Mall operators begin taking projects off the shelves

Large mall operators plan to accelerate their investments in 2018, opening older projects they had put on the back burner last year. Multiplan starts to build next year a mall in Jacarepaguá, neighborhood in the western zone of Rio de Janeiro. The company’s intention to open a business in the area was known, but with the worsening of the crisis, the plan did not move forward. The investment is expected to range from R$400 million to R$500 million, Valor has learned.

Companies that spoke with Valor still don’t have plans to build malls from scratch. The latest big cycle of investments in new malls ended four years ago, when the last significant projects were announced.

In addition to resuming pending projects, the focus is on expanding existing malls, adding land space for future projects and increasing the number of renovations.

Iguatemi Empresa de Shopping Centers said its 2018 investments should be higher than this year’s, but didn’t elaborate. It is expected to announce its forecasts in January or February. “Capital expenditures tend to be higher [than in 2017], but we haven’t returned yet to levels prior to the crisis,” said Roberta Noronha, the company’s chief of investor relations, in a meeting with analysts.

Iguatemi has two new projects to open in 2018 and 2019 and that were on the back burner for over one year. The group plans to open an outlet mall in Tijucas, Santa Catarina, in late 2018 and another in Nova Lima, Minas Gerais, in the following year. The projects have been taken off the shelves after having reached a little more comfortable occupation rate — in Tijucas it is above 70%, compared with 50% a year ago, Valor has learned.

For that it also contributes the fact that outlets demand less cash disbursements than traditional malls. The companies have also been considering those two factors — total disbursement and occupation — before announcing the revival of old projects. Outlets demand average investment of R$100 million, about one-third of what is spent on the construction of a large mall in big cities.

As of September, Iguatemi had R$70 million in capital expenditures. The plan for the full year ranged from R$80 million to R$130 million. That is, it is probable the realized investment will be closer to the lower than the upper end. In 2012, before the recession, Iguatemi invested R$420 million.

The country’s largest mall operator, BRMalls, whose developments cater classes C and B, or middle and upper middle, says “the trend is of increase in investments” in 2018 from 2017, CEO Ruy Kameyama says.

Such increases partly owes to the company’s plan of opening in late 2018 its Shopping Estação Cuiabá, in Mato Grosso. The project was stalled for at least one year because of the crisis.

BRMalls considered strategic will get injections as part of the group’s search of more rational capital expenditures. In 2016, BRMalls invested about R$235 million. In 2017, it invested R$168 million through September. In 2014 and 2015 it had invested nearly R$500 million.

Mr. Kameyama prefers not to define a timeline for announcements of new projects, but said this is not likely to occur over the next few years. “I don’t see on the short-time horizon some announcement in that sense. This decline [of openings] is even positive because it reduces competition pressure in the sector.”

He says the economic outlook has improved and 2018 tends to be a year of recovery to retailers. “In this scenario, we should return to sales growth and earnings improvement. We have been for two years with drop in revenues, and in 2018 are likely to return to positive rates.” Through September, net sales at BRMalls were down 0.4%. In 2016, the same period had 5.3% decline.

“There was an improvement, but we are still cautious, considering we have elections, which produce uncertainties,” says Vicente Avellar, chief operating officer at BRMalls.

The management of General Shopping doesn’t see room for a rebound of its investments in 2018. “We have made some investments in switching stores and creating larger service areas in the developments. In terms of more significant volume, it is not the moment yet,” says Marcio Snioka, the company’s investor-relations officer.

Source: Valor Econômico

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Economy will be central issue for presidential elections

With less than one year to go before the presidential elections, the economy has risen on the list of the country’s top problems for voters. Led by unemployment, the heft of economic problems tripled from 2014. If back then 11% of voters said the lack of jobs, salaries or inflation (among other economic items) were the nation’s main problem, according to a Datafolha survey, now 28% mention such topics. Healthcare is at the top of everything, making part of a group of issues that may be put under the “social” umbrella and that represents the biggest worry for 43% of voters, whereas corruption is the top problem for 15% of them.

Even if one out of every four voters mentions healthcare as the country’s biggest problem, economists, political analysts and pollsters say that the economy will be the big elector in the 2018 presidential race. After the recession of 2014 to 2016 and in the wake of the puny GDP growth of 2017, the outlook will be of growth revival, job recovery, low inflation, cheap food and very low interest rates (for Brazilian standards). It looks like a scenario designed to elect a governing candidate, who gives continuity to the current economic policy management — but it will not be that simple.

The issue is with what moment of life the voter will compare 2018. And the comparison will not be in terms of job, inflation and GDP indicators. “It is the filter of perception that defines the influence of politics in the economy, and not the cold number of the indicator, of the statistic,” says Ricardo Ribeiro, political analyst at MCM Consultores.

What counts is whether the unemployed son or neighbor got jobs, and whether the salary puts more food on the table, or whether there is a little more disposable income that allows buying something financed. “The short term benefits the government, but the comparison with the more distant past may benefit Lula,” Mr. Ribeiro sums up, referring to ex-President Luiz Inácio Lula da Silva.

