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The packaging industry is expected to maintain in 2022 the pace of capacity expansion and mergers and acquisitions (M&A) seen in the last two years. After the recent arrival of Chile’s CMPC to this market in Brazil through the purchase of Iguaçu Celulose Papel’s industrial and forest assets, foreign groups’ appetite for local operations remains high and new investments are expected to be unveiled.

Besides foreign companies, private equity funds have been studying Brazilian assets linked to the packaging industry, said Alexandre Pierantoni, head of Brazil corporate finance at Duff & Phelps, A Kroll Business. At the moment, the consultancy has two to three mandates to sell in the country, and uncertainties about the growth of the domestic economy have not taken the interest of potential buyers away.

“They are looking at flexible, rigid, corrugated [packaging]. There is an opportunity for acquisition in all segments because many companies are still family-owned and need to invest to grow,” Mr. Pierantoni said.

A few months ago, Duff & Phelps advised Italian flexible packaging company Gualapack on the purchase of the Brazilian company Teruel Embalagens – Papéis Amália, a family-owned company founded more than 50 years ago, specialized in flexographic printing on flexible films.

Last week, CMPC agreed to buy three plants and forests of Paraná-based Iguaçu Celulose Papel for R$946 million, including debts. With such a move, the Chilean company has stepped into the local packaging market as the second largest supplier of paper bags, only behind Klabin.

Large local companies are also monitoring opportunities in this market, which is expected to continue on a consolidation path, and investing in capacity. In paper packaging, besides the recent announcement by CMPC, Klabin bought last year the assets of International Paper in this field, consolidating its leadership in Brazil’s corrugated cardboard box market, with a 24% share.

The Brazilian company, which is investing R$12.9 billion in Paraná to expand its production of packaging paper, is seen in the market as a strong candidate for new investments or acquisitions.

According to Mr. Pierantoni, potential buyers of Brazilian assets have shown interest in particular for niche markets and products with higher added value, such as packaging used in the pharmaceutical industry. “Commodity continues to be important, but niche markets grow more,” he said.

Gabriella Michelucci, head of the Brazilian Paper Packaging Association (Empapel), said the industry’s customers are increasingly seeking intelligent, lighter and more rationalized packaging. “This is expected to be a major breakthrough by 2022,” she said.

At the same time, packaging is no longer seen simply as a means of transporting the product. It is also taking a more active role in the consumer’s experience. More colors and designs and better brand identification are strong trends, Ms. Michelucci added. The initial forecast for 2022 is for an expansion of 1.3% to 1.4% in shipments of cardboard sheets, boxes and accessories in the country, considering a projection of 1.2% GDP growth.

Mergers and acquisitions are heated in general in the country, Mr. Pierantoni said. A survey by Duff & Phelps shows that 1,455 deals were signed between January and November, up 52% year over year, and also a higher figure than that seen in full year 2020, of 1,100 deals. November was the third busiest month this year, with 150 deals.

“Those who know Brazil will keep investing. The risks, even as the political situation, are already priced,” Mr. Pierantoni said. According to a survey by the consultancy, in November, financial investors, such as venture-capital and private-equity funds, were present in 42% of the deals announced in Brazil.

Source: Valor international

Airvantis Faz Parceria Com a JAXA Para o Comercialização do Uso do Módulo  Kibo da EEI

Airvants, a space logistics startup founded in 2013 by mechatronics and space engineer Lucas Fonseca, 37, is making history. This Tuesday it will transport the first four Covid-19 protein molecules into space in a rocket from Elon Musk’s SpaceX leaving Cape Canaveral, in the U.S.

Mr. Fonseca wants to put Brazil on the route of the “new space” economy. “There is a large market to be explored in space and Brazilian companies are still incipient in this process,” he said.

A mechatronics engineer who graduated from the University of São Paulo (USP), Mr. Fonseca specialized in space engineering in France, where he lived between 2009 and 2010. Then he was hired by the German space agency to work on the Rosetta mission, which sent a probe into space in 2014, considered one of the most ambitious projects of the European Space Agency (ESA).

Mr. Fonseca was the only Brazilian to participate in the Rosetta mission team, whose spacecraft of the same name was built to make the most detailed study of a comet – in this case, the 67P/Churyumov-Gerasimenko.

When he decided to return to Brazil, Mr. Fonseca created Airvants with own capital, around $100,000, but later received an investment of R$5 million from Brazilian businessman Martim Matos, a partner in GreenCare, which sells cannabis-based medicines.

