Petróleo Brasileiro S.A. (NYSE: PBR), or Petrobras, has now rallied almost 40% from its lows. The problem is that its low is $4.90, and the American depositary shares (ADSs) are still trading at only $6.80. Make no mistake here, the Brazilian state-run oil giant remains in a very difficult position. Investors in the common equity ADSs and in the Petróleo Brasileiro S.A. – Petrobras (NYSE: PBR-A) preferred shares have to be wondering about the fate of the Petrobras dividends.
24/7 Wall St. recently featured Petrobras among four dividends that were at risk of being cut. In the case of Petrobras, it could be worse than a cut. It seems as though the term “delayed” may be different down in Brazil from what Americans might consider a delay.
It is without argument that any analysts or investors who stuck their necks out trying to defend Petrobras up until two or three weeks ago has had their pride handed to them. Petrobras has a very complicated capital structure, which should have already scared off most sensible investors, if they consider that Brazil is now under an elected socialist regime. The other issue is that Petrobras has an operating structure that puts the company itself in a position where it could be forced to operate at losses.
So, is its dividend at risk? The answer is difficult, but at the end of the day it sure seems as though many investors have braced for bad dividend news. A rally of nearly 40% off the bottom for its ADSs may imply that the dividend is safe, but this situation is very complicated — and being under new management and having financial delays that could be very long in the tooth does not help matters at all.
The long and short of the matter is that Petrobras investors already should have known about the dividend. The scandal, financial reporting delays and new management are all ongoing efforts here. What investors have to accept is that this is not a normal year at all at Petrobras.
Investors need to consider that the state-run oil giant, partially under the old team, has already warned that a dividend might be delayed as it deals with its finances and a credit crunch. Petrobras lost its investment grade rating at Moody’s already, and Standard & Poor’s warned about its dividend prospects. Also, Fitch has previously warned that asset write-downs could result in dividend delays here. Another dividend delay warning came from J.P. Morgan.