Developers adopt cautious stance in year of uncertainty

Developers vs. Low-Code—What They Think and Why

The scenario of uncertainty —rising inflation and interest rates, and facing the majority elections this year — leads real estate developers to adopt a more cautious stance when drawing up their plans for 2022. The famous “guidances”, that is, the goals for the year, gave way to the discourse of most companies that decisions will be taken based on a more careful monitoring of the market. “The tone is one of selectivity. During the year, launches will be evaluated on a case-by-case basis,” says Bruno Mendonça, real estate market analyst at Bradesco BBI.

Together, Cury, Cyrela, Even, EZTec, Lavvi, Melnick, Miter, Moura Dubeux, MRV&Co and Plano&Plano launched the general sales value (VGV) of R$28.7 billion in 2021, with growth of 41.3%. From October to December, there was also expansion, but at a lower level, of 22.6%, to R$9.93 billion. “Apparently, most had the courage to put projects on the street. The releases in the quarter were a sign of confidence that the sector is adjusting, but is not frozen”, says Mr. Mendonça.

Net sales had, last year, an increase of 20.8%, to R$22.4 billion. In the quarter, the total sold by the ten developers grew 5.2%, in the annual comparison, to R$6.4 billion. As in the third quarter, sales were partially affected by the fact that a portion of launches was concentrated at the end of the period. But there was also a slower pace of property purchases by consumers due to higher prices as a result of rising costs.

Developers with priority to operate for middle and high income clients are the most affected by the macroeconomic environment. Just as the increase in real estate prices hampers the ability to purchase, the rise in interest rates on real estate credit makes it more difficult, especially for the middle class, to match the installments to the client’s income, highlights Ygor Altero, chief analyst for real estate at XP.

The increase in cases of Covid-19 and influenza also contribute to the more cautious posture of developers. “We have R$2 billion in approved projects. There is room to launch at the same pace as 2021, but the company has yet to make the decision on that. The guidance will be announced at the right time,” said EZTec’s CFO and Investor Relations Officer, Emilio Fugazza, recently. The company did not meet its launch target for the 2020-2021 biennium, reaching 76.5% of the range’s floor.

In the low-income segment, developers have given priority to operations in range 3 of Green Yellow House and in the segment just above the housing program ceiling. There were adjustments in the price limit of group 3 and interest reductions. The sector awaits the government’s announcement of measures that also favor group 2. “If the government reviews the ceiling for range 2, we have products on the shelf to launch,” said this week Rafael Menin, co-president of MRV&Co. Cury will not act in groups 1 and 2 “until adjustments are made”, according to the director of real estate credit, institutional and investor relations, Ronaldo Cury.

Mr. Altero, with XP, says he prefers the performance of low-income developers precisely in range 3 and slightly above, segments in which it is possible to “preserve profitability”. MRV&Co, Cury and Plano&Plano presented record performances in 2021. At MRV&Co, the performance of the other subsidiaries surpassed that of the Brazilian developer, but the latter also grew in launches.

Direcional Engenharia ended 2021 with a record total launched VGV of R$3.14 billion, which represents an increase of 78%. The Direcional brand, with units classified in ranges 2 and 3 of Green Yellow House, had 24% more launchings, reaching R$ 1.85 billion. At Riva, aimed at the middle-income segment, there was an expansion of almost 4.7 times, to R$1.29 billion.

“Direcional launched R$1.1 billion in 2017. Created two years ago, Riva had a higher VGV than Direcional’s four years ago,” compares the company’s CEO, Ricardo Ribeiro. According to him, the high demand for medium-income properties results from well-located products, with a complete leisure area, sold at competitive prices as a result of the “efficiency in the execution of works”.

In the year, Direcional’s net sales grew 45%, to R$2.44 billion — R$1.65 billion from the brand that bears the developer’s name, R$776 million from Riva and R$19 million from units of old projects. In the quarter, consolidated launches, in the amount of R$ 693 million, were in line with those of the same period in 2020. From October to December, consolidated sales increased by 27.7% in the annual comparison, and by 3.9% compared to the third quarter, to R$ 668 million.

“We had a good year, with growth in our two operating segments. We enter 2022 cautious with higher interest rates and inflation and attentive to how job creation will be. We are very well prepared, with products available for sale and projects under approval to offer properties to meet the demands of Direcional and Riva,” says Mr. Ribeiro.

In the understanding of the XP analyst, real estate production for the low-income segment tends to benefit from the fact that 2022 is a year of majority elections, considering the expectation that the housing program will be maintained regardless of who is the winner.

