Exclusive: Bain considers listing Brazil’s Intermédica – sources

Bain Capital LP is considering listing NotreDame Intermédica Saúde SA, the Brazilian health care provider it bought more than two years ago, within a year, according to two people with direct knowledge of the matter.

According to the first person, who requested anonymity because the plan remains under analysis, an initial public offering of Intermédica could help Boston-based Bain Capital recoup part of the investment it made on the acquisition of the company and prepare for new deals.

By selling a piece of the company to investors in an IPO, Bain Capital wants to capitalize on the success NotreDame Intermédica has had in riding out Brazil’s harshest recession since the 1930s.

Revenue at the low-cost health insurer has topped expectations as an increasing number of clients struggling with declining wages moved from higher-priced peers.

However, one of the people said that “it might be too early at this point” for Bain to hire investment banks to oversee the Intermédica IPO.

The media office of Bain Capital declined to comment. A public relations official for NotreDame Intermédica said the company does not comment on market speculation.

The transaction aims to take advantage of increasing risk-taking among domestic pension and investment firms as the economy begins to show some signs of recovery, the people said. Investment bankers are hopeful that a more favorable backdrop for offerings will help them resuscitate a market has seen only one debut listing over the past 23 months.

The equity market’s revival comes after dozens of merger and acquisition deals ran aground in recent months as buyers and sellers split over valuations and worried that Brazil’s economic and political turmoil could trigger regulatory or tax changes.

One of the people said Intermédica’s earnings before interest, tax, depreciation and amortization is poised to rise 70 percent this year to 400 million reais ($128 million), up from 236 million reais last year. EBITDA, as the gauge is known, is a widely followed measure of operational profitability.

In March 2014, Bain Capital agreed to pay 2 billion reais to Notredame Intermédica founder Paulo Barbanti for the company, which serves 3.6 million clients in the states of São Paulo and Rio de Janeiro, Brazil’s wealthiest.

Since the acquisition, Bain Capital helped orchestrate NotreDame Intermédica’s purchase of Grupo Santamália Saúde, which owned two hospitals and 22 healthcare centers, and Hospital Family. Last month, it took over the 70,000-strong clientele base of bankrupt health insurer Unimed ABC.

Source: Reuters Brazil.

Gonçalves family to leave controlling block of Hypermarcas

The Gonçalves family, the founder of laboratory Neo Química, has decided to leave the controlling block of consumer goods company Hypermarcas and its board of directors to have the freedom to unload itself of the stake, which until now wasn’t permitted. According to what a source heard, the partners have considered the hypothesis of selling their slice in a gradual manner or using part of the shares as collateral for debt payment. They are still considering, in a progressive sale of shares, using the funds in businesses already controlled by them, like a hotel and farm owned by the family in the north of Goiás.

According to information that circulates in the market, there is even the possibility that they enter into a new business, in the area of veterinary pharmaceuticals, and this would be possible with part of the funds from the stock sale. The family’s current stake in the total capital of Hypermarcas is 5.54%, the equivalent today to R$990 million. A business in the veterinary area wouldn’t be an impediment within the non-compete rules of the agreement signed between the two parties, which would apply for two years after the exit from the board. Contacted by Valor, the Gonçalves family did not answer to interview requests.

Other partners of the business have the right of first refusal in the purchase of the shares under the shareholder agreement, in a short window of 15 days. Considering the time frame, the recent stock gains, which make the transaction more costly, and amount that would be transacted in this deal, partners have decided not to exercise their right of first refusal.

João Alves de Queiroz Filho, aka Júnior, the founder of Hypermarcas, has shares in the company via vehicles like Igarapava Participações, Including him and Mexican partners (Esteban Malpica, Alfredo Harp Helu, and Roberto Ramirez), the controlling group reaches 40%. Today, Hypermarcas is interested in purchasing shares in the market, Valor has learned. The company has an open buyback stock program, and if it does take action, it will be through this plan. In any case, despite the company’s interest in its partners’ shares, due to its quiet period, Hypermarcas is barred from doing any negotiation of this type this week, recalls a source familiar with the subject. This period ends on Friday, after the publication of the quarterly report. Sought for comment, Hypermarcas didn’t comment on a potential repurchase the family’s shares.

Source: Valor Econômico S.A.

General Electric wins $900 million Brazil power plant, grid contract

General Electric (GE.N) has won a $900 million contract to build a 1,500 megawatt natural-gas-fired combined-cycle power plant in the Brazilian state of Sergipe, the largest such plant in Latin America, company executives said.

The contract with Centrais Elétricas de Sergipe SA marks the first such sale of GE’s power generators along with the heat recovery steam generator and transmission system technology it acquired from Alstom last year, the executives said in an interview. GE is expected to announce the contract in a few days.