Airvants has already done several satellite delivery jobs for the Brazilian government, but now it has a contract with the pharmaceutical company Cimed, which specializes in generic drugs. Cimed owns three of the four molecules being sent into space today, with the fourth molecule being financed by Mr. Fonseca himself.

Brazilian businessman João Adibe, the owner of Cimed, says the company is investing heavily in Research and Development (R&D). The group will invest R$300 million in the next few years, an amount that also includes spending on space projects. International pharmaceutical companies have used this technique for more than 20 years and allows them to explore microgravity conditions, seeking to obtain better quality protein crystals. “We want to establish ourselves as a health-tech company and we will fund this research in space,” he said.

Cimed has signed a partnership with the National Center for Research in Energy and Materials (CNPEM), an organization overseen by the Ministry of Science, Technology, and Innovations (MCTI), to make possible the experiment that consists in crystallizing proteins in space.

In this first project, the idea is to take the Covid-19 proteins to try and develop drugs to combat the disease. “We don’t want to make vaccines,” Mr. Adibe said. The first experiment takes off Tuesday and there are plans to send yeast vitamins into space between May and June.

Airvantis is in talks with other companies related to technology. Valor found out that it is in talks with the Asian technology company Asus to take the company’s materials into space. The goal is to evaluate the deterioration of equipment and carry out marketing campaigns. Asus did not return an interview request.

Marketing campaigns in space are another niche that Airvants is exploring, so much so that a sign with Cimed’s logo will be taken into space together with other global companies.

“The new space market can be explored by various sectors, from agriculture to mining,” Mr. Fonseca said. Brazilian artist Romero Britto consulted Airvants about taking canvases into space. It is a form of positive marketing that can be exploited in the “new space” economy. “Before, the space economy was tied to geopolitics between countries.”

Airvants has a holding company in the United States, which acts as a “venture builder,” which means that it seeks business opportunities for other startups and companies.

Source: Valor international

Entrevista com Finalista: Intercement Brasil S/A - Entrevistas - Notícias -  GEJUR -

The critical period of the cement group InterCement seems to have been overcome, with financial and management adjustment measures carried out in the last two and a half years. Under the weight of high debt pile, the company was hit in Brazil, like all manufacturers, by a deep crisis of demand for cement between 2015 and 2018. Currently, almost half of its operations are in the country.

“Many difficult decisions were made, but they made a lot of sense for the company,” Flávio Mendes Aidar, CEO of InterCement Participações, told Valor. The Sorocaba-born executive, a Business Administration graduate from FGV, had a career in the financial world, having worked for Goldman Sachs in Brazil and New York and Citi. He took over ICP in March 2019. Mr. Aidar was picked by the shareholders of Mover Participações (formerly Camargo Corrêa S.A.) after being a member of Mover’s advisory board since 2017.

ICP is the holding company that controls Mover group’s cement companies in Brazil (the second largest in the market), Argentina (Loma Negra, the local leader), South Africa, Mozambique and Egypt. In all, the group is expected to sell 20 million tonnes this year.

At the beginning of 2019, the cement company’s financial leverage was beyond 5 times net debt over operating income as measured by Ebitda. It reached that point despite sales of assets in Europe for €707 million and after the public offering of 49% of Loma Negra shares on the New York Stock Exchange, which bring more than $1 billion for ICP.

The situation, Mr. Aidar said, forced firm measures focused on liabilities, operations and management. “The holding company was heavy and had an operational role. We streamlined the hierarchy, reducing to 40 people from over 200. Decision-making was transferred to the companies’ management teams; we remained with the strategy.”

The companies, especially in Brazil, adjusted the commercial department (with a 30% increase in the customer base) and the alignment of the industrial department to the market (working on the idleness of the factories), besides actions in the energy mix (coke, coal, electricity) due to the high costs. “The energy replanning in the plants generated savings of R$50 million this year alone.”

With these and other measures, according to the executive, the EBITDA margin of the Brazilian subsidiary went to 30% from 5%. In the group’s global results, the margin doubled to 30%, generating an increase of $20 per tonne of cement. The major part of the restructuring happened in the Brazilian operations.

At the end of the third quarter, according to ICP’s financial statements, net debt was $1.36 billion (R$7.4 billion). The leverage closed at 2.9 times, while that of IC Brasil fell to 2.5 times. The holding company’s report unveiled revenue of $492 million (up 32.6%), EBITDA of $127 million and net income of $28 million (compared to $ 120 million a year ago). The corrosion is attributed to cost pressure.

Sales volume totaled 5.43 million tonnes – just over 45% in Brazil, 30.5% in Argentina and 24% in Africa.

