Brazil: When To Sell After The Rally?

July 29, 2014

Shuli Ren – Barron’s, 7/29/2014

Brazil’s equity market has had a stunning performance since mid-March. The iShares MSCI Brazil Capped ETF (EWZ) has gained around 30% since then. This ETF is up 16.7% this year.

Part of the rally is propelled by optimism in the state-owned sector. Investors bet that high-profile names such as Petrobras (PBR) and Electrobras (EBR) will operate better once a new government is ushered in after the October presidential elections. Last week, Barclays upgraded Petrobras to Buy for this precise reason. Petrobras outpaced the Brazil ETF, gaining 27.2% this year. Electrobras rose 17%. State-owned Banco de Brasil (BBAS3.Brazil) advanced 24%. Brazilian iron ore producer Vale (VALE), whose fate is tied to China, is the only high-profile underperformer, not even breaking even this year.

But some investors are skeptical of the Brazilian rally, asking “when to sell” Brazil. In a report published today, strategist Geoff Dennis suggested the time is “now.”

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Former exec of Brazil’s Petrobras charged with fraud

July 18, 2014

EFE – Fox News Latino, 7/17/2014

Prosecutors have filed fraud charges against an erstwhile executive of Petrobras and eight other suspects over alleged gross overbilling for a contract, the latest corruption scandal to rock the Brazilian state-controlled oil giant.

Petrobras’ former chief international officer, Jorge Luiz Zelada, is accused of favoring Brazil’s Odebrecht in a 2010 auction in which the construction group was awarded an $825.6 million contract, the Rio de Janeiro state Attorney General’s Office said in a statement.

Also under investigation are Odebrecht’s contract director, Marco Antonio Duran, and the Petrobras attorneys, technicians and engineers who were involved in the alleged fraud related to a project to adapt Petrobras’s assets in 11 countries.

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Brazil Gives Petrobras Added Rights for Billions in Advance Payments

June 25, 2014

Paul Kiernan and Will Connors – The Wall Street Journal, 6/24/2014

RIO DE JANEIRO—Brazil’s government agreed Tuesday to sign over additional production rights for potentially huge oil fields to state-run oil company Petróleo Brasileiro SA, or Petrobras, in exchange for billions of dollars in advance payments.

Petrobras will receive expanded production rights to four oil fields off the coast of Brazil that it acquired from the government in 2010. But the company will have to pay a “signing bonus” of two billion Brazilian reais ($898 million) to the government in 2014, plus an estimated BRL13 billion in oil during the following four years.

The unexpected deal came as Brazil’s federal government is looking for ways to meet its budget goals this year. Economists say slowing growth, high inflation and election-year spending will likely drive authorities to seek revenue from so-called nonrecurring sources to meet its 1.9% primary surplus target for 2014.

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Brazil’s Petrobras Says Its Discoveries Developing Faster Than Gulf Of Mexico

June 20, 2014

Kenneth Rapoza – Forbes, 6/20/2014

Brazil’s deep water oil fields are developing at a faster pace than Gulf of Mexico and even in the North Sea,  Petrobras general manager Anelise Lara told the World Petroleum Congress in Moscow on Thursday.

Lara was referring to both the Santos, Espirito Santo and older Campos Basin oil fields far off the coast of Rio de Janeiro, where the oil giant made market shattering discoveries in 2006.

Oil production there has hit around 400,000 barrels per day in 8 years, meaning the wells were discovered and producing faster than other deep water oil spots in the world. The Gulf of Mexico took 19 years to reach that level of production, while the North Sea took 9.

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How Brazil’s oil boom went bust

May 8, 2014

Nick Cunningham – Christian Science Monitor,  5/7/2014

For the past 30 years or so, Brazil has increased its oil production every year. Brazil’s state-owned oil company, Petrobras, has become a world class producer of offshore drilling technology, which puts it in a good position for the future, as oil comes from increasingly difficult places to reach.

In the 1980s, Brazil’s oil production was negligible, but by 2010, it was pumping 2.7 million barrels of liquid fuels per day (bpd). By the mid-2000s, the trend line seemed to be inexorably rising upwards, and with the huge oil discoveries in 2007 in Brazil’s pre-salt basins – oil reserves that are trapped beneath a thick layer of salt – many observers believed Brazil was destined to become an oil superpower.