“This plant is the first very large turnkey project encompassing the turbine and grid,” said Reinaldo Garcia, chief executive of General Electric’s grid solutions business.

GE’s revenue in this and similar future projects will double to about $300 per kilowatt of generation supplied from $150 previously by adding the Alstom pieces to the project, said Joe Mastrangelo, chief executive officer of GE Gas Power Systems.

“This is an indicator of the potential of the combined business,” Mastrangelo said.

The project, located near Aracaju, the Sergipe state capital, was awarded by GG Power, a joint venture between Britain’s Golar LNG Ltd (GLNG.O) and Brazil’s GenPower Participacoes SA.

Centrais Elétricas de Sergipe is made up of Golar and Brazilian company EBRASIL Energia Ltda.

The plant will include three of GE’s H-Class turbines, with more than 62 percent efficiency. It will use liquefied natural gas (LNG) supplied by Exxon Mobil Corp (XOM.N) and delivered through a new floating natural gas storage and regasification facility to be built as part of the project.

Source: Reuters Brazil

Lactalis lays out ambitious plans for Brazil

When he meets with Rio Grande do Sul Governor José Ivo Sartori (Brazilian Democratic Movement Party, PMDB) on October 22th to sign a protocol of intentions, Lactalis global CEO Daniel Jaouen will not only commit to investing about R$100 million in the state over the next eight years. The ceremony also casts light on the accelerated growth of the French dairy multinational in Brazil. Known for being low profile, the owner of brand Président is making quite an appearance.

In Brazil since 2013, Lactalis first focused on setting foundations on the new market. It spent about R$2 billion on an acquisition spree according to market calculations, creating a network of 15 factories in seven states – it doesn’t have plants only in the North region – and attracted over 13,000 milk suppliers. The company is now in the final stages of integrating the different assets and business cultures.

But although the adjustment of processes and standards is ongoing, the time has come to draw closer ties with consumers. The company is launching a line of made-in-Brazil Président products focused on the domestic market, and prepares to ramp up marketing efforts. With a portfolio that also includes two international brands (Parmalat and Glabani) and nine domestic ones (Balkis, Batavo, BoaNata, Cotochés, DaMatta, DoBon, Elegê, Poços de Caldas and Santa Rosa), Lactalis knows it faces the challenge of not losing its identity amid so many links in the production chain.

“The company still is a child in Brazil. We’ve started walking but are not running yet,” says the company’s leading executive in Latin America, Patrick Sauvageot. He says past investments in “founding” the Brazilian operation already stand out. The company ranked second in the milk purchasing list of Leite Brasil (a trade group of producers) in 2015, consuming nearly 1.6 billion liters or 12% more than the previous year.

Source: Valor Econômico S.A.

Brazilian beef producer Marfrig calls Asia main growth area

Marfrig Global Foods SA, one of Brazil’s main producers of beef, expects the Asia-Pacific region to be its principal motor for growth going forward after China and the United States opened their markets to Brazilian fresh beef in 2015, a company executive said on October 18th.

Mergers and acquisitions in the region, however, are not on the company’s immediate radar, Marfrig Vice President of Finance José Eduardo de Oliveira Miron told in an interview.

“We are concentrating on organic growth,” he said. “We see growth in beef consumption in the world propelled by the Asian markets, where demand should remain robust and met mainly by imports.”

Asian consumers have been the focus of other Brazilian meat exporters including BRF SA and JBS SA, which have expanded their foothold in the region through acquisitions, partnerships and joint ventures.

After suffering a minor debt crisis from rapid expansion in recent years, Marfrig resorted to selling its poultry businesses in Britain and Brazil to JBS. But Miron said the company was back on stable footing.

“We are betting on sustainable growth through the reduction of leverage, continued free cash flow generation and consolidation of operations,” Miron said.

In September, Brazil’s agriculture minister, Blairo Maggi, led a Brazilian trade mission including 40 agribusiness companies to the region, visiting China, India, Vietnam, South Korea, Thailand, Malaysia and other countries, stirring up as much as $2 billion in new trade.

Miron said a small per capita increase in Chinese beef consumption could easily be equivalent to all of Brazil’s current exports of beef annually of nearly 2 million tonnes.

Miron said the company’s Keystone division, which focuses on supplying restaurant chains in the United States and Asia, is leading one of the company’s main investments of $35 million to build a new plant in Thailand. It will have capacity to produce 20,000 tonnes of processed food a year starting in 2017.

Next year, Miron said the beef division is expected to expand its sales in Malaysia, which should allow the company to export beef on the bone and raise the value of products sold there.

As for China, Miron said only that the company expects 2017 to “be an equally fruitful year in the country.” In 2015, Brazil cleared some of its slaughterhouses to ship beef to China, which had been suspended since 2012 due to concerns over mad cow disease.

The World Animal Health Organization maintained Brazil’s status as a country with an insignificant risk of the disease.