In the financial restructuring, the bank debt was all converted to reais from dollars, and only 30% of global debt remained in the greenback. “A large installment of ICP’s debt will come in 2024, from a bond of $550 million. Before, almost all of it was short term,” Mr. Aidar said. The liability is a legacy of the group’s debt to buy Loma Negra (2005) and Cimpor (between 2010 and 2012).

One goal of the Brazilian subsidiary’s IPO, which was intended to raise between R$3 billion and R$3.5 billion, was to strengthen cash flow as the holding would sell about 40% of its shares. IC Brasil kept the public company registration in order to resume the IPO and list the company on Novo Mercado, the strictest governance segment of exchange B3, when a new window opens.

The executive says the company’s situation is now comfortable because operations are profitable and allow good cash generation. “We have room for debt,” he said. “We are comfortable, back in the game, and able to compete for any deal that emerges in a new round of consolidation of assets.”

Source: Valor international

Latam retoma voos para Orlando, Milão e Londres com mais de 90% de ocupação

The president of Latam in Brazil, Jerome Cadier, is studying increasing the number of airports where the airline operates in the country, from the current 49 to 56, and adding 15 planes to the current fleet of 133. But this, of course, depends on demand in the next months.

In 2019, before the pandemic damaged the airline industry, Latam landed at 44 airports in Brazil. “We have a target of reaching 56 in the first half of next year, but everything will depend on how demand goes,” said Mr. Cadier to Valor. He sees the potential to expand the operation to 70 terminals.

Mr. Cadier also plans to increase the frequency of flights. On the Rio-São Paulo route, for example, Latam’s operation today is equivalent to 65% of what it was before the pandemic. In December, considering its entire network, the company resumed 93% of its capacity offer in the pre-crisis period and the estimate is for a full recovery in January, reaching between 800 and 850 daily flights.

The airline should also have an addition of 15 aircraft to its fleet next year, including new ones and the reactivation of aircraft that had stopped flying because of contraction in demand. Today, Latam’s Brazilian fleet comprises 133 aircraft. Mr. Cadier considers, however, that getting aircraft became a challenge given the strong international demand.

There are more challenges on the way. The Latam Group, that controls Latam Brasil, needs to leave Chapter 11 (judicial recovery in the United States). The Chilean group released its restructuring plan at the end of last month with a planned injection of $8.19 billion through a combination of new equity, convertibles and debt.

The proposal was supported by Latam’s shareholders (Delta, today with 20% of the shares, Qatar Airways, with 10%, and the Chilean family Cueto, with 16%) and a group of creditors, who represent 70% of the debts recognized by the company. Creditors of the remaining 30% are complaining.

Azul’s steps to try to buy Latam — initially it would only be the Brazilian operation, but later the entire company became a target — led to the group of creditors representing the other 30% (among them Lufthansa, the oil company Repsol and the bank BNY Mellon) to challenge the plan presented by the Chilean group in the American Court. They claimed that Azul’s proposal would be more beneficial to creditors.

Mr. Cadier noted that Latam closed a plan with creditors’ support and that it was able to comply with both U.S. and Chilean laws. “Our plan has commitment and money behind it. It is not a three-page letter of intent,” he said, referring to the proposal made by Azul. The competitor’s plan, according to him, is to disrupt Latam’s process, so that it does not emerge strengthened from the judicial reorganization.

Like the dissenting creditors, Azul’s CEO John Rodgerson says Latam’s plan favors shareholders over creditors – which would be illegal under U.S. bankruptcy law.

According to Mr. Cadier, the estimate is that Latam will get all approvals (both in Chile and in the United States) in the first half of next year. By January 27, the reorganization plan presented by Latam must be validated by the court of New York before being voted on in the creditors’ meeting.

The new Latam should have a strong dilution of current shareholders, according to the plan presented. Delta, Cueto and Qatar are expected to have about 27% of the capital — the definitive percentage is yet to be decided.

Delta recently announced it has invested S$1.2 billion in three partner airlines, including Latam (in addition to Aeroméxico and Virgin Atlantic), funds that would help companies resume business after the pandemic. Mr. Cadier highlighted that Delta’s money basically confirms the commitment of the airline to make an investment in Latam´s recovery plan.

The new ownership structure, proposed in the judicial reorganization plan, should bring changes to Latam, but Mr. Cadier says it is still too early to know when and how they will happen.

In the third quarter, Latam Group’s net loss grew 20.7% to $691.9 million. Revenue totaled $1.3 billion, up 156.1% from the third quarter of last year, but down 50.7% from the pre-pandemic period.

