The Rising Influence of Rising Affluence

[DewDiligence]

More on the case for (not) owning PBR (also see #msg-51214642):

http://www.nytimes.com/2014/04/16/business/international/brazils-star-petrobras-is-hobbled-by-scandal-and-stagnation.html

The problems at Petrobras, which is 60.5 percent owned by Brazil’s government, have come into sharp relief in recent weeks as the company grapples with a simmering scandal over its acquisition of a Houston refinery, beginning in 2006 and completed years later, at an estimated cost of $1.19 billion from Astra, a Belgian oil trading company that bought the refinery for just $42.5 million in 2005.

Police here also recently arrested one of Petrobras’s most powerful former executives, Paulo Roberto Costa, who led refining operations until 2012. Investigators say he was involved in a sprawling money-laundering scheme and may have received bribes related to the construction of a refinery that has ballooned in cost to $18.5 billion from $2.5 billion. The list goes on. Petrobras faces scrutiny over claims that its employees received $139 million in bribes from SBM Offshore, a Dutch supplier of oil rigs.

…Citing the increasing debt load, Moody’s downgraded the company’s debt last October to Baa1, the third-lowest investment grade rating offered by the credit agency… Nearly a year after setting an emerging-market record with an $11 billion bond sale, the company tapped the bond market last month for yet another monster offering. Petrobras raised $8.5 billion, the biggest corporate debt offering of the year, period.

…Meanwhile, as corruption scandals ensnare Petrobras, the company is struggling to lift oil and gas production, which fell 2.2 percent in 2013 to an average of 2.55 million barrels a day…

…Perhaps Petrobras’s biggest challenge is that it is not just an energy company. It is also at the heart of a fierce debate here over the extent of the Brazilian government’s use of its wealth to achieve political and economic goals. In an effort to keep inflation from accelerating during an election year, President Dilma Rousseff’s government has prevented Petrobras from raising fuel prices to meet the cost of importing refined gasoline and diesel.

And the beat goes on…