Miron said the clearance of fresh Brazilian beef for import into the United States in August helped open the door to other markets, especially in Asia, which tend to follow U.S. officials’ recommendations.

“We expect Mexico and Canada to be the next markets to open,” he said

Source: Reuters Brazil

Japan PM says Brazil represents large investment opportunity

Japan on October 19th agreed with Brazil to jointly explore Japanese infrastructure investment opportunities in South America’s biggest economy as Brazilian President Michel Temer looks to foreign investment to pull out of a deep recession.

Under the agreement, Japanese and Brazilian officials will hold discuss cooperation in investment in areas such as transport, logistics, information technology and energy.

“Brazil represents a chance for Japan. In particular, there is a large investment opportunity in the area of infrastructure,” Japanese Prime Minister Shinzo Abe told a joint news conference with Temer.

“I’m really glad we’ve managed to agree to launch talks on infrastructure development.”

Details such as when the first consultations will be held had not been decided, a foreign ministry official said.

Temer last month launched a sweeping plan to auction off licenses to operate oil and gas, electricity and infrastructure projects in an attempt to boost private investment and pull the Brazil’s economy out of its deepest recession since the 1930s.

His center-right government plans to sell concessions for private companies to operate airports and railways and build roads and port terminals needed to ship out exports by the South American agricultural powerhouse.

Temer, making the first visit to Japan by a Brazilian head of state in 11 years, is also on a mission to repair ties frayed by his predecessor, Dilma Rousseff, who twice canceled official visits to Japan.

Earlier on October 19th, Temer told a business lobby that there was “much potential” in investing in his country’s airport, oil and gas sectors.

“By talking to Japanese business executives, I’ve learned that they are very interested in the investment partnership plan Brazil is promoting, and that they are seriously looking into participating,” Temer told the same news conference.

Besides the aim of attracting Japanese investment in Brazilian infrastructure, Temer also hopes Japan’s markets will be opened to Brazilian commodities such as beef and fruit.

Japan poured $23.59 billion in direct investment into Brazil as at the end of 2015, according to Japan External Trade Organization.

Currently, the import of fresh Brazilian beef to Japan is largely blocked. Brazil’s Agriculture Ministry said on October 18th it hoped to boost its share of Japan’s beef and fruit market in mid-2017.

Separately, the Brazilian leader said his country was aiming to mend its national balance sheet and cap state expenditure, adding it was important for Brazil’s central bank to stabilize prices and control inflation.

Temer’s government has warned that Latin America’s largest country could follow Greece’s path to financial meltdown if spending is not controlled.

Source: Reuters Brazil

China Three Gorges becomes leading private-sector generator in Brazil

After negotiating for months, China Three Gorges (CTG) announced on October 10th a deal to purchase the Brazilian generation assets of US company Duke Energy, consolidating itself as the biggest private-sector generation company in Brazil.

Duke Energy Brasil has 2,274MW of capacity in operation in the country. It has eight hydroelectric dams in the border of São Paulo and Paraná, in addition to two small-hydroelectric plants (SHPs) also in São Paulo. Duke’s assets were valued at $1.2 billion. But the amount includes a debt of R$1.4 billion. In an interview, CTG Brasil president Li Yinsheng says the payment terms still hadn’t been defined.

Already the world’s biggest hydroelectric generator, CTG will increase its portfolio in Brazil to 8.27GW. Even when excluding capacity under construction – the São Manoel dam, with 700MW, which is being built in partnership with EDP Energias do Brasil and Furnas – the Chinese company still has a larger installed capacity than Engie (formerly called Tractebel), until then the biggest private-sector generator in Brazil. Second-quarter data show that Engie had 7GW in operation and another 2.3GW under construction.

Duke Energy’s shares were priced at $10.80 in the deal, giving the overall transaction a $969.5 million price tag. The final value in reais will be released once the deal is completed. The transaction still needs clearance from the Administrative Council of Economic Defense and the National Agency of Eletric Energy (Cade and Aneel, respectively). Mr. Li expects this to happen in two to four months.

Source: Valor Econômico S.A.

Brazil and China create $20bn bilateral fund

Brazil and China will finally sign off on a $20 billion fund focused on infrastructure and energy, and which will finance Asian investments in the Brazilian market. The memorandum of understanding creating the bilateral fund to expand productive capacity will be signed on October 11th in Beijing, and both sides want it operational by the end of the year.

The funds will be invested as projects are approved. China will put $15 billion while Brazil committed with the remaining $5 billion, but made clear it will not involve budget earmarks or foreign reserves. The money will be channeled from existing Brazilian Development Bank (BNDES) lines or from the FI-FGTS, the investment arm of the Workers’ Severance Fund, for example, in addition to potential capital-market efforts. The bilateral fund will be managed by the China Latin American Industrial Cooperation Investment Fund (Clai Fund) and projects will be reviewed by a committee formed by equal numbers of representatives from both countries.

