Aberdeen Leads Investors Into Petrobras Board

Petroleo Brasileiro SA is being pushed by minority shareholders led by Aberdeen Asset Management Plc to focus more on profit than job creation after the state-run producer’s earnings slumped to an eight-year low.

Mauro Cunha, head of Brazil’s capital markets association, was elected yesterday as the minority investors’ representative on the 10-member board. Nominated by a group of 16 that includes Hermes Fund Managers Ltd, Cunha replaces Josue Gomes da Silva, who was elected with votes from state-run banks and pensions, giving the fund managers a greater board-room voice after a similar push led by BlackRock Inc. failed last year.

Petrobras is the worst-performing major oil company in the past two years after Russia’s Gazprom OAO as aging wells dragged down annual oil output for the first time since 2004 and fuel subsidies erode profit. The stock has fallen 24 percent since the Rio de Janeiro-based company lured investors to a $70 billion share sale in September 2010 on promises of boosting output 9.4 percent a year through 2014 by bringing deep-water fields into production.

“It’s a good day for the Brazilian market, it shows investors are increasingly willing to cooperate,” Cunha said in an interview after the vote. “The whole point of there being a board is to have discussions, so every board member is important, that’s why it’s a great responsibility.”

‘More Comfort’

The BNDES state development bank and three state-run pension funds, which hold more than 10 percent of the company’s voting shares, defeated Cunha’s candidacy last year. Hermes and other investors complained to Petrobras and the country’s securities regulator, known as CVM, which published a resolution indicating the government-run institutions shouldn’t vote for minority representatives.

“Minority investors now have a bit more comfort their interests are being taken care of,” Nick Robinson, a the head of Brazilian equities at Aberdeen, which has $15 billion in Latin American shares including Petrobras, said in an interview from Rio de Janeiro. “It will go some way to improving the perception of Petrobras’s governance.”

Cunha’s election increases the chances of non-government investors gaining additional seats in coming years, said Ricardo Martins, the head of the Sao Paulo division of APIMEC, an association of professional investors and analysts. APIMEC’s national director Reginaldo Alexandre was elected to represent minority shareholders on Petrobras’s fiscal board.

Inside Debate

“It’s a great signal, you will be officially debating inside of the company,” Martins said by phone from Sao Paulo.

Petrobras said in an e-mailed response to questions before the vote that Cunha was the only official candidate to represent minorities. BNDES and Previ, the pension fund for Banco do Brasil SA employees, both declined to comment on how they would vote in e-mailed replies to questions. Petros, the pension fund for Petrobras employees, and Funcef, a pension fund for state bank Caixa Economica Federal, didn’t respond to requests for comment.

“We started earlier, we had a bigger group,” Will Landers, manager of the $4.4 billion BlackRock Latin America Fund, said by phone from Princeton, New Jersey. “It’s adding to the discussion in the board to improve the results of the company. If you look at the share price, something has to change.”

Petrobras lost investors 34 percent in U.S. dollar terms in the past two years, the biggest loss among major producers after Gazprom’s 50 percent drop, according to data compiled by Bloomberg. The Brazilian company’s shares rose 2.2 percent to

22.02 reais at 4:47 p.m. in Sao Paulo today.

$1.9 Trillion

Foreign institutional investors who collectively manage $1.9 trillion and have been in contact with the capital markets association, known as AMEC, disagree with Petrobras’ decision to invest more than $60 billion in its refining division at a time when the company sells imported fuel at a loss as part of a government policy to contain inflation, Cunha wrote in an Aug. 29 letter to Chief Executive Officer Maria das Gracas Foster and Finance Minister Guido Mantega. Foster congratulated Cunha at yesterday’s meeting.

Petrobras announced plans to build new refineries in north eastern Brazil under former president Luiz Inacio Lula da Silva to make the country self-sufficient in fuel production and create jobs in one of the country’s poorer regions.

“The absence of a formalized system for setting the prices at which refined products can be sold to distributors raises questions over the predictability of future returns on these investments,” Cunha, who previously worked as an investment director at Maua Investimentos, said in the letter. “These issues are particularly important in light of the value destruction experienced by Petrobras’ shareholders over the past few years.”

Company Reactions

Petrobras plans to have domestic prices eventually “converge” with international prices and it is still studying if it will pursue two of the additional refineries Lula planned to build, according to its 2013-2017 business plan. Fuel subsidies contributed to the company’s first quarterly loss in 13 years in the second quarter of 2012.

“We just expect that the views of minority shareholders will be better represented at board meetings and perhaps it may make a difference in terms of the reactions of the company,”Robinson, who also manages Aberdeen’s Latin America Equity Fund, said.