President Dilma Rousseff's decision to tap a party ally to run Petrobras is a huge missed opportunity for Brazil. Aldemir Bendine, the politically connected head of state-run Banco do Brasil, lacks oil experience, and has been called a "puppet" of Brasilia in diplomatic cables. That's not the kind of clean break the country's corporate flagship needs after a massive corruption scandal. Brazilian assets deserve to trade at a steep discount.
The resignation earlier this week of Chief Executive Maria das Graças Silva Foster and other top Petrobras brass was a golden chance for Brazil's president to turn the page on a debacle that has undermined the country's credibility with global investors.
Appointing an internationally credible oil executive steeped in corporate governance best practices would have helped restore confidence amid a graft probe that has implicated Petrobras contractors, corrupt company executives and members of Rousseff's Workers Party. It would also have boosted Petrobras' effort to tap massive oil deposits discovered eight years ago off the country's coast.
Bendine is no oilman. While his appointment - along with Chief Financial Officer Ivan Monteiro - may bring greater financial competency to Petrobras' internal controls, the Banco do Brasil lifer was appointed CEO of the state-controlled financial institution in 2009 and promptly bowed to government pressure to lower rates charged on loans. A leaked US diplomatic cable published by Wikileaks, quoting an unnamed source inside Brazil's central bank, said Bendine was "widely considered a puppet" of Rousseff's mentor and predecessor Luiz Inacio Lula da Silva.
That doesn't inspire confidence. Indeed, Petrobras shares slipped nearly 10 per cent in New York on Bendine's appointment, and have now lost more than 60 per cent of their value since September. They trade on just 2.2 times next year's expected cash flows - cheaper even than Russia's Gazprom.
The repercussions go beyond Petrobras and may crimp investors' willingness to commit capital to Brazil. The IBovespa's forward price-to-earnings multiple of about 10.7 times is now well below the average of around 12 times for global emerging markets, according to Nau Securities. Dilma's timid response to the biggest corporate scandal in Brazilian history suggests that discount is warranted.
