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government insists on rejected names for the Council and raises concerns about governance

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The news that the Ministry of Mines and Energy will keep the names of the two nominees for the Petrobras Board of Directors (PETR3;PETR4 who were disapproved in the analysis process of the company lit the warning signal about the company.

In a statement, the ministry stated that it “did not find the alleged impediments pointed out by the Petrobras Eligibility Committee (Celeg) because they did not find the necessary legal support”. Thus, Ricardo Soriano de Alencar and Jônathas Assunção Salvador Nery de Castro will also have their names submitted for approval by the shareholders at the General Meeting, scheduled for August 19th.

Castro is Executive Secretary of the Civil House and Alencar is Attorney General of the National Treasury.

The Eligibility Committee considered that the occupation of these public positions constitutes a conflict of interests with the performance as directors of the oil company. The current Board of Directors, in turn, fully validated Celeg’s analyses.

The maintenance of the indications by the Union, the controlling shareholder, is provided for by the company’s statute. It will be up to the shareholders to veto or not the names definitively.

“We are legally sailing through unknown waters”, says Bradesco BBI. In a short note, analysts highlighted that this stance by the government could be interpreted by minority shareholders as a violation of the 2016 SOEs law or even an abuse of power, and how minority shareholders will respond to this remains to be monitored.

“Depending on how the situation unfolds, minority shareholders may try to block these nominations if they choose to suspend the shareholders’ meeting. Ultimately, the government has the power to elect these names, but as the Board of Directors has formally positioned itself against these two nominations, the situation could lead to legal repercussions involving the CVM. [Comissão de Valores Mobiliários] and the SEC [espécie de CVM americana]”, points out the BBI.

UBS BB also reinforces, citing news from the day before, that this government move can be brought to justice by minority shareholders.

“We have consistently signaled that we view Petrobras’ statute and other regulations as reducing the risks of interference in the company. While we do not expect this to lead to any significant changes in Petrobras’ strategy or fuel pricing policy, we believe the announcement reinforces the view that concerns about governance prospects remain – and therefore risks for what comes after. of elections may also be greater than existing protections would suggest,” analysts say.

For UBS BB, the announcement could reignite some of the governance concerns that existed prior to the changes to the
Corporate Governance and Legislation.

The risks are higher, but the bank’s analysts remain focused on the company’s dividend payment thesis, thus maintaining a buy recommendation for the shares, with a target price of R$ 45 for PETR3 and PETR4.

This Thursday, at 11:10 am (Brasília time), PETR3 was down 3.51%, at R$30.82, while PETR4 was down 2.78%, at R$28.36, but also impacted by the fall in oil prices in the session, with the Brent futures contract down about 2%, around US$ 104 a barrel.

(with Reuters)

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