Brazil’ss Bovespa stock index sank, paring a fourth week of gains, after Petroleo Brasileiro SA dropped and Bank of America Corporation said steel prices will likely fall in the country. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, declined after selling shares in a USUS$70 billion offering at a 2 per cent discount to yesterday’s closing price, smaller than some analysts estimated. Gerdau SA, Brazil’ biggest steelmaker, dropped 4.6 per cent after Bank of America cut its rating on the stock, citing a weak price outlook. Declines in the Bovespa were limited by a rally in Vale SA, the world’s biggest iron ore producer, after it approved a stock buyback of as much as USUS$2 billion and proposed an extraordinary dividend.
“The steel sector is dropping after the downgrade,” said Fabio Cardoso, a partner at Adinvest Consultoria, a Rio de Janeiro-based equity consulting firm. “Banks are giving back some after rallying a lot lately. If it wasn’t for Vale, we’d be falling a lot more.” The Bovespa dropped 0.9 per cent to 68,196.48. At least two stocks fell for every one that rose. The gauge is up 1.7 per cent this week, the biggest weekly gain in three. It’s slipped 0.6 per cent this year, pushed down by a 27 per cent drop for Petrobras, the biggest stock in the index, on concern the share sale would dilute earnings.
Brazilian steel prices will probably fall in the fourth quarter as rising imports boost competition, Felipe Hirai and Thiago Lofiego, analysts at Bank of America in Sao Paulo, wrote in a note to clients today. Gerdau’s earnings in the second half “are likely going to disappoint because of higher raw material costs,” the analysts wrote. Petrobras fell 1.9 per cent to 26.30 reais. The company’s USUS$70 billion stock sale was an “abomination that treated minority shareholders unfairly and may signal share offerings are overvalued, said Mark Mobius, who oversees about USUS$34 billion as executive chairman of Templeton Asset Management Ltd.
“The entire Petrobras issue is an abomination and a terrible violation of shareholder rights,” Mobius said in a telephone interview from Kazakhstan. “We may be entering an IPO bubble. It means that people are just not looking at the values and irrationally buying these things.” Petrobras, based in Rio de Janeiro, sold 2.4 billion common shares for 29.65 reais each and priced 1.87 billion preferred stock at 26.30 reais a piece in the world’s biggest share sale, according to a statement late Thursday. (Bloomberg)