In the fourth quarter and the next, there is still another challenge: the pandemic and its new variants, the most recent of which is omicron.

“In December, international sales were more stable, while in November it was an accelerated growth,” said the executive. The view is that the recovery in the international market, given this scenario, should be slower. Currently, Latam resumed around 50% of its international routes from Brazil.

Source: Valor international

As dez maiores empresas por produção de petróleo - O PETRÓLEO - Notícias de  Petróleo e Gás, Energia e Offshore

The transfer of rights surplus volume bidding of Sepia and Atapu fields became the third-largest ever in Brazil’s oil and gas industry, considering fixed payments. The bidding raised R$11.1 billion, only behind the first round of surpluses, which raised R$69.9 billion in 2019, and the 2013 Libra sharing auction, which raised R$15 billion. The result shows that even in the face of increasing efforts by oil companies to decarbonize their businesses, oil reserves in the Brazilian pre-salt layer still draw the gaze of multinationals navigating energy transition.

TotalEnergies and Shell, two of the oil companies that have been betting the most on diversifying their businesses, doubled down on the Brazilian pre-salt and will disburse R$2.9 billion and R$1 billion, respectively, in fixed concession payments for the auctioned assets.

The French company took a 28% stake in the Sépia consortium and 22.5% in Atapu, while Shell took a 25% stake in Atapu.

In a note, the Brazilian Petroleum Institute (IBP), a trade group of the local industry, said that Friday’s round represented the “last opportunity to tap the large volumes already discovered in the pre-salt layer.”

Sépia and Atapu represent, for the buyers, an opportunity to immediately tap fields in production stage, diversifying their respective sources of cash generation. Shell and TotalEnergies are among the best positioned multinationals in the Brazilian pre-salt.

The interest in the assets, at a time when companies are gearing up for energy transition, can be explained, curiously enough, by the environmental issue itself – and by the low cost of extraction of the projects. Although investing in more oil reserves may seem counterintuitive, given the increasing efforts of companies to invest in clean energy, the pre-salt holds an important characteristic for these companies: low emissions volumes, due to the high productivity of the wells – which reduces the carbon emissions per barrel.

Faced with the potential drop in global demand for oil in the coming decades and smaller consumer market in the future, oil companies calculate that only the most competitive projects – both in costs and emissions – will prevail in the long run.

The pre-salt oil is, for example, the flagship of Petrobras’s strategy for energy transition. The Brazilian state-owned company, more timid than its global peers in business diversification plans, wants to position itself as the producer with the lowest carbon barrel in the global market in the long term.

For Giovani Loss, a partner at law firm Mattos Filho Advogados, the auction shows that the carbon footprint of pre-salt fields is lower than that of other assets, given the high productivity of the region, and the oil produced in the region is likely to remain competitive as a result. “Mainly the majors and the European oil companies have reduced investments in new asset acquisitions and increased acquisitions and investments in renewable sources, but they still need to keep up with the demand for oil during this energy transition period,” he said.

He recalls that auctions that large auctions are rare in the global industry.

Pressured by shareholders and society to unveil more ambitious decarbonization plans, the European oil companies justify their investments in the pre-salt layer as a way to produce less polluting oil.

Patrick Pouyanné, CEO at TotalEnergies, justified his company’s acquisition in a note, saying Sépia and Atapu are “unique opportunities to access giant low-cost and low emissions oil reserves.” “These assets benefit from world-leading well productivities to keep costs well below $20/boe. They also leverage technological innovations to limit greenhouse gas emissions to well below 20kg/boe. Growing our presence in Brazil will enable us to accelerate the restructuring of our oil portfolio towards low-cost and low emissions hydrocarbon resources that will contribute to transform TotalEnergies to a sustainable multi-energy company,” he said.

In all, Friday’s auction attracted five oil companies: Petrobras was the protagonist of the round, by exercising the right of first refusal to operate the two areas. The state-owned company will disburse R$4.2 billion in fixed payments for the two assets. TotalEnergies was the highlight among the foreign companies by joining the winning consortium for the two areas. The French company will pay R$2.9 billion. Shell will pay R$1 billion, while Petronas and Qatar Petroleum will pay R$1.49 billion each.

With the revision of the bidding parameters, the government was successful in selling the assets, after the failed attempt to auction the surpluses of Sépia and Atapu in 2019. At the time, companies saw many risks in the rules, the main one being the need to negotiate with Petrobras, after the contracts were signed, the amount of compensation for the investments made in the assets. Since then, the government has revised some rules. The main novelty is that, after negotiations between Petrobras and Pré-Sal Petróleo SA (PPSA), the value of the financial compensation to be paid to the Brazilian oil company was calculated prior to the auction. The fixed concession payment was also reduced by 70% compared to 2019.