Fernando Montero, chief economist at brokerage Tullett Prebon, is convinced that “what the economy can help [the government], it will help. We will have cheap food, cyclical recovery, very low interest rate,” he says. Mr. Montero likes to compare the purchasing power of the minimum wage with the basic basket of groceries. Considering the basic basket calculated by the Procon Foundation of São Paulo and by the Inter-Union Department of Statistics and Socio-economic Studies (Dieese), in November it was possible to buy the food and personal-care staples for 45% of the minimum wage, leaving the remaining 55% for other goods. Since the Real Plan of monetary stabilization, of 1994, in only four other months it was possible to purchase more with the minimum wage.

For Mr. Montero, even if we don’t see the same effect that helped elect Fernando Henrique Cardoso, who was minister of Finance when the Real Plan was launched, in the first round of voting in 1994, cheap food will be a powerful factor for the government next year. Only the price of gas, if it continues rise, can compromise such help.

Datafolha Director Mauro Paulino points out that 67% of Brazilians have household income below three minimum wages, and they are the ones who decide the election. “The weight of other priorities [in defining votes] will depend on how much unemployment falls until then and how much the life of the poor will improve,” he says.

The economy, he adds, always has a very large influence. “Until today, the clearest example was the Real Plan, in 1994. Then, in 2002, with the high unemployment, the promise of creation of 10 million jobs was the motto of Lula’s campaign, and on the occasion unemployment appeared as the biggest problem in the assessment of voters,” he recalls. On the eve of the first round of voting, 42% of voters put unemployment as the biggest problem, in a survey of single and spontaneous answer conducted by Datafolha. In 2006, the percentage was at 27%. Today, it is at 19%, the highest after the situation of almost full employment of the first years of the Dilma Rousseff administration.

Formal-employment data show that it was indeed during the Lula administration that the country had the fastest job creation of the last few decades. According to the Annual Social Information Report (RAIS), in the eight years of the FHC administration the country created 5 million formal jobs (annual average of 625,000); during the Lula Era 15.2 million were created (1.9 million a year); and in the five years under Ms. Rousseff, 4 million (800,000 a year). Michel Temer has so far a negative count.

Márcia Cavallari Nunes, CEO of Ibope Inteligência, says it is precisely from the job market that comes Mr. Lula’s electoral strength in the current opinion polls. The economy, she says, has an important role, but as much as the indicators are improving, it is necessary that the voter begins making a more positive evaluation. She believes such evaluation will improve, but the situation will still be worse than it once was. And that will be in the voter’s mind. The issue is where they will look to. To the past of full employment or to the current recovery from the crisis?

“Relinquishing an accomplishment causes a very high level of frustration; it is bigger than never having had something and dealing with that absence. With the loss, the frustration is bigger, the tolerance is smaller,” Ms. Nunes says, adding that voters will seek with the vote a path that takes them where they have been once. “This explains the current voting intentions for Lula,” she says. Despite such memory, it is not certain that every comparison will be with the years of Mr. Lula, who will also be held accountable for the Rousseff Era, since he ushered her to power. In the recent past, Ms. Nunes says, “the situation was worse than today.”

Mr. Ribeiro, with MCM, reckons that for most voters the analysis that the recession and the fiscal crisis were gestated by mistakes of the economic policy that began with Mr. Lula is too “sophisticated.” “They look at their real life,” he insists.

For analysts, the influence of the social-protection cushion established over the last few decades, which includes both the Bolsa Família cash-transfer program and the Continuous Cash Benefit, which provides an aid equivalent to a minimum wage for low-income elders, explains the reduction of concern over hunger and misery during the last few years (the heft of this issue fell from 13% in 2001 to 1% now). It may also have prevented unemployment to return to the 40% level on the list of concerns (level it had in the early 2000s), but it was not sufficient to reduce the importance of the economy in the voter’s decision. “The basis of the environment of electoral dispute is given by the economy,” Mr. Ribeiro insists.

The economic environment in 2018, Mr. Monteiro says, will be better than now. He points out that the expected GDP growth of 2.5% to 3% is for the average of the year, but the height will be at the time of the elections. “The important is to see how much of that improvement will be concrete for the voter until October,” Mr. Paulino, with Datafolha, says.

In the hypothesis of the economy’s improvement being clearly perceived by the population, the government’s other challenge is to present a candidate who can draw the voter. The strong rejection against President Temer practically eliminates him from the race, analysts say. It is highly improbable that the rejection will fall to the point of making him a competitive candidate. “And the economy’s improvement, alone, will not make Meirelles [Finance Minister Henrique Meirelles] a candidate with potential. For him there is a long way to go. He needs to become known and convince the population that the economy improved because of him. And there is the unpopularity of Temer, of whom he is minister. The steps are very steep,” Mr. Paulino says.

On the other hand, if Mr. Lula doesn’t run, it will also be difficult for him to transfer to another candidate of his Workers’ Party (PT) or of the left wing the confidence that the “good” past will be back. “Without Lula the positive memory of his administrations loses strength as element for vote decision. The Dilma effect gains more relevance,” says Mr. Ribeiro, with MCM. “One thing is Lula, another is another candidate,” Ms. Nunes, with Ibope, agrees.

