Brazil's markets are the worst in the world after Petrobras' earnings sent shockwaves

(Bloomberg) — Brazilian markets fell after a lower-than-expected dividend from state oil giant Petroleo Brasileiro SA, raising concerns about increased government interference in the country's largest companies.

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The Brazilian real fell as much as 1.1% on Friday, leading to losses among major currencies around the world, while long-term swap rates rose. The benchmark Ibovespa stock index fell to its lowest level in more than three weeks, affected by Petrobras, which represents 13% of the weight of the index. The company's shares fell by more than 10%, resulting in a loss of about 56 billion riyals ($11 billion) in market value.

The decline in payments to the oil producer adds to concerns that the country's leftist government is looking to exert greater influence over the corporate sector to advance its political agenda. Analysts from Bank of America Corp. and Banco Santander were quick to remove their buy ratings on Petrobras, whose CEO signaled more caution toward shareholder bonuses as the company focuses on becoming a renewable energy powerhouse, a key policy goal for Brazil. President Luiz Inacio Lula da Silva.

“The signals are getting worse,” said Malcolm Dorson, senior portfolio manager and head of emerging markets strategy at Global X Management Company in New York. “Brazil has a lot of opportunity, but the stock index is based on Petrobras and Vale – both of which have unpredictable political risks.”

The company's board of directors approved a dividend of 1.10 riyals per share, or 14.2 billion riyals, for the fourth quarter, which is below the average of the four estimates reviewed by Bloomberg. It also refrained from distributing extraordinary dividends.

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The dividend announcement comes as a setback for Brazilian investors after a long period of relatively limited political noise at home, with the real touted as an attractive destination for carry traders.

Investors are also watching the ongoing race to succeed mining company Vale SA's CEO for clues as to whether President Lula's administration might succeed in pushing for a candidate with strong ties to the government.

– With assistance from Rafael Almeida dos Santos and Jeremy R. Cook.

(Updates to market close.)

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