.
Free cash flow will remain negative even if the refining division starts breaking even, according to the investor who rose to fame betting against Enron Corp. Opposition candidate Neves has said domestic prices need to track international prices.
Rousseff, who served as chairman of Petrobras from 2003 to 2010, is in a dead heat with Neves as election day approaches.
Rousseff has 45.5 percent support and Neves 44.5 percent, according to a Oct. 18-19 MDA poll that was commissioned by the National Transport Confederation. The poll has a margin of error of 2.2 percentage points.
Polls by Ibope and Datafolha published Oct. 15 also showed the candidates statistically tied, with Neves ahead within the margin of error.
The outcome of the election won’t help Petrobras because it’s borrowing more than $20 billion a year and doesn’t have enough cash flow, Chanos said. “This is an enormous sinkhole from a financial point of view,” he said.
bloomberg.com
“The economics are just so poor at Petrobras, that we really have called it a scheme, not a stock,” Chanos said in an interview on Bloomberg Television today.
“If Neves wins, this is underwater. If Dilma wins, this is really underwater.” Petrobras, as the state-controlled oil company is known, regularly misses production guidance and has persistent negative cash flow from deep-water projects, according to a presentation accompanying Chanos’s speech at the Robin Hood Investors Conference in New York today.
Net debt has increased and Petrobras’s returns on assets have fallen to 4.5 percent, below its 15 percent cost of capital, he said.
The presentation notes that no Brazilian president has lost a re-election campaign since a 1997 constitutional amendment allowed for them to serve more than one term consecutively, and no South American incumbent has lost a presidential election since 1980.
The presidential runoff election scheduled for Oct. 26 is statistically tied between Rousseff and Aecio Neves, according to a poll released today. Chanos said in November 2012 that Rio de Janeiro-based Petrobras was one of his favorite shorts.
Shorts bet against a stock by selling borrowed shares with the plan to repurchase them at a lower price and pocket the difference. Petrobras didn’t immediately respond to an e-mail seeking comment. The shares fell 6.1 percent to 17.92 reais at the close in Sao Paulo today.They have gained 4.9 percent this year.
‘Economic Policy’
Fuel price controls, an “instrument of economic policy” for Rousseff that discounts gasoline and diesel from international levels, have caused 37.8 billion reais ($15.4 billion) in losses at Petrobras’s refining unit in the past two years, according to the Chanos presentation.
Free cash flow will remain negative even if the refining division starts breaking even, according to the investor who rose to fame betting against Enron Corp. Opposition candidate Neves has said domestic prices need to track international prices.
Rousseff, who served as chairman of Petrobras from 2003 to 2010, is in a dead heat with Neves as election day approaches.
Rousseff has 45.5 percent support and Neves 44.5 percent, according to a Oct. 18-19 MDA poll that was commissioned by the National Transport Confederation. The poll has a margin of error of 2.2 percentage points.
Polls by Ibope and Datafolha published Oct. 15 also showed the candidates statistically tied, with Neves ahead within the margin of error.
The outcome of the election won’t help Petrobras because it’s borrowing more than $20 billion a year and doesn’t have enough cash flow, Chanos said. “This is an enormous sinkhole from a financial point of view,” he said.
bloomberg.com
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