In the last 12 months, the shares of real estate developers were strongly impacted by the hike in the interest rates, which affects both demand and the degree of indebtedness of companies. The ten most liquid shares of real estate developers listed on B3 depreciated — Cyrela (45.48%), EZTec (51.65%), MRV (41.38%), Viver (1.58%), Tenda (50.03%), Gafisa (58.64%), Direcional (16.35%), Even (41.19%), Helbor (62.33%) and Trisul (50.23%). “The drops are related to redemptions by funds, but the lack of visibility of the sector doesn’t help,” says Mr. Mendonça, with Bradesco BBI.

Source: Valor international

https://valorinternational.globo.com/

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As water crisis loses steam, Brazil’s major stock index gains

Improvement in the water scenario supports prospect of a stronger Ibovespa´s performance ahead — Foto: Julio Bittencourt/Valor

A relevant factor for the downfall of Ibovespa in the second half of 2021, the water crisis has given clear signs of slowing down, which opens space for a correction in several sectors of the Brazilian stock market that have not yet anticipated the new scenario. The improvement in the water scenario, therefore, supports the prospect of a stronger performance ahead of Brazil’s major stock index, by influencing not only the energy segment, but also shares linked to the national economy, which are sensitive to the yield curve and inflation and can feel the changes in the environment.

According to the last monthly bulletin released by Brazil’s national grid operator ONS, the levels of the reservoirs of the hydroelectric plants in the Southeast and Central-West regions are likely to continue to recover after heavy rains between January 8 and 14 and reach the end of the month with 40% capacity, while the North, Northeast and South regions are expected to reach 73.2%, 70.2% and 34.8%, respectively. Based on this, managers expect the situation to continue to improve at least until the end of the summer in Brazil, which may drive changes in stock portfolios.

The strongest impact can be felt both by generation and distribution companies, said Marcelo Sandri, an electrical sector analyst at Perfin Investimentos. “Hydroelectric generation companies suffered a lot last year,” he said. He explains that when the mills fail to deliver the agreed amount of energy, they need to buy it on the free market, and with high electricity prices, margins ended up being squeezed. On the other hand, thermal plants had a positive year in 2021 as the thermal complex was activated to offset low reservoirs.

With heavy rainfall in the reservoirs, the scenario for hydroelectric and thermal generation companies is expected to reverse in 2022, Mr. Sandri argues. “We believe that the electric sector on the stock exchange has not yet reacted, in terms of prices, to such positive news for the segment. The chance of a power rationing is close to zero. You have removed a very big tail risk, which was a cloud that weighed very heavily last year,” Mr. Sandri said. Cesp’s preferred stock, for example, fell 10% in the second half of 2021 and rose 6.04% this year.

The analyst still sees a difficult scenario for distributors, but sees a better situation for them than last year. “As much as there is a tranquility effect from the standpoint of power supply, we will probably see high adjustments due to the burden of inflation and high electricity costs last year due to the use of thermal plants.” As a result, according to him, the risks of default and the propensity for energy theft grow.

Besides the improvement in the water scenario in Brazil due to the characteristic of housing companies that are good payers of dividends and that have stable cash flow, Mr. Sandri said, the electric sector can bring good returns to investors this year. “It is a defensive sector and this will help a lot in a year expected to be of high volatility in local financial assets because of the elections,” he said.

In the same vein, Guto Leite, Western Asset’s equity manager, said he has found interesting metrics in some distribution and generation stocks. “Apart from the transmission companies, which have already performed well last year and are not impacted by this type of occurrence, there are companies with attractive numbers. There´s also micro factors that must be analyzed, such as Eletrobras’s privatization or Cesp’s restructuring,” he said. Mr. Leite added that some of his firm’s funds already had Equatorial securities and are likely to increase their exposure to the sector in the coming months.

Another sector that could change along with the rainfall rates is the mining sector and, consequently, the steel industry. Rainfalls reduce the productivity of the sector, which is higher in the second half of the year, says Isabel Lemos, manager at Fator Ações. Thus, what investors usually monitor are possible supply bottlenecks and operational problems, such as dam failures. “A possible reduction in supply can put pressure on prices in the very short term and, in case of drastic drops, require a new evaluation of the asset,” Ms. Lemos said.

After halting activities for a few days in mines located in Minas Gerais, Vale and Usiminas have already resumed production, although gradually. But the return also depends on their logistical partners’ capacity, since part of the road and rail networks in the state also suffered from strong rains.

Considering this factor, William Leite, manager at Helius Capital, made moves to mitigate potential short-term impacts. “We believe that the developments of the last few days will not be so relevant for the companies in the sector in corporate terms, but we have made some changes to avoid these possible low probability events,” he said. Mr. Leite explained that he exchanged part of the exposure to local mining companies for Australian rivals and set up a hedging structure with derivatives.

There is also, in a more indirect way, a possible impact on securities linked to the national economy, sensitive to the yield curve and inflation. Analysts disagree about when this will occur, but a likely change in tariff flags in the coming months, which would lower electricity bills, may help to reduce the impact on prices.

