The long-suffering iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the largest exchange traded fund tracking Brazilian stocks, got some relief yesterday with a 4% rally. Believe it or not, that rally was made possible in some part by Petrobras (NYSE: PBR), Brazil’s downtrodden state-controlled oil producer.
“Brazil will offer companies implicated in a massive corruption scandal at state-run Petroleo Brasileiro SA a deal that would include the payment of fines and compensation in exchange for doing business again with the oil producer, daily Folha de S.Paulo reported on Wednesday. The government could receive 15 billion reais ($4.2 billion) in assets from some 20 companies that are currently unable to do business with Petrobras, according to estimates from the Finance Ministry cited by Folha,” Reuters reported.
If a deal is reached, Petrobras, one of EWZ’s largest holdings, could begin putting the corruption scandal behind and get on its way back to paying partners for oil-related projects. Petrobras has been a dark cloud hanging over EWZ and Brazilian stocks for much of 2015.
In February, Moody’s Investors Service lowered its rating on Latin America’s largest publicly traded oil producer to junk. “A Reuters review of a 2009 federal investigation of Petrobras, and interviews with those who conducted it, indicates Rousseff missed opportunities to stop the graft before it erupted into a crisis so big it could push Brazil’s slow-growing economy back into recession next year,” Reuters reported. Rousseff served as Petrobras chairwoman from 2003 to 2011. [Giving up on Brazil ETFs]
“Moody’s kept a negative outlook on the state-controlled oil producer’s rating after lowering it to Ba2, two levels below investment grade, on Tuesday. The downgrade marks the second reduction by Moody’s in less than a month for the company. Fitch Ratings and Standard & Poor’s rank the company at their lowest levels of investment grade,” report Filipe Pacheco and Sabrina Valle for Bloomberg.