NOTICE TO THE MARKET: Petrobras case

March 11, 2015 – AMEC – the Association of Capital Market Investors – publicly announces its opinion about the recent events involving Petrobras.
Since its founding, AMEC has been defending the rights of minority shareholders of Brazilian listed companies, always based on the values of its bylaws and public statements. The Association seeks a propositional and constructive position, calling the attention of the capital market’s participants about the precedents it considers important.
With this in mind, AMEC has been expressing its opinion about the issues related to Petrobras for years. In 2009, the association was strongly against the company’s proposed capital increase model, highlighting the non compliance with the procedures set forth in the law and in the company’s own guidelines, and the potential abuse of transactions with related parties that the operation represented. In 2010, AMEC promoted a specific seminar to discuss The Role of State-Owned Companies in the Development of the Capital Market. The propositional nature was evident in the event title, reflecting the premise of our members regarding the feasibility of the government-controlled company model, provided that the urgent reforms demanded by the model were reviewed.
In 2011, AMEC acted as a discussion hub about the deterioration of Petrobras’ value, identifying the dissatisfaction of investors with the lack of an independence at the Company’s Board of Directors. It was then that a long journey to influence the election of the board began, after that a Board member resigned in the end of that year. Through AMEC, a group of Petrobras’ shareholders made suggestions on candidates for the company’s elections in 2011 and 2012, but managed to elect a member to the Board only in 2013. In the process, the Association has contributed with the democratization of the election process of Board members in Brazil, fostering the discussion about the distance vote and the importance of recommendations of candidates by minority shareholders.
Notwithstanding that, with the worsening of the accusations of corruption involving the company, the uncertainties created with the delay in the publishing of its financial statements and the delicate financial situation the company finds itself in, AMEC has decided to make this announcement.
Today, Petrobras is worth approximately USD 42 billion. When it conducted the largest transaction in the history of the capital market, it was worth some USD 230 billion – and funded more than USD 70 billion. The decisions taken since then have eroded the company’s value. Today, it is worth a bit more than half of the capital increase. That is, a nominal value of almost USD 260 billion has been destroyed. If we take due opportunity costs into consideration – an investment in an ETF of the oil industry, the destruction reaches USD 330 billion. Not to mention that Petrobras is one of the companies with the most promising perspectives of growth in terms of reserves and production among global majors.
Regardless the angle we consider, the performance of Petrobras’ shares was devastating, not only for its shareholders – controlling and minority shareholders – but also for the credibility of the Brazilian capital market.
There is an urgent need of fully reversing the model that has lead Petrobras to be in the situation it is today. All stakeholders involved – controlling shareholders, directors, investors, intermediaries and regulators – need to reflect about their duties before a company that was once the largest one in the country, and act with the greatest possible promptness to revert today’s serious situation. It is of utmost importance that investigations are conducted on an independent and complete basis to prevent events like these ones from taking place again in the future and to ensure that the responsible ones are punished according to the law.
AMEC believes that the values it has been advocating for the market since its establishment and that it has been strongly emphasizing regarding Petrobras at least since 2009 are crucial factors in this process.
Respecting the power of control of the Brazilian government, it’s necessary a radical and actual change in the company towards a professional, careful and responsible management. A management able to conciliate returns to shareholders compatible with the business risk and the legitimate public interest the company has been built on, at the risk of interrupting the promising future of what was once a major national pride.