Petroleo Brasileiro Petrobras SA (ADR) (PBR) Stock Is A Scheme: Jim Chanos

The upcoming Brazilian election has had its fair amount of impact on Brazilian stocks with most of them bouncing up and down heading into Sunday’s big event. During an interview with Bloomberg Television, Kynikos Associates Founder, Jim Chanos, argued that Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) should act as big company and not swayed into the intricacies of the elections.

Chanos took a swipe at Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) calling it a scheme based on forecasts that were given four years ago, which the company has not achieved.

“Every time Dilma Rousseff’s poll numbers go up, Petrobras stock goes down. And every time Neves’s numbers go up; Petrobras stock goes up. […] we’re just not sure that even if Neves wins he’s going to really be feeling all warm and fuzzy toward this creature. Having said all that, the economics are just so poor at Petrobras that we really have called it a scheme, not a stock,”said Mr. Chanos.

The analyst pointed out that Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has only been revising its forecasts over the years while resorting to being too optimistic instead of giving actual values. Petrobras cash flow of about $25 billion and an annual CapEx of about $45 billion is only able to cover half of the total capital spending and capitalized interests.

The company has thus been forced to cover its deficits through borrowing, depriving investors the chance to earn value out of their investments in terms of dividends. The company borrows about $20 billion a year to cover operating capital deficit. Another disturbing fact is that the company production in the big pre-salt (ph.) has not yet picked up as earlier expected.

Even if production is to double in the next six years, Chanos expects revenues to go straight into refinancing Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) debt that is constantly increasing.

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