In the view of the Minister of Mines and Energy, Bento Albuquerque, the adjustments of the parameters contributed to the auction’s success.

The Sépia and Atapu auctions mark, however, a change of cycle in the Brazilian oil and gas industry. This is expected to be the last big pre-salt oil round.

The government’s idea is to end the conventional auctions. The National Energy Policy Council (CNPE) took a first step towards the end of conventional auctions by announcing the inclusion of 11 exploration blocks located in the pre-salt in the “permanent offer” – an on-demand bidding mechanism in which National Petroleum Agency (ANP) offers the market a menu of assets that are permanently available to oil companies to express interest at any time. Six of these assets are said to be offered in the 7th and 8th rounds in the coming years, and five are blocks that were offered unsuccessfully in past bids.

Source: Valor international

The states accelerated investments this year driven by higher revenues, expenses held back by force, and the focus on elections for governor in 2022. The combined investments of Brazil’s 26 states and the Federal District totaled R$27.4 billion between January and October, up 28.1% year over year in real terms. The figure is also 48.8% higher than that reported in the same months of 2019.

Growing revenues and reduced important expenses also meant a surprising combined primary surplus in the 27 federative entities, which totaled R$134.4 billion in the same 10 months, up 65.2% year over year and 111% compared with 2019. The data were taken from the fiscal reports delivered by the states to the National Treasury Secretariat and adjusted by the Extended Consumer Price Index (IPCA). Paid expenses and realized revenues were considered.

Vilma Pinto — Foto: Ana Paula Paiva/Valor
Vilma Pinto — Foto: Ana Paula Paiva/Valor

Investments are expected to end this year up and also grow next year based on cash availability resulting from extraordinary revenues passed on by the federal government last year and higher collection in 2021, said Vilma Pinto, director of the Independent Fiscal Institution (IFI). Yet she is concerned that permanent expenses will grow in 2022, an election year, which could disrupt states’ public accounts again.

The growth of investments in 2021 was widespread. Of the 27 federative entities, 21 reported real increase from January to October compared with the same months of 2020, and 16 saw real increases higher than 10%. Among them is São Paulo, which invested R$5.2 billion from January to October, a real increase of 16.3% compared with 2020. Bahia is also part of this group, with R$2.2 billion invested and an increase of 37.5% compared with last year. Among the 27 federative entities, the real increase in investments exceeded 50% in 8. This is the case of Minas Gerais, with investments of R$2.4 billion, more than double the R$1.1 billion invested last year between January and October in real terms.

“There is a primary result very much driven by revenues and the stability of regular expenditures. This provided greater cash availability, which is contributing to higher public investments this year. The short-term fiscal situation of the states has improved, but for one-off reasons,” Ms. Pinto said.

Data from fiscal reports show that the states’ combined current revenue grew 7.1% between January and October compared with the same period of last year. In comparison with the same period of 2019, the pre-pandemic period, the real increase is 10.8%. At the same time, spending was contained. Regular expenses were virtually flat until October, up only 0.9% year over year and down 2.3% in real terms compared with the same period of 2019. Personnel and social charges, the states’ main expenses, fell 6.8% year over year in real terms and 8.5% compared with 2019.

The inability to expend has driven investments this year, Ms. Pinto said. This situation was created by Complementary Law 173, of 2020, which blocked salary raises for public servants until the end of this year to make room for extraordinary transfers to states and municipalities last year to tackle the pandemic. “Lower spending is driven by a cyclical factor, not by a change in culture,” she said. In the same vein, temporary factors, such as the high prices of commodities and inflation, strongly contributed to the higher collection.

She is concerned that the short-term picture results in spending that will not be sustainable in the future. “You can’t use revenue growth caused by cyclical factors to raise permanent expenses that will create problems down the road.”

Alagoas’ Finance Secretary George Santoro has a similar concern. According to the fiscal reports, the state invested R$1 billion this year to October, compared with R$506 million in the same months of last year. For him, in general, states will end 2021 with high investments and a high primary result. But he sees a different picture next year as there will be pressure for salary adjustments. In addition, the states will set aside more money to pay debts with the federal government and will have to face the impact of inflation on expenditures, while revenue will grow much less. “We will have a mismatch, with growing expenses and revenues that apparently will not follow this movement, given the GDP projections,” he said.