The Minister of Planning, Dyogo de Oliveira, says the priority will be projects included in the Investment Partnerships Program (PPI) and that the fund’s resources are an important step in the government’s efforts to diversify financing sources for concessions. “They are interested in advanced technology projects, agribusiness, manufacturing and digital services. Our biggest interest is on logistics infrastructure and energy,” he tells on an interview.

The minister says the fund will not include any mandate for borrowers to purchase Chinese equipment or inputs. “Under no hypothesis,” he says. During negotiations, Brazil insisted that money financing a hydroelectric plant or railroad, for instance, will not be conditioned to buying Chinese turbines or tracks.

The fund was originally conceived in May 2015 by Premier Li Keqiang and ex-president Dilma Rousseff. Talks have cooled since then due to the political crisis and the impeachment process in Brazil. But Mr. Oliveira says the fund’s creation shows the Sino-Brazilian partnership doesn’t depend on a specific administration but has a more strategic direction.

Mr. Oliveira admitted that Chinese companies, whether individually or in consortia, are natural candidates to access the fund and may be well-positioned in the next infrastructure auctions. Asian investors have been particularly aggressive in bidding for transmission lines and expanded significantly their electric-industry portfolio with acquisitions in generation and distribution.

Source: Valor Econômico S.A.

Microsoft, Banco Votorantim partner on Brazil fintech investments

Microsoft Corp and Brazilian lender Banco Votorantim are investing together in financial technology startups, executives said in an interview on October 10th, as the U.S. tech company adds a new specialty to its venture capital portfolio in Brazil.

Votorantim will invest an initial 3 million reais ($930,000) in the BR Startups fund created by Microsoft, with an expectation of funding about a half dozen young firms with investments ranging between 250,000 reais and 1.5 million reais.

The partnership underscores how Brazilian banks are looking to ride a wave of innovative financial startups, known as fintechs, which caught peers in more mature markets off-guard over the past decade.

“We’re looking for startups that have passed the validation and product development stage and need capital to scale up and gain traction in the market,” said Gabriel Ferreira, head of strategy, planning and retail lending at Banco Votorantim.

Those young companies are likely to fall in a “valley of death” between early seed capital and the larger rounds led by traditional venture capital firms, according to Franklin Luzes, chief operating officer of Microsoft Participações, the U.S. company’s Brazilian investment arm.

Microsoft set up BR Startups in 2014 to fill that niche and the fund has now grown to 17 million reais, backing about 70 startups and steering six to acquisitions, Luzes said.

Funding has become especially scarce in Brazil in recent years as interest rates climbed to a decade high amid the country’s worst economic recession since at least the 1930s.

BR Startups has focused this year on partnerships with “anchor investors” such as Banco Votorantim to focus on investing in their areas of expertise, Luzes said. The first such venture came in July, when the fund partnered with Monsanto Co to invest in agribusiness startups.

Source: Reuters Brazil.

Brazil’s grain harvest to hit record in 2016/17

With the prospect that weather will be more favorable than in the 2015/16 cycle, which was badly damaged by climate problems in different regions, the National Supply Company (Conab), forecasts that grain production will finally exceed 200 million tonnes in Brazil in the 2016/17 season.

Released on October 6th, the agency’s first survey for the current crop, which is in planting stage, indicated that the total volume will be between 210.5 million and 214.8 million tonnes, an increase of up to 15.3% compared with the previous season, which stood at 186.3 million tonnes, 10.3% lower than in 2014/15. According to the Brazilian Institute of Geography and Statistics (IBGE), the volume harvested this year was even lower: 183.9 million tonnes.

If the Conab forecast for the 2016/17 season is confirmed, it will mark a new record and should contribute to increased exports, a reduction of pressure of food prices on inflation, recovery of margins for poultry and beef processors and an increase in the farm GDP in the first half, a period in which the harvest is more intense.

As a result of the 2015/16 lower yields, Brazilian agribusiness GDP contracted 3.7% from January to March, and 3.1% in the second quarter of this year. Alexandre Mendonça de Barros, an economist at MB Agro — a unit of consultancy MB Associados — is among those who believe that, if the grain harvest’s recovery is confirmed, farm GDP could expand more than 5% in the first and second quarters of 2017, even if livestock declines.

The fact is that the range provided by Conab for the new crop is even slightly higher than its initial projection for the last harvest, which oscillated between 210.3 million and 213.5 million tonnes.

According to Conab, the expansion is based on prospects for better crop yield, but for some of them an increased area is also expected, to an estimated 58.5 million to 59.7 million hectares — up 0.3% to 2.3% from the 2015/16 crop.

Source: Valor Econômico S.A.