In firms around the world, sometimes what they do and how politicians act are a broken connection and need to be investigated. They need to be investigated because the politician does something which causes the stock to fall and the issue is did anyone make money from it? In Brazil which is run by President Jair Bolsonaro who tries to be a populist had an issue with the state-controlled oil company raising its prices for diesel or gas prices.
In an article by Aluisio Alves of Reuters, the President of Brazil changed the President of the oil company called Petrobras from Roberto Castello Branco to Joaquim Silva e Luma. The problem is on Thursday, the President of Brazil mentioned the changes on his Facebook account and complained about the rise in the price of diesel. On Friday or the next day in the Brazilian stock market the common shares of Petrobras or Petroleo Brasilerio SA lost 8% of their value and the preferred shares lost 6.6% of their value or the company was worth $5.2 billion less. Who made money shortening the stock?
On the face of it. Mr. Luna maybe a good administrator, he is a former army general and was in charge of overseeing the state-run Itaipu hydro dam on the border of Brazil and Paraguay and Argentina. Mr. Luna said he needs to find a balance in fuel pricing considering the impact on shareholders, investors, sellers and consumers.
The former President of Petrobras Mr. Branco had spent his time trying to sell underperforming assets and pay down debt. The stock market was liking what Mr. Branco was doing. It is not the first time, the President of Brazil has interfered in the state oil company.
Linking to dividend paying stocks, when the government is a partner whether it is silent or majority controlled, it has an agenda which involves winning more votes. Winning more votes has more to do with variable pricing than with a running a profitable company which can pay dividends. Often times, in a state controlled company, it will end up with assets that have to do with encouraging people to vote for it rather than rationalize the company. In addition what it owns and how much it pays its senior executives may come up in elections. If you own shares in such a company, be careful around election time.
There are more questions than answers, till the next time – to raising questions.