She says the economy’s role in 2018 will also depend “on the skill of the parties” to explain the scenario. “In 2014, the crisis was already appearing, the adversaries attacked, but the government defended itself, and Dilma was re-elected also with the economy in the middle of the debate. In 2018, the evaluation of the government and of the economy will be more positive than they are today. But turning that into vote will also depend on who will be the governing candidate.”

For now, she sums up, what is known is that the presidential race will be the most difficult since 1989, when the country elected Fernando Collor de Mello.

 

Source: Valor Econômico

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Supreme Court ends the year with unexpected decisions

At the end of the judiciary year, the Federal Supreme Court (STF) justices took Wednesday a series of important and some unexpected decisions. Justice Gilmar Mendes granted a provisional ruling forbidding forced testimonies, answering requests of the Brazilian Bar Association and the Workers’ Party (PT). “Forcefully taking someone to questioning is a practice that has become more common, especially during the course of a criminal investigation. It represents an important restriction of the individual right, allegedly founded on the interest of the criminal investigation,” he wrote.

Justice Edson Fachin ordered the revocation of the mandate and the immediate beginning of the execution of the penalty imposed on Federal Deputy Paulo Maluf (Progressive Party, PP, of São Paulo), sentenced by the First Panel of the Supreme Court to seven years, nine months and ten days in prison, for the crime of money laundering. The prison will not have to undergo the endorsement of the Chamber of Deputies’ floor, according to understanding of the house’s leadership, but the revocation of the mandate will have. This assessment may change after meeting of the secretariat general of the Chamber’s leadership, which will take place after the legislative is notified of Mr. Fachin’s decision, house Speaker Rodrigo Maia (Democrats, DEM, of Rio de Janeiro) said.

Mr. Fachin, who handles cases related to Operation Car Wash at the STF, also overturned an appeal filed by the defense of ex-President Luiz Inácio Lula da Silva to declare Judge Sergio Moro, of the 13th Regional Court of Curitiba, as suspicious to act in proceedings involving Mr. Lula.

Justice Luís Roberto Barroso, for his part, adopted for the first time the restrictive interpretation of immunity for legislators and sent to the court of first instance a probe into Federal Deputy Rogério Marinho (Brazilian Social Democracy Party, PSDB, of Rio Grande do Norte). In the ruling, he argues that the STF plenary already has “significant majority” of eight votes for the immunity to be limited to crimes committed during and because of the exercise of the mandate — which was not the case of Mr. Marinho.

The STF also decided, unanimously, that the immunity to which President Michel Temer is entitled shouldn’t be extended to other investigated people that don’t enjoy the immunity and are accused by public prosecutors in the same case.

Source: Valor Econômico

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Foreigners seek ways to skirt restrictions on rural land ownership

The strong restrictions on the purchase of farm land by foreigners in Brazil have not prevented investors of various nationalities from acquiring or economically exploring real estate in the field, in the same way that they have not inhibited mergers and acquisitions of companies that own rural properties. While awaiting the relaxation of rules, international groups such as China’s State Grid and Canada’s Brookfield have found ways to circumvent the difficulty, varying not only in the model, but also in terms of legal risks taken. Purchase of convertible bonds, contracts of rural partnership and even changes in the boundaries of urban areas are some alternatives on the menu.

Lawyers at major law firms say that since 2010, when the Federal Attorney General’s Office published a report that equates local companies controlled by foreigners with foreign companies, they began to warn their clients of the risks involved in mergers and acquisitions of lands in rural areas. In addition to the ownership of the property itself, the lease is also restricted for foreigners. In both cases, the control is carried out by INCRA (National Institute of Colonization and Agrarian Reform), which may or may not authorize the transaction. Since the agency does not have a legal timeframe to respond and the case may take years, foreign groups prefer to adopt structures that exempt them from authorization.

“The foreign investor can cope with a greater or lesser degree of risk,” says a partner at a large law firm that often suggests more conservative structures. A competing law firm makes a distinction between buying rural properties directly and acquiring a company that has, among other assets, land in rural areas for some reason. “The purchase of land will be barred in the real estate registry, but the purchase of a company does not even involve a specific inspection body. Our recommendation is for the foreigner to buy it and take the risk of being questioned. I’ve never seen it happen,” the lawyer says.

A recent sale of a company with rural assets is that of Eldorado Brasil Celulose, the pulp producer of the Batista family put up for sale after the plea agreement of its controlling shareholders. As the Três Lagoas, Mato Grosso plant is in a rural area, the groups that analyzed the asset had to study alternatives. One group considered splitting off the property and lease it from the Batistas or another investor who agreed to get the property. For now, the control of Eldorado remains with the Batista brothers, but Paper Excellence is expected to take over the company in 2018. Eldorado and Paper Excellence did not comment on the solution to be chosen.

In cases similar to Eldorado’s, as long as the property meets certain requirements, lawyers suggest that the municipality be sought to request a change in the zoning. “For city halls it is interesting, because the company will pay IPTU [a property tax]. But for the company costs rise, among other things, because the IPTU is much more expensive than the ITR [a rural property tax],” says a lawyer. The change, however, can take months or years.

