Lula plays against government accounts by blocking extra dividend from Petrobras

The decision by the Petrobras Board of Directors to withhold extraordinary dividends for the fourth quarter of 2023 could directly harm the Minister of Finance, Fernando Haddad, in his effort to achieve the goal of zeroing the primary deficit in 2024. This is because, as majority shareholder from the oil company, the Union would be entitled to up to R$16 billion in profit transfers, which would help increase federal revenue this year.

President Luiz Inácio Lula da Silva (PT) himself, however, would have instructed government nominees in the collegiate to vote against the distribution of resources, as initially announced by the agency Reuters. The decision can still be reviewed.

The position ended up winning, which frustrated the expectations of the financial market. On Friday (8), Petrobras shares plummeted by around 10% on B3, reducing the company’s market value by R$55.3 billion. Institutions like Bank of America (BofA), Bradesco BBI and Santander withdrew their purchase recommendation for the shares, changing to a “neutral” rating.

This Monday (11), Lula minimized the fact, saying that Petrobras should not only think about its investors. “Petrobras is not just a company that thinks about the shareholders who invest in it, because Petrobras has to think about investment and think about 200 million Brazilians who are owners of this company or partners in this company”, he said, in an interview with SBT.

Despite this, after the negative repercussion of the state-owned company’s announcement, Lula called a meeting this afternoon with the president of Petrobras, Jean Paul Prates, and the ministers of Finance, Fernando Haddad, of the Civil House, Rui Costa, and of Mines and Energy, Alexandre Silveira.

The position of the advisors appointed by the government in defense of retaining the dividends would have been influenced by Alexandre Silveira, against Prates’s will, according to what was found by the Folha de S.Paulo.

The president of Petrobras claimed that not distributing the extra money could bring down the company’s market value, according to a report collected by columnist Malu Gaspar, from the newspaper The globe. The Minister of Mines and Energy, in turn, argued that the payment could affect the company’s ability to finance itself to meet its R$102 billion investment plan, approved at the end of last year.

Although the money, now allocated to a reserve fund, cannot be used directly for investments, the minister considers that keeping it in Petrobras’ cash flow can help the company obtain loans on more favorable terms.

Profit allocated to the reserve fund can be distributed at another time

In a relevant fact released on Thursday (7), Petrobras informed that the amount will be fully allocated to the capital remuneration reserve, “with the purpose of ensuring resources for the payment of dividends, interest on own capital, its advances and share repurchases.”

“We see the investment thesis now as a matter of assessing the likelihood of large M&A moves [fusões e aquisições] occur in the short term. If this was what led to the Board of Directors’ decision, the shares will probably fall even further, due to a combination of poor capital allocation and lower dividends”, states XP Investimentos in a report signed by André Vidal and Helena Kelm, analysts of Oil, Gas and Petrochemicals.

“On the other hand, if this was driven primarily by the government’s desire to maintain a ‘reserve plan’ in case the fiscal accounts deteriorate soon, then this stockpiled cash will eventually be paid back to investors and the shares could present a good total return performance in the future”, say the economists.

After this afternoon’s meeting, in conversation with journalists, Haddad calmed the episode and said that there is the possibility of the extraordinary profits being distributed at another time, depending on “convenience”.

“What was decided by the board: that the distribution of extraordinary profits will be made as it becomes clear to the board that this will not compromise the company’s investment plan. So, instead of distributing 100% of the extraordinary dividends or 0%, it was deemed convenient that in light of the investment developments in the coming weeks and months, the board will meet again to judge the advisability of doing so and when to do it. There is no problem with this type of decision”, said the Minister of Finance.

Silveira, in turn, when asked whether Petrobras could change the decision on payment, said that the issue is “dynamic”. He also stated that investors know that the Lula government has a majority on the board, in response to criticism that there would be interference from Planalto in the company.

“Distribution issue [dos dividendos] It’s dynamic. It went to the contingency account. President Lula’s government has worked very carefully to respect Petrobras’ governance. All investors know that the government is controlling, it has a majority of the board,” he said.

The Petrobras Board of Directors is made up of 11 members, six of whom are linked to the government. The decision to retain R$43.9 billion that could be distributed as additional dividends prevailed by six votes to four, with favorable votes from the five councilors appointed by the government, in addition to the workers’ representative, according to the newspaper’s findings. The State of S.Paulo.

The four representatives of minority shareholders would have voted in favor of distributing 100% of the resources. Contrary to government guidance, Prates abstained from the vote.

“The board’s suggestion was to divide 50% [de dividendos extraordinários] and 50% [de não pagos]but the board’s decision is sovereign”, said the president of Petrobras on Friday, at a press conference.

This Monday (11), Prates denied that Lula ordered the Petrobras board’s decision, but said that the company “discusses with the government within the possible spaces”.

“The president did not give any orders on the issue of dividends. We are discussing this with the majority shareholder within the space possible. There was a discussion in time for the announcement of the balance sheet, there was a need to close the balance sheet. And it was decided that we would postpone the discussion”, he said late in the morning to the portal g1.

Decision on dividends generated internal crisis in the government

The episode increased a crisis in the PT government, which places Silveira and Prates on opposite sides. The two have publicly disagreed on other occasions, most recently when the minister demanded that Petrobras help the airline sector by reducing the price of aviation kerosene (QAV).

This time, however, the internal divergence would also involve the Minister of the Civil House, Rui Costa, who would have endorsed Silveira’s position. The Ministry of Finance, in turn, defended the payment of extra dividends by the company, at a time when the holder of the portfolio, Fernando Haddad, has retreated from measures to increase government revenue in the face of resistance from Congress.

With the right to 37% of the dividends, the Union could receive up to R$16.24 billion if all remaining profit allocated to the reserve fund was distributed. If Prates’ idea of ​​passing on 50% of the value to shareholders prevailed, the amount, R$8.12 billion, would already offset almost the entire cost of the payroll tax relief in 17 sectors, which Haddad is fighting to eliminate.

In 2022, the last year of Jair Bolsonaro’s (PL) mandate, the government managed to obtain a primary surplus of R$54.1 billion largely thanks to dividends and stakes in companies, which totaled R$87 billion. Of this amount, 65% (R$56.37 billion) came from Petrobras.

According to the Economic value, last week, members of the economic team reportedly told Prates and the director of Finance and Investor Relations, Sergio Caetano Leite, that the payment “would be in accordance with legislation and fair market expectations”.

“It was a wrong decision that harms the fiscal effort,” a team source told the newspaper. According to this interlocutor, many market analysts feared government interference in Petrobras for the economic team on the fiscal front. “But it’s the opposite, the opposite.”

Despite this, the Secretary of the National Treasury, Rogério Ceron, said, on Friday, that Petrobras’ decision does not affect the Union’s revenue forecasts for 2024, since official projections do not consider extraordinary dividends from state-owned companies.

“We only put regular dividends in the forecast. We don’t put this type of speculation, prediction, expectation that could come, extraordinary”, said Ceron in an interview with the podcast Stock Pickersfrom the portal Infomoney, after the release of Petrobras results. “So the dividend forecast that we put in the Budget proposal generally has a good degree of security,” he said.