Petrobras diluted in deal for oil distribution company

Good morning! Petrobras diluted its shares in oil distribution company BR Distribuidora, continuing its divestment plan. The hunt for cell phone hacking suspects, believed to be the source of news website The Intercept. Brazil’s country risk at a 5-year low. And new criteria for pesticides.

Petrobras diluted in deal for oil distribution company

Brazil’s state-owned oil and gas company Petrobras concluded on Tuesday a follow-on offering of shares, selling 35 percent of the capital of BR Distribuidora, an oil distribution subsidiary, for BRL 9.6bn. The deal diluted Petrobras’ stake from 71 to 37 percent, making BR Distribuidora a privately controlled company. The process was considered a success, with demand being four times higher than the initial offering.

Why it matters. BR Distribuidora leads the fuel distribution market in Brazil, with a 27-percent market share and a footprint in every Brazilian state.

• Its privatization is expected to give the company more efficiency and better governance. The deal brings a welcome injection of capital to Petrobras, which has a bold, USD 15bn divestment plan.

• After a deal with antitrust authorities, the company will soon auction 8 of its 13 refineries — privatizing half of its output capacity in the sector.

Risks. While analysts predict an improvement in liquidity and governance, a risk still looms over BR Distribuidora—due to its ties to Petrobras. Even if the state-owned company is now a minority shareholder, the fuel distribution sector remains highly dependent on Petrobras’ pricing policy.

More to come. Petrobras’ divestments are part of the Bolsonaro administration’s plan for massive privatizations. In 200 days, the government has already sold off BRL 16bn in assets (not counting BR Distribuidora). The plan is to reach five times that mark by the end of the year.

Hackers alleged to have fed The Intercept arrested

The Federal Police have arrested four people in the state of São Paulo suspected of involvement in the hacking of cell phones belonging to state authorities, including Justice Minister Sergio Moro and possibly Operation Car Wash prosecutors.

Government allies believe these men could be the source of news website The Intercept, which over the past month has published leaked private messages from the authorities involved with the operation. The police, however, has not confirmed that information—and The Intercept has offered no information about its source.

Why it matters. The information leaked by The Intercept was highly damning for those involved—especially Mr. Moro, who acted as the overseeing judge, and lead prosecutor Deltan Dallagnol. Since the beginning of the leaks, they have tried to criminalize the activities of The Intercept journalists, and critics of the operation see this crackdown on hackers as a possible spark for further attempts to curb press freedom.

Modus operandi. Calling the suspects “hackers” could be a mistake, as the police operation’s name, Spoofing, tells us. Caller ID Spoofing is a form of phone identity theft—which doesn’t involve cracking any system. It consists of using a smartphone or computer connected to the telephone network and pretending to be a given number. What possibly happened is that the people who stole authorities’ message logs used that to access their accounts on the Telegram messenger app.

Brazil country risk at a 5-year low. What does this mean?

At 128 base points, Brazil’s 5-year Credit Default Swaps (CDS)—commonly called the country risk—have gone back to pre-recession levels, when Brazil still enjoyed investment-grade rating.

Why it matters. CDS are a way of assessing a country’s reputation within the financial markets. These are a sort of insurance against the risk of default. That is, the more the markets fear a country’s fiscal situation, the higher its Credit Default Swap is. President Bolsonaro used his Twitter account to celebrate the fact, saying the index shows “the recovery of international investors’ trust in Brazil.”

Yes, but… Markets always react quickly to economic changes. The lower CDS reflects prospects of the pension reform advancing, as well as a tax reform and the deregulation of the economy. The forecast seems positive, but those hopes will have to be fulfilled if the country wants to regain investment grade. Today, Brazil remains two levels in junk territory according to the biggest ratings agencies.

• Go deeper:Where Brazilian investors put their money

A new rule for pesticides

The National Sanitary Vigilance Agency (Anvisa) approved a new legal framework for evaluating risks related to pesticides in Brazil, adopting the Globally Harmonized System of Classification and Labelling of Chemicals (GHS), a standard managed by the UN. The change can push products currently labeled as “extremely toxic” to milder levels—including to “unlikely acute health hazard.”  

Mortality studies will be the sole criteria to rate pesticides, with variables like effects on someone’s skin or eyes being dropped. The agency claims it used to push most pesticides to the highest toxicity ratings.

Why it matters. In absolute numbers, Brazil is the world’s biggest consumer of pesticides—and the Agriculture Ministry, controlled by members of the rural caucus, is pushing for looser regulations.

Analysts within Anvisa, however, claim that the move will actually make rules more restrictive, as the law prohibits products more toxic than similar ones in the market.

By lowering the rating of existing pesticides, the agency would prevent stronger ones from being sold. This year has seen the highest number of pesticides ever cleared for use: 262.

Yes, but… Anvisa has been questioned for continuing to allow the commercialization of glyphosate, a weed-killing chemical. U.S. courts have found glyphosate to be connected to cancer cases, and ordered Monsanto, which produces a glyphosate-based herbicide, to pay billions in reparations.

• Go deeper: Drones arise as an alternative to control pesticides use in Brazil

Also noteworthy

Freights. A move by the federal revenue authority may lower freight prices. The body has decided that expenses relating to tracking devices and toll passes, which are mandatory, can be considered inputs, thus generating fiscal credits for companies. The decision, however, only affects bigger companies, so autonomous truck drivers, who are disgruntled by freight prices and threaten a new strike, won’t be satisfied. The sector meets with Infrastructure Minister Tarcísio de Freitas today, at 11 am.

The Intercept. Following reports by The Intercept that two Op. Car Wash prosecutors wanted to set up a company (under their wives’ names) to cash-in on lectures about fighting corruption, the Workers’ Party has asked the Supreme Court for an investigation. The electronic system that randomly distributes cases to one of the 11 justices chose Justice Ricardo Lewandowski—a Car Wash critic—to oversee the case. 

No crisis. The economy might be stumbling—but not for the banks. Santander, for instance, has never made as much money in Brazil as it has now. Yesterday, the bank announced BRL 3.6bn in net profits on Q2 2019, a 20-percent bump from a year ago. The results were better than expected, with the bank’s Brazilian division now accounting for 29 percent of its global profits.

Inflation. IPCA-15, the index that forecasts the inflation rate, was at 0.09 percent in July, below the median forecast by economists (0.13 percent). According to Brazil’s official statistics agency, a drop in fuel prices pushed the index down—despite a rise in airplane tickets and power bills.

The post Petrobras diluted in deal for oil distribution company appeared first on The Brazilian Report.