The secretary points out that the collection has already begun to lose steam. From January to October, he said, revenue from sales tax ICMS in Alagoas was up 28% in nominal terms compared with the same period last year. In November there was already a slowdown to 8%. The basis of comparison is higher in the last months of the year, he said, but there is already a perception of lower sales volume in some sectors impacting the collection of ICMS.

Marco Aurelio Cardoso, secretary of finance of Rio Grande do Sul, says that an inflow of R$2.7 billion in funds from privatization helped to rise investments in 2021 and will also guarantee injections next year. According to the fiscal reports, the state government executed R$489 million in investments from January to October of this year, with a real increase of 65.5% in relation to what was invested last year.

Source: Valor international

In an unprecedented model in the country, the Brazilian National Bank of Social Development (BNDES) is structuring new infrastructure concessions that will be auctioned combined with environmental assets.

Fábio Abrahão — Foto: Leo Pinheiro/Valor
Fábio Abrahão — Foto: Leo Pinheiro/Valor

Whoever wins the bid of a highway or port, for example, will also get the requirement to take care of a national park or public forest. The new mechanism may debut in 2022, BNDES’ director of concessions and privatizations, Fábio Abrahão, told Valor.

According to him, the bank has been studying a portfolio of environmental concessions that add up to around 8 million hectares, the size equivalent to that of a country like Austria. The list includes 34 conservation units in eight states.

There are two types of businesses: national parks (which can be explored for tourist and visiting purposes) and public forests (with sustainable management of wood and other products). In both cases, environmental entities recognize that the preservation of native forests has better indicators than when management is the responsibility of the government.

Mr. Abrahão says, however, that there are two challenges ahead. First: as concessions for national parks and forests that are considered more profitable advance, assets that are more difficult to make economically viable remain in the portfolio. Second: this is a market in Brazil that has not yet reached maturity and has a relatively limited number of “players”.

Therefore, the idea of a “match” between infrastructure and environmental assets concessions was put forward. As the groups that operate highways and airports have little knowledge or interest in the direct operation of parks or forests, the objective is not to place them to also manage projects in the environmental area.

In theory — the model is still being designed — they can either hire third parties for this or deposit the funds in an account linked to the infrastructure concession. It becomes a kind of quid pro quo. The BNDES or the government would then be responsible for hiring an operator for the park or forest.

Mr. Abrahão explains that the model, in a way, can be compared to one of the obligations in the future privatization of the Port of Santos (São Paulo state). One of the requirements in the notice, as already announced, will be the construction and operation of an underwater tunnel to connect Santos to the city of Guarujá, also in the state of São Paulo. The investment should reach between R$3 billion and R$4 billion. If it were an individual concession, the tunnel might not be viable on its own.

The proposed solution, in this case, is to include the connection as an obligation linked to the port contract. The future responsible for the port administration will not need to operate the tunnel. However, it will have to bear the investment fully. It will deposit the funds in a specific account and there will be a parallel concession for the operation of this structure.

Source: Valor international

Martha Seillier — Foto: Andre Coelho/Valor
Martha Seillier — Foto: Andre Coelho/Valor

The Bolsonaro administration still has 146 assets in its portfolio of concessions and privatizations, which could generate R$377 billion in new investments if successfully auctioned in the last year of his term. The goal is to hire “as many [projects] as possible” in 2022, even if part of them may slip to the next administration, according to the special secretary of the Investment Partnership Program (PPI), Martha Seillier.

In an interview to Valor, she acknowledged that the proximity of the elections causes doubts among investors, especially due to the uncertainties related to economic policy in the future. However, the secretary said she is convinced, after several rounds of talks with the market, that there will be appetite, including from foreigners, for the auctions in 2022.

“These are long projects, and the attractiveness is very much linked to the quality of structuring. Whoever looks at Brazil from overseas notice a robust portfolio with legal security,” says Ms. Seillier.

Besides the projects with more visibility, such as the seventh round of airport concessions — which includes Congonhas (São Paulo) and Santos Dumont (Rio de Janeiro) — and the privatization of the Port of Santos, she draws attention to other smaller projects, but which are considered innovative.

One is the concession of the Baixo do Irecê irrigation perimeter (Bahia), which foresees investments of R$1.5 billion. The winner of the bidding, scheduled for February 10, will be able to occupy for 35 years an irrigated agricultural area of 31,500 hectares. In exchange, the businessperson will need to build canals and pumping stations, as well as maintain this infrastructure, located on the banks of the São Francisco River.