In the purchase of CPFL Energia by China’s State Grid, completed in January this year, the rural land issue was troublesome. The electric utility had dozens of land leases and they had to be changed to contracts that allow the use of land without the company owning or renting it. Some of the options that are usually suggested by lawyers are surface rights, usufruct and rural partnership. Contacted by Valor, State Grid said the matter should be addressed by CPFL, which in turn declined to comment.

Investors usually resort to two instruments in order to have rights of a controlling shareholder. One of them is the purchase of convertible bonds. This is the case of Canadian group Brookfield, with large investments in Brazil in several segments. Last January Embaúba, which holds interests in other companies that own rural properties, issued R$1.85 billion in bonds that were partially purchased by a fund managed by Brookfield, the Agriculture Fundo de Investimento em Participações Multiestratégia.

The 2029 bonds pay a 98.8% percentage of Embaúba’s net income, with no interest payments. In addition, one of the bonds’ clauses, to which Valor had access, provides that the securities will be converted into shares of Embaúba as soon as there is permission for the acquisition of rural property in Brazil by foreigners. The bonds also entitle a 98.8% stake in Embaúba.

The corporate bonds also usually give powers to foreign investors over the company’s management and decisions of strategic policies. In the case of Brookfield, Luiz Ildefonso Simões Lopes, CEO of Brookfield Brasil, is also the president of Embaúba. Other executives of the Canadian group also have positions in the company’s management.

Contacted by Valor, Brookfield said it “fully respects the country’s legislation, including any potential need for prior approval by any authority.”

Bonds are not new for investments in sectors where foreign control is forbidden. Fixed-income securities have already been used, for example, for the entry of international funds into hospitals in Brazil, when there were still restrictions on foreign capital. In 2010, this instrument was used when BTG Pactual, with the participation of foreign investors, made a strategic partnership with hospital chain Rede D’Or.

The lawyers who have advised foreigners in creating these solutions are split on the use of the debentures. While some recommend them as an alternative, others say otherwise. “We do not advise it because it can be considered a simulation and lead to penalties,” says the partner of a large business law firm.

In the case of investment in land through the purchase of bonds, one of the risks is that the effective ownership of the property is not in the investors’ hands. That’s why foreigners need to search for a local partner they trust and who control the company. At Brookfield, some executives in Brazil are partners of some companies that issue the bonds. In other cases, the partners of companies from which Brookfield buy bonds have no relation to the Canadian group’s management in Brazil.

Another path used by foreigners is the acquisition of preferred shares, with no voting rights. In October last year, the Teachers Insurance and Annuity Association of America (TIAA) increased its stake in Radar, a rural property company founded by sugar-and-ethanol group Cosan, in a transaction valued at R$1.1 billion. As a result of the deal, TIAA now holds 100% of the company’s preferred shares. Radar manages 280,000 hectares in Brazil, while Cosan holds the majority of the common shares. This gives TIAA a 97% economic stake in Radar, although the control remains with Cosan.

In the case of eucalyptus or teak forests, the most used mechanism is the creation of two companies, one that owns the land and another operational. The rural property is in the hands of a company controlled by Brazilians and the surface right is ceded to a foreign-capital group that operates the property. This is possible, a lawyer says, because the biological asset (trees) have more value than the land itself, something that does not happen on farmland. But there has been at least one case where INCRA has disregarded the surface right and has not granted the Rural Property Registration Certificate (CCIR).

The restriction has already created difficulties even for foreign banks that accept rural land as collateral for loans. A court ruling has eliminated the need of INCRA approval for the fiduciary alienation of these properties.

One of the most common complaints from foreign investors’ representatives is the time to get an answer, whether positive or negative. INCRA, lawyers admit, has a very small structure to meet the volume of cases in this area.

The INCRA coordinator of the rural registry, Paulo Farinha, says that the assessment of cases can take months or years. “The analysis does not depend only on INCRA’s governance, it depends on each body verifying the exploration plan [of the land],” he says. In order to receive the green light to complete an acquisition, the foreigner investor must submit to the analysis of some ministry, such as of Agriculture or Tourism, a plan to use the rural property.

On December 14, INCRA published a normative instruction that aims, according to Mr. Farinha, to speed up analysis of the cases. The document describes in more detail what documents and information need to be provided by investors, such as implementation cost, schedule and use of official credit.

However, there is no provision in this normative instruction for the analysis of investments. Only in case of rejection there is a timeframe that gives the investor 15 days to appeal and then 30 days for the INCRA to judge.

Asked about how INCRA sees the use of alternative instruments for foreign investment in land, Mr. Farinha said that INCRA’s actions are restricted to control and lease, according to the law.

The government has plans to modify the restrictions. Bill 4059 is stalled at the Chamber of Deputies and there is expectation it may move forward in 2018. For foreigners, if the bill passes, this will represent the end of the imposition of an area limit for investment in rural land without approval of regulators or Congress. The restrictions will only continue existing for the total area of a municipality. The trend is for acquisitions by sovereign funds, NGOs based abroad and foreign state-owned companies to be forbidden.

