Monday 24 June 2019

Shares tumble by 22pc as CEO resigns from Brazil's oil giant


Demonstrators in Rio wave flags during a protest in solidarity with Petrobras oil workers. Photo: Bloomberg
Demonstrators in Rio wave flags during a protest in solidarity with Petrobras oil workers. Photo: Bloomberg

Sabrina Valle and Peter Millard

Pedro Parente resigned as chief executive officer of Brazil's state-controlled oil company under pressure from President Michael Temer in the wake of a nationwide strike against high fuel prices.

The resignation sent shares in Petrobras down 22pc, the most since 1999, and caused the Brazilian currency to drop as much as 1pc against the dollar as investors pondered the effect on Latin America's largest economy.

President Temer is seeking a new Petrobras CEO who will be more focused on the nation's development and less on the market, said Beto Mansur, deputy government leader for Brazil's Lower House, in an interview.

Parente's resignation highlights the erosion of support for market-friendly policies after two years of austerity under Temer. It's also a setback for any pro-business candidate ahead of October's general elections.

"Any candidate linked to Temer and his policies will have to change their rhetoric to at least be competitive," said Andre Cesar, a political analyst at Hold legislative consulting.

"Pedro Parente was thrown to the dogs - it's a sign that any pressure group can get anything they want from this weak government."

Parente stepped down on Friday, the company said in a filing, adding that there will be no further changes to its executive management.

Parente is the highest-profile victim of an 11-day truck drivers' strike that grounded flights, closed sugar mills and caused shortages of products from food to petrol.

His departure marks the downfall of an executive credited with turning around a company shackled with debt and mismanagement.

"It is clear that my permanence at Petrobras ceased to be positive," Parente said in his resignation letter to Temer.

"In my time in public service, above everything, I have been committed to the public good. I'm not attached to any jobs or titles and I will not be an obstacle to the discussion of alternatives." Parente (65) took the helm in May 2016, vowing to shift company strategy away from government interests and toward a business-oriented strategy. The trained engineer was also tasked with cleaning up the image of the company that was at the centre of Brazil's biggest corruption probe in modern history.

"Independence from the government was one of the main tenets of Parente's programme. His resignation revives concerns that the government will force Petrobras to artificially lower domestic prices, raising risks for its balance sheet and turnaround," said Fernando Valle, a senior oil analyst at Bloomberg Intelligence.

Parente had gained praise in financial markets for plans to sell assets to cut debt, reducing costs, recovering cash flow and implementing a new and profitable fuel price policy.

Under Parente's watch, Petrobras posted its best quarterly financial results in five years, and the company's stock price doubled.

It was that fuel policy, which matched local fuel prices to international rates, that came under fire during a massive truckers strike that wreaked havoc on Latin America's largest economy. As global oil prices rose, the cost of fuel in Brazil also increased, spurring discontent among consumers, led by truck drivers who depend on fuel to make their living.

Parente has long been at the centre of finance in Brazil. He began his career at state-controlled Banco do Brasil in 1971, had previously been a Petrobras board member, and also became its Chairman under former President Fernando Henrique Cardoso. He later held numerous private sector positions, including head of agribusiness giant Bunge Ltd's Brazil unit.

He was chairman of BM&FBovespa SA (B3), the operator of Latin America's biggest securities exchange, and in April, became chairman of food giant BRF. BRF shares advanced as much as 13pc in Sao Paulo on speculation Parente may join the company.


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