Petrobras Bets on Iron-Ore Boss to Lead Board as Debt Mounts

Petrobras Bets on Iron-Ore Boss to Lead Board as Debt Mounts

By Juan Pablo Spinetto/Bloomberg

6:55 AM BRT
April 29, 2015

If guiding the biggest iron-ore miner through the worst price rout in a decade wasn’t enough, Murilo Ferreira is about to take on a new job.

And it’s not just any job.

On Wednesday, the 61-year-old chief executive officer of Vale SA also becomes chairman of Petrobras, the most indebted oil producer in the world that’s struggling to emerge from Brazil’s biggest corruption scandal. The appointment, together with the selection of 10 board members, comes a week after Petrobras disclosed a 44.6 billion-real ($15 billion) impairment, mainly from overpriced and unfinished refinery projects, and a 6.2 billion-real graft-linked writedown.

The board overhaul is the latest move by the state-run producer to contain losses and reduce a 351 billion-real debt load at a time of near six-year low crude prices. Ferreira’s selection, which breaks a tradition of political appointees for the position, also builds a bridge between Petrobras and Vale, Brazil’s two largest exporters, as the country grapples with the end of the commodities super-cycle.

“At Vale, Ferreira corrected a very serious problem of capital allocation, prioritizing the company’s core projects and dis-investing non-core ones,” Marcel Kussaba, an equity analyst at asset manager Quantitas Gestao de Recursos SA, which oversees about 16 billion reais, said from Porto Alegre. “It would be great if he can replicate this story in Petrobras.”

Vale declined to comment for this article. Vale shares are down 31 percent in the past year. Petrobras has lost 23 percent.

More Professional

Ferreira, who was nominated by the government, will replace Luciano Coutinho when shareholders meet at the company’s headquarters in Rio de Janeiro on Wednesday. Previously, the position was occupied by former Finance Minister Guido Mantega and President Dilma Rousseff during the government of her predecessor Luiz Inacio Lula da Silva.

The government wants a more professional board for Petrobras, without government officials, Chief Executive Officer Aldemir Bendine said.

“We’ve received from the government the prerogative to work with a board that’s more geared toward the market, with more technical market experience and without the participation of members or the federal government,” he told senators in Brasilia during a congressional hearing on Tuesday.

Minority Investors

Seven of the 10 board members are appointed by the government, which controls the company through a majority of voting shares. Minority investors elect two members and another is chosen by company employees.

For Vale, the growing responsibilities of its CEO come at a time the company faces the lowest revenue since the global financial crisis after iron-ore prices collapsed on excess supply. The company is scheduled to post first-quarter results on April 30, with analysts forecasting earnings before interest, taxes, depreciation and amortization to fall to $1.61 billion, the lowest since the second quarter of 2009, according to data compiled by Bloomberg.

“Ferreira is a very competent professional, but the expectation was to have board members who can dedicate themselves to the company, and follow the day-to-day activities,” said Adelmo Emerenciano, a specialist in corporate law and partner at Sao Paulo-based Emerenciano, Baggio e Associados. “You can’t have a board of good names without any availability.”