The next day, February 11, there will be an unprecedented auction. The municipality of São Simão (Goiás) will make the joint concession — for the first time in the country — of water, sewage and solid waste services. Although it is a municipal project, it went through the PPI and was structured with resources from the Fund for Support to Concessions and Partnerships (FEP). In total, R$348 million will be invested.

On the same date, there will be a sanitary sewage concession in Crato (Ceará), also structured by this mechanism. Today the municipality has less than 3% of its waste treated. Four treatment plants, 252 kilometers of collection networks and 22 pumping platforms will be built.

Congonhas airport, in São Paulo, also expected to be auctioned in 2022 — Foto: Edilson Dantas/Agência O Globo
Congonhas airport, in São Paulo, also expected to be auctioned in 2022 — Foto: Edilson Dantas/Agência O Globo

For the PPI secretary, these two auctions are a test of the new legal framework for basic sanitation, which came into force in 2020. During the process, one point of criticism was that smaller cities in the countryside would have great difficulty in attracting investors and private-sector capital would only invest in the best parts. The modeling of the two concessions seeks to challenge this logic. According to the new law, the service should be universal by 2033.

Most of the attention, however, is inevitably drawn by the large undertakings. One highlight is an auction for six lots of highways in Paraná totaling 3,368 kilometers and R$44 billion in investments.

The auction of the BR-381/262 highway in Minas Gerais and Espírito Santo, for example, was scheduled for November and has already been postponed twice. It is one of the main highway concessions, with private disbursements of more than R$7 billion and was postponed to February. The public notice is being revised to mitigate the risk of variation in the price of road inputs, such as asphalt, which have skyrocketed in recent months and compromised the bid.

It is more difficult to unlock Ferrogrão, a 933-kilometer railroad between Sinop (Mato Grosso) and Miritituba (Pará), which ground to a halt after an injunction from the Federal Supreme Court (STF). Justice Alexandre de Moraes suspended the effects of a law that allowed parts of the Jamanxim National Park for the new railroad.

The government has not given up on this injunction, but has already started working on a plan B, which involves an alternative route for Ferrogrão, making better use of the BR-163 highway’s right of way, according to Rose Hofmann, PPI’s environmental licensing support secretary. “The work is more expensive and less efficient from the environmental point of view [carbon emissions], but it prevents the venture from dying,” says Ms. Hofmann. State-owned Empresa de Planejamento e Logística (EPL) is contracting the alternative project.

In ports, the intention is to draw R$23 billion in investments, including the privatization of Santos Port Authority and the Companhia Docas do Espírito Santo (Codesa), the first in the sector whose sale has just been approved by public spending watchdog TCU. There will also be a tender for a new super container terminal in Santos, the STS 10, and concessions for the ports of Itajaí (Santa Catarina) and São Sebastião (São Paulo).

The success of the concessions and privatization package for 2022, however, should not be seen as guaranteed. For economist Cláudio Frischtak, CEO of Inter.B consulting firm, there is a number of political and economic uncertainties.

“Interest in our country has decreased a lot and there is no evidence that the situation will improve in the short run,” he said.

On one hand, Mr. Frischtak believes that there are projects that are difficult to make viable due to engineering risks and the volumes of investment required, such as BR-381. On the other hand, he fears that projects such as the privatization of the Port of Santos may run into political resistance. What is certain, according to him, is that it has been more difficult to draw new foreign groups for auctions in Brazil, as has been demonstrated by highway auctions, concentrated in CCR and Ecorodovias.

Petrobras anuncia R$ 10 milhões para programas culturais | Agência Brasil

Petrobras ended on Wednesday a landmark cycle by paying R$42.4 billion in dividends and interest on equity (IOE), a move that crowns the restructuring process carried out since 2017 driven by high oil prices last year.

However, market analysts say the state-owned behemoth still faces structural challenges related to political interference and also green agenda, to definitively overcome investor mistrust and reduce the gap in the value of its stocks compared with international companies.

“Paying dividends is key for a mature industry such as the oil and gas sector. This is required by companies and is one of the strongest signals regarding the financial capacity of them,” said Ilan Abertman, an oil and gas analyst at Ativa Investimentos.

Petrobras was only able to reach this level of dividends because of the change in pricing policy and the parity with international oil prices, he said. “Even though it was spaced out, today we have a company with strong cash flow generation focused on the deep-water oil, which boosts its value.”

The surge in oil prices in the international market, with the mismatch between supply and demand for the commodity driving fuel prices, brings question marks about Petrobras’s pricing policy, the mainstay of this robust dividend payout.

