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The right-wing populist’s intervention in one of Brazil’s most valuable companies, along with a vow to reduce prices in the power sector, sent Petrobras’ share price and bonds into a tailspin on Monday.
Morgan Stanley said its previous upbeat recommendation on Brazil’s sovereign debt had been contingent upon the government addressing fiscal concerns through reforms.
“The changes at Petrobras are worrying in this respect, as they show that the tolerance for unpopular policies is low, perhaps driven by election considerations,” the bank’s analysts said.
“Additionally, investor exposure through Petrobras is very high at a time when the spread versus sovereign is near record tights, leaving little reason for investors to hold onto bonds in case the direction of the company changes.”