Source: Valor Econômico

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Consumer rates grow volatile with political turmoil

Volatility has come to consumer credit. Even though they don’t move as fast and as much as interest rate futures, the rates for individual borrowers started to oscillate according to the political and economic news, experts attest. Central Bank data show the costs of non-directed lines of credit for consumers rose at times of greater uncertainties even amid a climate of monetary easing that has already brought the Selic policy rate to its lowest level on record.

In the near term, the influence of political turmoil becomes clear. The interest futures market, which quickly reacts to the economic sentiment and may be considered a sort of barometer of risk perception among investors, has shown great volatility.

On the day after the Central Bank cut the Selic rate to its all-time low, of 7%, the long end of the rates rose. Uncertainties about the chances of pension reform passing in the Chamber of Deputies led on Thursday rates for January 2023, January 2021 and January 2020 to rise 20 basis points at their highest points during the session, in their worst daily performance in one month.

The president of Canepa Asset Management, Alexandre Póvoa, wrote in an article for Valor on December 5 that, since the Monetary Policy Committee (Copom) meeting in late October, long-term rates have been showing a spike in the curve, that is, a sharp rise in relation to short-term rates. He cites as probable causes the possibility of the historically low rate lead to inflation further ahead, the fact that the country’s fiscal situation becomes compromised without reforms and the political uncertainties related to the 2018 elections.

“We are much dependent on the beliefs system,” says the chief economist of Santander, Maurício Molan. Until the elections, he says, the expectations tend to oscillate according to the news. The return of confidence is tied “not only to the will, but also to the capacity [of a new government] carrying out the reforms, because it doesn’t depend only on the president, but also on the new elected Congress.”

The economic adviser to the Federation of Commerce of Goods, Services and Tourism of the State of São Paulo (FecomercioSP), Altamiro Carvalho, makes a similar assessment. “The rate of [non-directed credit] has a not-so-direct link to the Selic, because this cost reflects the conditions of credit at that moment,” he says. “The demand and supply curve has often prevailed over the base rate in this formation of prices of non-directed credit,” he adds.

Even amid a cycle of rate cuts by the Central Bank that led the Selic to fall 725 basis points and reach an all-time low in December, the climate of insecurity sometimes becomes so intense that it even influenced the volume of lending to consumers this year. “There is a factor of uncertainties that is associated to the political cycle,” Mr. Molan, with Santander, says.

According to Central Bank data, non-directed lending to consumers fell 16% in the year to February, to R$117.5 billion. The period was marked by Congress’s recess.

In February, when legislative work resumed, the Chamber of Deputies re-elected Rodrigo Maia (Democrats, DEM) as its speaker, and the Senate chose Eunício Oliveira (Brazilian Democratic Movement Party, PMDB) to head the house, reinforcing signs that reforms would continue. In March, the amount leaped to R$148.3 billion. In May, it reached R$150 billion.

From June, with the deterioration of the political environment because of the plea bargain of JBS owner Joesley Batista, lending fell and the total stood at R$142.7 billion, falling again in the following month to R$140.8 billion. With the impact of the accusations ebbing, non-directed credit started growing again, but with moments of volatility. In October, they returned to being close to the year’s high, at R$149.6 billion.

The interest rates of non-directed credit to consumers had a similar behavior. They fell gradually from March to June. In July, however, they rose 40 basis points from the prior month. The cost fell again until September. In October, it rose again by 30 basis points, according to the Central Bank.

Source: Valor Econômico

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Agriculture’s expansion depends on reforms, study says

Few times over the last few decades have the country’s farmers depended so much on concrete solutions for old structural bottlenecks like now. Having in mind the outlook of lower volatility for the global markets on which Brazil has leading positions, improvements in the infrastructure and in the economic environment have become unavoidable as the one-way route to ensuring that during the next decade the progress attained in the last 20 years is not wasted.

In general lines, that is what “Fiesp Outlook – Projections for the Brazilian Agribusiness 2027” points out. The study has been recently concluded by the Federation of Industries of the State of São Paulo (Fiesp) and, based on the assumption that the necessary improvements will happen, one way or another, confirms that the sector will continue growing at an annual pace more than two percentage points higher than the global average in some segments, even if not as much as in the last ten years. “Largely responsible for the beginning of economic recovery in 2017, agribusiness will continue as one protagonist of the Brazil we want to be,” says Paulo Skaf, president of Fiesp.

The deceleration confirmed now — the same trend was pointed out by the previous “Outlooks” of Fiesp, given the sharp rise between 2001 and 2010 — doesn’t mean the estimated expansion will be of little significance. For soybean, for example, the study projects until the 2026/27 season increases of 17% in the cultivated area (to 39.7 million hectares), 8% in productivity (to 3.6 tonnes per hectare) and 27% in production (to 144.4 million tonnes), always taking as basis the results of the 2016/17 cycle. On this horizon, the net exports of the grain, flagship of the Brazilian agriculture, would reach 89.8 million tonnes, up 43%.

Equally positive are the projections for production and export of soybean meal, whereas soybean oil will also show growth, but boosted by the promised increases in the percentage of mandated biodiesel in fuel sold in Brazil, which in March will rise to 10% from 8%. All of this, of course, depends on the weather. Any wind outside of the curve, for good or evil, will result in different numbers, even if it doesn’t generate radical changes of route. Because of this big climate influence, Fiesp will update its “Outlook” permanently.

