The disappointing choice of Banco do Brasil chief Aldemir Bendine to head Brazilian oil company Petrobras has led to more negative sentiment on Petrobras, Brazil and the Brazilian markets.
Brazilian stocks and bonds, including those of Petrobras, are trading at some of the cheapest levels ever, reflective of both the country’s problems—slow growth, a sharp decline in investment, currency woes, among others—and those that are endemic to Petrobras. Choosing Bendine, who the market perceives to be close to Brazilian president Dilma Rousseff and the ruling party, is likely to make things worse for both Brazil and Petrobras, which, among others, has an extremely high debt burden and badly needs fresh investment, said Charles Sizemore, Chief Investment Officer of Sizemore Capital Management in Dallas. At the same time, though, the company’s bonds are trading at the kind of spread levels that could possibly interest some investors, and its equity is also attractively priced at one-third book value, Sizemore said.
“The bonds are trading pretty wide spread and there is reason for that, the doubt being ‘will they be repaid,’” he said. “And if Petrobras doesn’t get its books in order in the next four months, they will be in technical default, but I would imagine that it isn’t going to get to that, that the Brazilian government will, if it comes to it, step in and bail them out. Which means that for speculative investors, your risk of losing is probably pretty modest, as the Brazilian government will make you whole.”
Ditto on the equity side: Petrobras’ stock is currently trading near a 52-week low, Sizemore said, “so if you believe the price of oil will at least stabilize, that Dilma may not be president for too much longer — since an unresolved corruption scandal could make things worse for her – and there will be a new face at the top, you could take bets because Petrobras is interesting at current prices.”
Sizemore sees Petrobras as a five-year bet and he is currently invested long in a basket of Brazilian stocks as well as in some Brazilian ETFs.