Petrobras (PETR4): after fears about a possible change in the State-owned Companies Law, analysts see new proposals with relief

The whirlwind of news about Petrobras (PETR3;PETR4) has strongly increased market volatility, as well as analysts’ perception of risk with the company’s shares.

The day before, the news from the newspaper O Estado de S. Paulo gained prominence that the leader of the Government in the Chamber, Ricardo Barros, would soon send a Provisional Measure to amend the Law of State-Owned Companies, drafted during the government of Michel Temer. .

“The law greatly improves the governance of these companies and encourages them to adopt market prices, unless another law indicates otherwise (as is clear in article 8 of the text)”, points out Bradesco BBI. Thus, changing the law would ultimately aim to allow the government to change Petrobras’ fuel pricing policy, greatly increasing the company’s perception of risk.

In the same vein, Goldman Sachs highlighted the news as negative, since the law acts as a layer of protection against possible government interventions in the state’s fuel pricing policy.

“In addition, we noted that, in a scenario in which this Provisional Measure was approved, the company’s bylaws would still be in effect, requiring government reimbursement if Petrobras were required to follow any practice different from market practices (such as subsidy to fuel prices)”, assess the analysts.

However, reinforces the bank’s analysis team, as the federal government is the company’s controlling shareholder, it could call an extraordinary general meeting to change the company’s bylaws to support practices other than those of the market.

Bradesco BBI also associated this greater fear of changing the law with the negative perception it had after Adolfo Sachsida, the new Minister of Mines and Energy, went to the Chamber of Deputies last Tuesday (21).

“We were able to hear a large part of the audience and we were surprised how many members of Congress like the idea that, after government efforts to reduce taxes, Petrobras has to play a more active role in containing fuel prices, and it has to be in short time. This idea was defended not only by left-wing parliamentarians, but also by representatives of centrist parties”, pointed out the analysts.

They assessed that, although Sachsida has advocated privatization of the company, members of Congress seem
understand that the benefits of privatization in relation to fuel prices (if any) will only materialize in the long term, and politicians are demanding a short term solution.

Until then, analysts pointed out in the report, released late yesterday afternoon, that no concrete measures had yet been taken by the government or congress. But unless the government, backed by the Ministry of Economy, provided a quick and straightforward solution, the chances of riskier changes for Petrobras would increase significantly.

If no subsidy is introduced and progress is made to change laws and taxation, the best case scenario the bank points out would be that any other suggested changes would be temporary and treated as an emergency measure. “For example, if taxes are implemented, let them only be during a period of war”, they point out.

Or, if changes are made to the State-Owned Companies Law, that they continue to protect the technical appointments of directors and executives, and that changes in pricing policy be treated as one-off. Additionally, if there were price cuts in the short term, the government would need to deal with the risk of diesel shortages in Brazil and who would be responsible for supplying the country with imports.

However, if material and structural changes were introduced in the State-Owned Companies Law, they would significantly harm the country’s risk and exchange rate, they assessed. Thus, BBI analysts highlighted the maintenance of the buy recommendation for Petrobras shares; however, they recognized that the thesis becomes increasingly risky, even though there is the option of a privatized company, depending on the results of the elections, in addition to a current dividend yield (dividend on the share price) between 30% and 40% for 2022

Truck driver aid and gas vouchers reduce risk perception

However, practically following the release of the BBI report, the night before, new statements gained space and helped to improve the perception of risk about the company – at least in the short term.

The Planalto and the Congress summit are now planning to create a voucher of R$ 400 for truck drivers – the decision was taken yesterday afternoon in a meeting with the Minister of the Civil House, Ciro Nogueira, and the Speakers of the Chamber, Arthur Lira (PP -AL), and from the Senate, Rodrigo Pacheco (PSD-MG).

The proposal has the approval of the economic team, which considered the new measure to be necessary to avoid further damage to the fuel issue, such as stoppages by truck drivers. No official figures for the fiscal cost of the voucher were released, but it is estimated that the figure should be around R$ 4 billion.

Along with the new benefit, the government should also promote the expansion of the gas voucher, by increasing the scope of the program and the amount transferred to beneficiaries. Currently, the gas voucher pays R$ 53 per two months, which ends up being less than half the price of the 13 kg cylinder due to the recent increase in prices. The trend is to double the number of families benefited and the payment – ​​with an estimated cost of R$ 1.9 billion to the public coffers.