For corn, the scenario outlined indicates that until 2026/27 there will be expansions of 10% in the cultivated area (to 19.3 million hectares), 10% in productivity (to 6.1 tonnes per hectare) and 20% in production (to 117.7 million tonnes). Exports may grow 75% and top 53 million tonnes, but as in the case of soybean meal, the growth of domestic demand to make meals for birds and pigs will also be vital to bolster a firm expansion of the grain’s supply.

For chicken, the Fiesp study points to increases by 2027 of 23% in the production (to 15.8 million tonnes) and 31% in exports (to 5.7 million tonnes). But it also signals growths of 11% in the consumption per capita from the level of 2016 (to 48.2 kilo) and, therefore, of 19% in the domestic demand (to 10.7 million tonnes). In pork, the projected leaps are even bigger — for domestic demand it reaches 27%, to 3.6 million tonnes.

In animal proteins, positive are also the forecasts for beef, both internally and externally. Until 2027, Fiesp’s “Outlook” foresees expansions of 21% in the production (to 11.2 million tonnes), 53% in exports (to 2 million tonnes) and 14% in domestic demand (to 8.7 million tonnes). But few chains depend as much on good macroeconomic conditions coming from the policies defined in Brasília as this one, the study authors highlight.

“Soybean, corn and meats are examples that there are no big changes in the overall scenario forecast for the next decade in relation to what the previous ‘Outlooks’ signaled. Times are of lower price volatility on the international market, which, at least for 2018, means that the ‘food inflation’ is likely to continue low in the country. But this depends on the future of the reforms under way — and if the presidential elections next year will have impacts on them,” says Antonio Carlos Costa, manager of the Agribusiness Department (Deagro) of Fiesp.

Alexandre Mendonça de Barros, director of consultancy MB Agro, partner of Fiesp in the study, adds that what will be at stake in the upcoming elections is precisely the continuity of the reform agenda. Under a more comprehensive view, this dispute will certainly have important developments over the agricultural-policy model adopted in the country. But it is necessary to observe, he points out, that currency oscillations are also at stake, and that this is a variable of big relevance to the profitability of Brazilian farmers, especially those that are part of the exporting chains.

Finally, Fiesp’s new “Outlook” also contemplates the importance of new credit instruments available to farmers in times of falling interest rate, proliferation of technologies at affordable prices and the indispensable nature of sanitary defenses for the country to maintain and open new markets for its agricultural products.

Source: Valor Econômico

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Recession drives 5.4m into extreme poverty

Poverty levels rose significantly during the recession after falling for nearly a decade. According to a new study by the Institute of Labor and Social Studies (Iets) obtained exclusively by Valor, a little over 9 million Brazilians fell below the poverty line in 2015 and 2016 as employment and incomes deteriorated. Around 5.4 million of them fell into extreme poverty.

The portrait cross-referenced data from the Synthesis of Social Indicators released Friday by the Brazilian Institute of Geography and Statistics (IBGE) and historical data from the National Household Sample Survey (Pnad). Income levels followed World Bank and IBGE guidelines: per-capita income of $1.90 a day for extreme poverty and $5.50 a day for moderate poverty (R$133.72 and R$387.07 a month, respectively).

IBGE reported Friday that 52.2 million people were living below the poverty line in 2016, or 25.4% of the population. Those in extreme poverty numbered 13.4 million or 6.5% of the population. Yet IBGE did not disclose comparable data from past years, due to questionnaire changes in late 2015. Iets cross-referenced the income thresholds and created an equivalent series with some methodological differences.

According to Iets researcher Samuel Franco, who prepared the calculations, about 40 million people rose from moderate poverty from 2004 to 2014. Not even the 2008 financial crisis stopped the process, he says. “The destruction ran from 2014 to 2015. That’s when the crisis started hurting incomes and causing unemployment, pushing workers to informal jobs. The construction industry’s job losses, for instance, affected many workers,” he says.

World Bank economist Francisco Ferreira reached similar conclusions. He says the share of the population in extreme poverty rose to 6.5% in 2016 from 4.1% in 2014, reaching the highest level since 2007. Moderate poverty rose to 25.4% from 22.1% of the population in 2016, the highest since 2011. He says the trend is worrying but also warns the extreme poverty figures may be inflated.

“People who lost jobs and are reporting zero income to the IBGE may be living off some savings or with family help,” the World Bank economist says, adding that despite the recent deterioration not all poverty reduction victories during the economy’s “golden decade” were erased. “The glass-half-empty is that we regressed; the half-full glass is that not all achievements were lost.”

The number of families not receiving any social assistance increased in 2016 to 7 million, raising concern at the United Nations Food and Agriculture Organization (FAO) and putting the country at risk of returning to its Hunger Map monitoring malnutrition levels across the world.

“If Brazil doesn’t resume sustainable growth and reinvigorates the job market, simultaneously to an adjustment in income transfer values, we risk returning to the Global Hunger map,” warns José Graziano da Silva, the general-director of FAO, which has released the map since 1990. Mr. Graziano headed the team in 2001 that created Brazil’s Zero Hunger plan, whose lauded efforts helped him rise to the leadership of FAO.

