UPDATE 3-Petrobras loses over $10 bln in market cap after dashing dividend hopes
(Recasts with board vote on dividends, adds more details in paragraph 5, CFO comments in paragraphs 10-11)
By Marta Nogueira and Fabio Teixeira
RIO DE JANEIRO, March 8 (Reuters) - Investor frustration with a meager dividend from Brazil's state-run oil firm Petrobras wiped out over 50 billion reais ($14 billion) of its market value on Friday after government-appointed board members voted down a more generous payout.
The nearly 10% drop in shares reflects investors' biggest frustration yet with Chief Executive Jean Paul Prates, who has tried to balance the interests of minority shareholders with a leftist government eager to see more capital spending.
Petrobras has been a major cash cow for its shareholders in recent years, including the Brazilian government, with the prior management paying out far more than Western oil major peers.
Under new management picked by President Luiz Inacio Lula da Silva, the company had pared back its payouts, but an extraordinary dividend was still widely expected in the market.
The company's management proposed on Thursday a payout of 50% of the extraordinary dividend allowed by its bylaws for the fourth quarter. Prates said he proposed the extra dividend but abstained from the board vote, where board members backed by the government voted it down.
In a fourth-quarter earnings release, Petrobras said it would only pay a routine dividend of 14.2 billion reais ($2.9 billion) to shareholders, while 43.9 billion more would be set aside in a fund for "capital remuneration."
Goldman Sachs analysts told clients that investors had voiced expectations of a $3 billion to $4 billion extraordinary dividend in addition to the predetermined year-end payout.
The lack of an extra dividend triggered a slew of downgrades, including at Bank of America, Bradesco BBI and Santander, as analysts questioned how the firm would spend its growing cash reserves.
The decision "heightens the risk perception at Petrobras, particularly on the government influence regarding major capital allocation decisions," analysts at Bank of America wrote in a note to clients while downgrading the stock to neutral.
Chief Financial Officer Sergio Caetano tried to dismiss concerns that the growing reserves earmarked for "capital remuneration" would be used for investments.
"Some doubts arose as to whether it could be used for investments. It cannot be used for investments, the purpose of this reserve is for distributing dividends," he said in a call with analysts.
Caetano added that there is no deadline to release those funds, but that it could happen at any time. The decision on whether to issue extraordinary dividends will continue to take place at the end of every fiscal year.
After his remarks, preferred shares in Petrobras pared some earlier losses but still plunged 9% to 36.66 reais in Friday afternoon trading in Sao Paulo, responsible for dragging the benchmark Bovespa stock index 0.7% lower.
Petrobras reported a 6.3% drop in its fourth-quarter net recurring profit to 41 billion reais, beating expectations of 35.3 billion reais among analysts polled by LSEG. ($1 = 4.9769 reais) (Reporting by Marta Nogueira and Fabio Teixeira in Rio de Janeiro, Peter Frontini in Sao Paulo; Editing by Gabriel Araujo, Brad Haynes and Jonathan Oatis)