But then something happened. Since 2010, oil production has flattened out entirely. In 2013, Brazil averaged only 2.7 million bpd of oil production, which is where it was three years ago.

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Itau tops Petrobras in Brazil stock index weightings

May 5, 2014

Reuters, 5/5/2014

Shares of Brazil’s largest non-government bank, Itau Unibanco Holding SA now carry the heaviest weighting on the benchmark Bovespa stock index, topping state-run oil producer Petroleo Brasileiro SA, exchange operator BM&FBovespa SA said on Monday.

The oil firm known as Petrobras has lost about half of its market value over the past three years, hurt by a government policy that forces it to sell imported fuel at a loss to tamp down inflation.

BM&FBovespa makes modifications to the index every four months. A new Bovespa index weighting scheme this year takes into account market value as opposed to trading volume, which was used in previous years.

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Former governor offers Brazil new option for president

May 5, 2014

Joe Leahy – The Financial Times, 5/4/2014

Eduardo Campos provides a straightforward prognosis for what is ailing Brazil.

The former governor of Brazil’s northeastern Pernambuco state, who is running for presidential elections in October, says Brazil’s economy may be slowing, prices rising and the currency slipping. But none of this is worse than what many other countries are facing or anywhere near the problems that Latin America’s largest economy has itself overcome in the past, such as runaway inflation.

“What we do have is a crisis of confidence,” he said in an interview, eschewing a tie because it is a public holiday. “Society has perceived that things have stopped getting better and some things have started to get worse again.”

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Brazil senate to probe Petrobras refinery purchase

April 30, 2014

Paulo Trevisani – Market Watch Wall Street Journal, 4/30/2014

Brazilian senators decided Tuesday to open an investigation into allegations that managers of Brazil’s energy giant Petróleo Brasileiro SA overpaid for a Texas refinery in 2006.

Such a probe, for which a new poll shows wide public support, comes ahead of general elections in October. President Dilma Rousseff’s was chairwoman of Petrobras, as the government-controlled, publicly traded company is known, at the time of the deal and personally approved it. Members of her Worker’s Party, or PT, headed the energy company’s management at the time.

Current and former officials of Petrobras are being accused by opposition lawmakers of having made a flawed decision to buy the oil refinery in Pasadena, Texas, in 2006. Questions about the deal were first raised in the local press a couple of years ago, and have gained prominence more recently as opposition leaders use the case to pick at Ms. Rousseff’s popularity.

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Dilma’s fragile lead

April 30, 2014

The Economist, 4/30/2014

FOR a long time Dilma Rousseff looked invincible. Even huge nationwide protests last June, when millions of Brazilians took to the streets to air assorted grievances and disaffection with politicians, were not enough to depress the president’s approval ratings below 45%. Her popularity quickly rebounded; Ms Rousseff seemed poised for a first-round win in a presidential election this October. A new poll, however, confirms what many observers have been saying for months: that Ms Rousseff’s lead is more fragile than she and her Workers’ Party (PT) would care to admit.

The latest figures, published on April 29th by CNT/MDA, a pollster, found that 48% of Brazilians approve of the president, down from 55% in February and in line with other recent polling data. Should this dip below 40%, reckons João Castro Neves of Eurasia Group, a consultancy, her re-election would be in serious doubt.

Defeat is certainly no longer inconceivable. Inflation remains stubbornly high, hitting the poor who struggle to make ends meet and the indebted middle class as interest rates rise. Scandals at Petrobras, a state-controlled oil giant facing an imminent congressional inquiry over irregularities on Ms Rousseff’s watch as head of the company’s administrative council, are tarnishing her claim to being an able manager. A severe drought has stoked fears of power cuts in a country which relies on hydropower to generate 80% of its electricity. Ms Rousseff, a former energy minister, remembers how power rationing in 2001 helped Luiz Inácio Lula da Silva, her predecessor and mentor, to oust the centrist Party of Brazilian Social Democracy (PSDB) from the presidency a year later.

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