Pain For Petrobras: From Bad to Worse?

By Todd Shriber

This may just be last straw for beleaguered shareholders of Petrobras (PBR), Brazil’s state-run oil major. After a decline that has spanned the better part of three years, making the stock one of the worst performing among major international integrated oil names, Petrobras is now home to rapidly rising short interest.

On July 5^th, short-sellers had borrowed 63.9 million shares, or 1.1% of the total of Petrobras shares outstanding, but that number

swelled to 178.8 million shares as of Aug. 5, or 3.2% of the total outstanding, according to Bloomberg data. That little tidbit came on a day when the New York-traded version of Petrobras plunged more than 10% and touched a new 52-week low before moderately recovering. The Brazilian listed shares printed their lowest price since December 2008.

News of the soaring short interest in Petrobras would be unwelcome in any form, but the company had more bad news for investors to digest this week. It plans to sell $13.6 billion in assets to raise cash for its massive $224.7 billion five-year spending spree could be imperiled due to plunging stock prices in Brazil, according to OilSlick.com.

Making Petrobras’ drop over the past year all the more troubling is the fact that the stock has lagged well behind the S&P 500 and even the downtrodden iShares MSCI Brazil Index Fund (EWZ), the largest Brazil-specific ETF available to U.S. investors

Perhaps the most graphic repudiation of the Petrobras investment thesis is this anecdote: Even BP (BP), Europe’s second-largest and probably the world’s most controversial oil company, has sharply outperformed its Brazilian counterpart in the past year.

All things considered, Petrobras is still one of the world’s most promising oil plays. But at the moment, management might want to cool it on the all the “we’re bigger than Exxon Mobil and Apple” talk. It’s going to be a while.

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