Brazil left the Hunger Map in 2014 when for the first time less than 5% of Brazilians were consuming fewer calories than necessary to avoid malnutrition according to UN standards. According to FAO, Brazil had 2 million families surviving with less than R$133.72 a month in 2016, who didn’t earn any welfare that year.

Children and adolescents were hurt the most by rising poverty. Half of the 42.2 million people aged between zero and 14 were living in poverty in 2016, according to last week’s IBGE data. Celia Lessa Kertenetzky, a researcher with the Economics Institute at the Federal University of Rio de Janeiro (UFRJ), says the higher poverty rate of a nation’s youth is particularly tragic and compromises its future.

“Considering the number of children and adolescents living with impoverished families, we are compromising the future. Several studies show the negative outcome of having been raised in poverty, regarding higher chances of having a worse education and precarious jobs with low pay, generating more impoverished families,” she says.

According to the Synthesis of Social Indicators, the long crisis rapidly increased the number of Brazilians aged 16 to 29 years who do not work or study to 25.8% in 2016 or 11.6 million. Sixty-one percent of them are not even looking for work due to low expectations.

IBGE also portrayed the nation’s structural and historical inequality. Over half of the nation’s most impoverished lived in the Northeast (24.7 million). The worst states were Maranhão (52.4%), Amazonas (49.2%) and Alagoas (47.4%), where black or brown women are more likely to be single mothers. They numbered 7.4 million in 2016, and 64% of them had poverty-level incomes.

Experts warn that poverty is rising just as fiscal crises weaken the social safety net. Bolsa Família, the federal government’s conditional-cash program, did not grow this year. Some states suspended local handouts like Renda Melhor in Rio, which also sought to raise living standards for the state’s most unfortunate.

Mr. Kertenetzky says the country will have to grow with well-paid jobs and by keeping up with successful social programs while offering a good education.

Source: Valor Econômico

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Companies to pack IPOs in beginning of year

Investment bankers will have much shorter vacations this year, if they have it at all. Even though Burger King closed on Thursday the 2017 season of stock offerings, the end of this year’s crop will barely be felt inside banks. Bankers are already working on next season’s IPOs and follow-on offerings.

The fear that the presidential election may hinder the offerings has been making banks advise companies to hurry and bring their placements to the market by May, before the announcement of the candidates. Because of this, the year is likely to begin busy.

For now, the list of IPO candidates include telecom operator Algar Telecom, pharmaceutical company Blau, bank Inter and retailers Centauro and Ri Happy, but the executives predict that more names will come out, both for debuts on the stock market and for follow-on offerings.

Banks so far have between R$4 billion and R$10.5 billion in offerings in the pipeline for January to March, period in which companies can still use third-quarter earnings statements in their stock pitches. At the top of the estimates, that figure is quite similar to the beginning of this year’s, when companies raised R$10.3 billion.

Given the uncertainties that the next year promises, not all banks feel comfortable in predicting how many offerings there will be in 2018. Those daring enough to make a call forecast a year not as good as 2017, but still busy. This year, stock offerings raised R$42.9 billion, which makes 2017 the best year for share issuance since 2009, when they raised R$47.1 billion. The figures don’t include the giant capitalization of Petrobras in 2010, worth over R$100 billion.

For 2018, Bank of America Merrill Lynch and BTG Pactual estimate about R$35 billion in offerings. Bradesco, which doesn’t dare going so far in its projections, forecasts R$10.5 billion in the first quarter. This doesn’t mean, however, that the bank is counting on a weak year. “Because of the presidential election, this is a binary year. We may have either a very productive year or not,” says Leandro Miranda, head of investment banking at Bradesco BBI. The only certainty that banks now have is that the first few months will be busy.

In addition to the political issue, whoever decides to move ahead in this beginning of the year may also benefit from investors’ greater appetite for risk. “After a good 2017 for the Brazilian stock market, investors don’t want to risk anymore in the end of year. But in 2018 the game begins again. Investors must return to the circuit to seek returns,” says Fabio Nazari, head of capital markets at BTG Pactual.

Cuts in the benchmark interest rate throughout this year are also likely to help improve corporate earnings, since their debt costs will fall. This tends to make them more attractive to investors, drawing more foreign funds to the country.

Yet the path still has many uncertainties in addition to the elections. They include how the pension reform’s postponment will affect the market mood from now on. “This is a decisive factor [to attract investors]. The passage of the [pension] reform this end of year or early next year would cause demand,” said Rodrick Greenlees, head of investment banking at Itaú BBA, before the government delayed the vote to February 19.

Only on the next few days, says Alessandro Zema, head of investment banking at Morgan Stanley in Brazil, it will become clearer what the investors’ reaction to the vote postponement will be.

The good news is that companies should begin tapping the market with the goal of expanding, either organically or through acquisitions. “Most of the companies’ deleveraging process has been done. Now they start seeking funds with other goals,” says Marcelo Millen, chief of capital markets at Credit Suisse.