Both measures must be included in the text of the Proposed Amendment to the Constitution (PEC) 16/2022, which is being processed in the Senate and provides for financial compensation to states that zero the Tax on Circulation of Goods and Services (ICMS) on diesel, cooking, natural gas and ethanol. The PEC is expected to be voted on next week.

Now, government technicians are studying alternatives to avoid incurring illegalities, since the electoral law and the Fiscal Responsibility Law (LRF) establish some legal limitations for the creation of new benefits in an election year.

“The measures must advance in Congress. In the diagnosis of the Ministry of Economy, it is worth ‘sacrificing’ such values ​​to avoid higher expenses on the fuel package bill – which already totals more than R$ 50 billion in fiscal terms. With the voucher, for example, ideas such as changes in the State-owned Companies Law, changes in Petrobras’ pricing policy and taxation of the state-owned company’s profits lose strength”, highlights Levante Ideias de Investimentos. On the other hand, more spending is to be included in the government account.

Levante points out that there are, however, risks involving the inclusion of tortoises in the PEC 16. In this sense, the government is already mobilizing to avoid further damage and deal “only” with the R$ 50 billion – which should already be out of the
expenditure ceiling, but whose compensation will come from the revenues from the privatization of Eletrobras (ELET3;ELET6) and this year’s revenue surprise.

For BBI, the speech on the eve of Rodrigo Pacheco, president of the Senate, rejecting the idea of ​​a Parliamentary Inquiry Commission (CPI) on Petrobras and the change in the law on state-owned companies (even if in temporary circumstances brought about by the war in Ukraine) , was also positive.

“Good news for Petrobras. The president of the Senate clearly takes a stand against the measures [como CPI e mudança das lei das estatais] means that the chances that they will pass the Senate are low. We were getting more concerned, with Congressional moves increasingly dangerous, potentially resulting in law/tax changes,” the analysts pointed out.

The possible greater benefit to truck drivers was also seen as positive by the house’s analysts. “The measure is a way for the government to seek to appease tempers amid rising fuel prices. It is also an intelligent way of directing subsidies to segments of society that depend on fuel to work”, they highlighted.

Goldman points out that it does not have a probability view of any alternatives that are on the table (change in state law or vouchers for truck drivers and gas allowances). But he notes that consumer-targeted subsidies would have a neutral impact on Petrobras, while changing the state-owned company law could add uncertainty to the company’s future profitability.

“In short, while we remain with a buy recommendation for the company, as we see an attractive valuation, we have a lower conviction than at the beginning of the year and we see a smaller dividend cushion until the elections in Brazil”, point out the analysts. Goldman has a target price of R$36.10 for PETR4 shares, an upside potential of 30.7% compared to the previous day’s closing, while BBI continues with a target price of R$50 for PN assets, or upside of 85% compared to Tuesday’s price.

Bigger risks out of the way – in the short term

In short, the assessment is that, despite the noise, the government is trying to rule out the possibility of more direct interference in Petrobras’ activities.

“There is no intention to change the company’s pricing policy, nor to increase the taxation of its profits, as has been discussed. This would go against the tax reduction advocated by the government and would not bring results in the medium term, due to the need to raise taxes”, pointed out the analysts of XP Política.

However, the scenario should follow volatility depending on the statements of politicians involving the company and its pricing policy, especially with the proximity of the elections.

This Wednesday, President Jair Bolsonaro said that the new Petrobras board, when sworn in, could change the international parity pricing policy (PPI).

“What is the idea of ​​this new president of Petrobras? Obviously he is going to change his directors, I cannot be elected president, take office and not change the ministers. And these new ones will give a new dynamic, study the PPI issue. If that is the case, the council itself changes the PPI,” Bolsonaro said in an interview with Itatiaia Radioreiterating that his nominee for the presidency of Petrobras, Caio Paes de Andrade, wants a new team at the state-owned company.

The Eligibility Committee (Celeg) scheduled a meeting for next Friday (24) in the afternoon to discuss the appointment of the new president of the state-owned company.

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