In a recent report, BTG Pactual states that if the company manages to complete the sale of its refineries, the risk of political interference is practically overturned, structurally reducing Petrobras’s cost of capital. However, the proximity to the presidential elections is likely to prevent the divestment from going ahead.

The political odds of a change of government next year, with the return to power of former President Luiz Inácio Lula da Silva, can affect the future of Petrobras as a good dividend payer — if he reverses the pricing policy of the company. BTG notes that today Petrobras has a much more robust governance structure.

“One fact that the market rarely pays attention to is that Petrobras has had almost 40 CEOs in a little over 60 years of existence. You can’t establish any plan when the chief executive stays, on average, two years in office for political reasons,” Mr. Arbetman ponders.

He points out that the company’s project, unveiled in its last strategic plan, of paying between $60 billion and $70 billion in dividends between 2022 and 2026, lacks visibility because of the political issue. Next year the dividend is expected to remain high, but after that the situation is cloudy.

Citi has a more positive view on the company’s prospects, saying that the company today is much less leveraged than in the past and has created mechanisms to ensure periodicity in dividend payments, as well as the restructuring process has left it much leaner and insulated from political interference from the pre-2017 period.

“We reiterate our positive view on Petrobras as we believe in the company’s ability to become a good dividend payer, adding value to its thesis, with good fundamentals (strong cash generation and healthy debt levels), low operating cost and 21% dividend yields in 2022,” the bank wrote.

A breakthrough on the green agenda is also necessary for Petrobras to narrow the gap in its value compared to international peers, said Mr. Arbetman, with Ativa Investimentos. He says it made sense in recent years for the company to focus on deep water oil investments for its restructuring process, but that it now needs to move forward on clean energy.

“The big point being discussed is that in the new multiples of the sector, lagging behind in the green agenda race will take a toll that is not yet very certain and already has an influence today in this mismatch of Petrobras’s market capitalization and its potential value generation,” he said.

Source: Valor international

JBS - We feed the world with the best

Four European retailers have decided to stop buying beef jerky – a smoked meat snack – produced by JBS in partnership with U.S.-based Jack Link’s in Brazil after receiving a complaint that the business used meat from cattle raised in illegally deforested areas. In addition, three other retailers decided to change their strategies about sourcing meat from Brazil and the region to avoid “problems.”

The decisions were made after NGOs Repórter Brasil and Mighty Earth disclosed to the retailers information that the cattle bought by Brazilian giant JBS to supply the business with Jack Link’s went through indirect suppliers that illegally deforested. The organizations have also reported the slaughter of cattle from deforested areas by indirect suppliers in the Minerva and Marfrig chains, but no retailer has taken specific action on them.

The European retail chains that decided to take the JBS-Jack Link’s beek jerky off the shelves are Carrefour and Delhaize in Belgium, Albert Heijn in the Netherlands, and Aucham in France. Albert Heijn also decided to stop selling two other processed meat brands, including one of meat from the Brazilian and Uruguayan pampas. JBS and Jack Link’s make beef jerky in the units of Santo Antônio de Posse and Lins, in São Paulo.

Furthermore, Lidl, from the Netherlands, decided that, starting in January, it will stop selling meat from South American suppliers. Britain’s Sainsbury’s has committed to withdraw its own brand of canned meat from the Brazilian market to guarantee that the origin of the meat it receives is deforestation-free. And Princes, another British company that stopped buying canned meat from JBS a year ago, said it is reviewing its policy for Brazilian products to take into account zero deforestation in the supply chain.

The NGO report points out, in the case of JBS, three cases of indirect suppliers that have areas embargoed by federal environmental agency Ibama and two indirect suppliers with deficits in legal reserves and permanent protection areas. The cattle from some of these ranchers ended up being used in JBS’s plant in Lins, and may have been used in the production of beef jerky.

The decisions against JBS’s product come at a time when the meatpacker has been expanding its presence in the European market. This week, the Brazilian behemoth advanced in charcuterie in Italy with the purchase of Grupo King’s, and in September it bought Kerry Consumer Foods, from the UK and Ireland.

Valor asked the retailers which supplier will replace the product they will no longer buy. Carrefour said it has no substitute yet, and Princes said it does not comment on business relationships. The others did not reply immediately.

JBS said that the direct suppliers cited in the report were in compliance with its sourcing policy and an agreement with the Federal Prosecution Service “at the time of purchase.” The company said it has 77,000 direct suppliers and has blocked more than 14,000 for non-compliance with its policies.

JBS has not commented on the decision of the European retailers cited, nor has it commented on communication with its customers about the origin of the cattle it slaughters.

Source: Valor international