New Corruption Probe in Brazil Batters Top-Performing Education Stocks

(Bloomberg) -- Two of Brazil’s best-performing stocks this year are facing unexpected headwinds.

Shares of education companies Kroton Educacional SA and Estacio Participacoes SA extended a drop on Monday amid news that Education Minister Ricardo Velez signed an agreement to investigate potential corruption and misuse of funds at the Ministry. They had already led losses on the equity benchmark Ibovespa on Friday. Smaller rivals Ser Educacional SA and Anima Holding SA also fell.

“We’ll begin education’s Carwash," President Jair Bolsonaro wrote on his Twitter account on Friday, making a reference to the massive corruption investigation involving contracts with state-run oil giant Petroleo Brasileiro SA. The years-long probe has led to arrests of scores of executives and politicians, including former President Luiz Inacio Lula da Silva.

Kroton, the world’s largest for-profit education company, fell as much as 4.2 percent on open Monday and is down 7.7 percent in the last two days, while Estacio has lost 6.2 percent in the span. The two-day drop kicked both companies out of the top five performing stocks in the Ibovespa this year. Ser and Anima, which are not part of the index, are down 11 percent and 3.9 percent since Friday, respectively.

Bradesco BBI says it’s still “too early” to draw any conclusions regarding the potential negative impact of the investigation, but says further drops in share prices “should not be ruled out.”

Ser said in an emailed statement that it supports “any kind of investigation in sectors where there is suspicion of corruption.” Kroton and Anima didn’t immediately reply to a request for comment, while Estacio declined to comment.

To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net;Fabiola Moura in Sao Paulo at fdemoura@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Julia Leite, Peter Millard

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