Source: Valor Econômico

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Real-estate developers see a brighter 2018

Real-estate developers will end 2017 with more launches and sales than last year, but earnings of several companies are still under pressure due to weak operating performance in recent years. Considered a year of recovery for the sector, 2017 was also marked by cash generation among many companies and by creditors’ approval of judicial recovery plans of PDG Realty and Viver Incorporadora. The market expects the operating improvement to consolidate next year, but reflected only in the 2019 balance sheets.

“This year was of transition and adjustment. In 2018 there will be effective cash generation and, due to the industry’s cycle, earnings will start recovering by 2019,” says Santander’s real-estate analyst, Renan Manda.

Developers avoid setting targets for launches in 2018, but some of them such as EZTec and Tenda expect raising projected sales (VGV). Until September, the launch of publicly traded companies increased 28%, and net sales rose 25%, according to Valor data. Seasonally, the fourth quarter is the most heated for the industry.

Sales started to show improvement in the second quarter, Mr. Manda says. Most developers were able to generate cash in the third quarter as the number of deliveries fell, pushing down contract cancellations. Cash generation tends to keep growing in 2018 and help cut debts.

“Inventories have been falling every quarter. Sales are starting to pick up,” says another industry analyst, although he also warned that prices probably would stay flat next year because companies reduced launches faster than they cut inventories. Mr. Manda, with Santander, also expects prices to keep stable or follow inflation. “I don’t expect any price pressure,” he says.

Next year will present a more favorable environment for the middle-class and high-middle-class income ranges, and also for developers working with government housing program Minha Casa, Minha Vida, says Luiz Mauricio Garcia, a senior real-estate analyst with Bradesco BBI. But the segments will recover “from different levels.”

“The low-income segment has a better supply-demand balance,” says the Bradesco BBI analyst. A new expansion will only occur when employment indicators improve. “Low income concentrates nearly 80% of demand,” Mr. Garcia says.

Developers focusing on middle-class and luxury properties will benefit from macroeconomic shifts and more readily available mortgages. “Net sales increased as cancellations fell. Gross sales also tend to improve,” says the Bradesco BBI analyst, who stresses that they still are one of the most challenging markets.

Developers are already recovering in São Paulo but not in Rio de Janeiro’s market, says Brasil Brokers president Claudio Hermolin. “Launches sold faster in São Paulo this year than in 2015 and 2016, but were still slow in Rio,” he says. The executive points out São Paulo properties are still selling slower than in 2013 and 2014.

Flávio Amary, president of developer trade group Secovi-SP, expects launches and sales to rise in the city next year but declines to provide a specific forecast. “The scenario is pointing to a better market,” he says. Launches of residential properties in São Paulo could rise between 5% and 10% this year, Mr. Amary says, with sales increasing from 20% to 25%. Early this year, Secovi-SP estimated growth between 5% and 10% for both indicators in 2017.

For Rubens Menin, president of the Brazilian Association of Real Estate Developers (Abrainc), the industry’s biggest challenge now is housing credit. “We hope LIGs [covered bonds] take off in 2018. The securities were regulated in August, and the Central Bank is considering the rules,” Mr. Menin says.

Abrainc’s president believes LIGs will complement the Workers’ Severance Fund (FGTS) as funding sources for the industry. “LIGs could surpass R$200 billion in three to four years,” Mr. Menin says. LIGs are covered by both the lender who issued them and a property portfolio big enough to back the entire issue.

According to Gilberto Abreu, president of the Brazilian Association of Mortgage and Savings Entities (Abecip), mortgages financed by savings accounts will rise 15% in 2018. Abecip estimates that mortgages financed by savings funds will total R$45 billion in 2017, from R$47 billion last year. When FGTS loans are taken into account, the overall new mortgage balance this year is R$117 billion, from R$116 billion in 2016.

“Banks will grow more interested in mortgages over the upcoming months but nothing compared to the peak in 2014, says Santander’s Mr. Manda.

Ricardo Ribeiro, vice-president of Direcional Engenharia, expects state-owned lender Caixa Econômica Federal to set the tone of 2018. “If Caixa is unable to keep lending to mid-standard developers, it will get very tough,” the executive says. He is also concerned about potential lending restrictions in Minha Casa, Minha Vida to families earning more than R$4,000 a month.

Caixa is the largest mortgage lender in Brazil and needs to adjust its capital ratio to Basel III rules.  The Senate passed with a few changes a bill allowing FGTS to help capitalize the bank. The proposal still needs to pass the Chamber of Deputies again and would let Caixa swap about R$10 billion in 15-year bonds issued to FGTS with perpetual notes. Mr. Ribeiro says the mid-income sector faces good prospects if the issue is solved and savings accounts start getting net inflows again.

Source: Valor Econômico

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Brazil government still eyeing pension vote next week: minister

The Brazilian government is still working toward holding a lower house vote on its landmark pension overhaul bill next week, Finance Minister Henrique Meirelles said on Wednesday, contradicting earlier remarks by a senior senator.

Romero Jucá, the government’s leader in the Senate, had earlier said that lower house lawmakers had agreed to delay the vote on the unpopular bill to February, close to next year’s presidential and parliamentary elections.

Source: Reuters

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