Another Brazil scandal makes steelmaker world’s worst performer

Bloomberg

Gerdau SA fell the most among peers after police indicted more than a dozen people, including its chief executive officer, for their alleged involvement in a tax evasion scandal linked to Brazil’s No. 2 steelmaker.
Shares in Gerdau fell 7.1 percent in Sao Paulo, the steepest loss among 82 members of the Bloomberg World Iron Steel Index, which was little changed.
Federal police said in a statement it was indicting a total of 19 people, including Gerdau managers and lawyers. The investigation, known as Zelotes, centers on exposing fraudulent activities involving Brazil’s board of tax appeals, a unit of the finance ministry.
Gerdau said in an e-mailed statement that none of its employees have ever offered to bribe civil servants in order to influence tax rulings.
Spanning two years, Zelotes has already snared numerous business leaders in Brazil. Billionaire Joseph Safra was accused of corruption by prosecutors in March and police questioned former finance minister Guido Mantega last week.
In February, Gerdau delayed the release of its fourth-quarter earnings after police questioned CEO Andre Gerdau as part of the investigation. At the time, Gerdau said it maintains strict ethical standards.
Fine Concern
The tax probe is discouraging investors as fallout from Carwash, a kickback scheme centered around state-controlled oil producer Petrobras, continues to depress equity prices in Brazil. Police suspect the Porto Alegre-based steelmaker of attempting to evade 1.5 billion reais ($427 million), according to the statement.
“Probably the key concern is whether the company will have to pay fines,” Andrew Lane, an analyst at Morningstar, said by telephone from Chicago. “The dollar figure of which the company is alleged to have evaded taxes is a very large one given its market capitalization is only about $3 billion.”