Rafael Cota Maciel, the equity manager at Inter Asset, believes that the scenario is still one of inflationary pressure on a global level, but the rains and a less deadly variant of the coronavirus may help to somewhat calm the local market in the coming months.

Renan Vieira, Taruá Capital’s manager, feels the same way but says that the search for low-priced securities has been increasingly dynamic. “We see many securities selling at a discount, but the environment is still challenging. With funds still suffering from withdrawals and in need for selling assets, the situation requires active management and a close look at the companies’ fundamentals,” he said.

Source: Valor international

https://valorinternational.globo.com/

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Wind farm drives Renova Energia’s bet on restructuring

Renova Energia, the embattled power generation company under protection from creditors, is trying to get back on its feet with Alto Sertão III, a wind farm about to go online. The 432-megawatt complex, with a capacity to supply 1 million homes, is expected to start commercial operation in the coming days and generate an EBTIDA of R$250 million per year with electricity sales, allowing the company to honor its debts.

Marcello Milliet, from the financial restructuring consultancy Integra Associados, took over as CEO of the company in 2019 with the mission of putting the house in order. With the company virtually broke and a debt pile of R$3 billion, the executive needed to raise R$360 million to resume construction works halted almost five years before.

To get Renova out of the hole, Mr. Milliet had to follow a strict schedule of recovery that included the sale of a stake in Brasil PCH and the Serra da Prata hydroelectric complex, which generated R$1.36 billion, to reduce the company’s indebtedness and pay off the loan for the works in the wind farm.

In the meantime, the generation company also resumed investments, ended the arbitration dispute with GE over the supply of wind turbines and signed a partnership with Vestas for the operation and maintenance of Alto Sertão III. “We took over the company with R$3 billion in debt and took more R$360 million. We ended the year with about R$2 billion of debt,” he said.

Since two thirds of the original debt still remain, the executive considers that Alto Sertão III is the hope to settle the rest of the debt in the market, since before Renova could only count on limited funds from dividends from Brasil PCH and with financial support from Cemig, a former partner that injected money in the judicial reorganization.

“With the sale of the assets, the resumption of work on Alto Sertão III and compliance with the execution schedule, the company will be generating resources again by the end of this year, and when the farm is ready, at the end of the first half of 2022, it will generate about R$250 million per year, which is enough for us to meet our commitments,” he said.

In January, 38 wind turbines will start operating, which will inject 113.1 MW into the National Interconnected System (SIN). And by the end of the first half of the year, 155 will be operating with energy directed to the regulated market and to the free market. Part of the Alto Sertão III funds will be used to pay off the company’s debt, and another part will be used for operations.

The company plans to pay the debt with creditors within ten years but expects to shorten this period thanks to 12 preliminary permits from state environmental agencies to build new wind farms in Bahia, Paraíba, Pernambuco and Piauí, totaling 3.62 GW.

“We will sell some of these projects because we don’t have the financial capacity to build all of them. We intend to dispose of about 2 GW,” he said. “Part of the funds will be set aside for debt amortization and part will be injected into the company.”

In November, Angra Partners bought Cemig Geração e Transmissão’s stake in Renova and now holds 30.3% of the company’s voting capital and is part of the control block with the other shareholders. With the entry of the new partner, Mr. Milliet believes that Renova will have more financial capacity to invest in new projects since the fund is specialized in raising resources.

“Angra Partners brings not the expectation of profitability, but also of resuming the capacity to tap the financial market,” the executive said.

Source: Valor international

https://valorinternational.globo.com/

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Changes in Rio airport auction raise fears on Guarulhos

The possible revision of the auction of Santos Dumont airport, in Rio de Janeiro, due to pressures from the state government, has generated concern in part of the sector and questions in the state of São Paulo. The fear is that changes will be political, rather than having technical nature. In addition, there are criticisms that the changes could benefit Rio, but affect the situation of Guarulhos airport, in São Paulo — which could trigger a new front of dispute.

Rio´s state and municipal governments have been pressuring the federal government since last year to change the Santos Dumont auction, seen as one of the “crown jewels” of the sector. They fear the new investments will jeopardize the operation of the state’s other airport, Galeão, controlled by Singapore’s Changi. Therefore, they ask for restrictions to be included in the Santos Dumont operation to, according to them, prevent Galeão’s demand from being harmed.

Faced with threats of litigation and the revocation of environmental licenses for the project, the federal government agreed to negotiate the terms of the public notice through a working group, which will be created this week.

This move, however, can generate reactions. The Guarulhos concessionaire, controlled by Invepar, has already asked the Ministry of Infrastructure to take part in the group. The company says that its purpose is “to contribute to a possible technical solution that does not generate competitive asymmetry between the airports involved and São Paulo International Airport,” it said in a statement.

The assessment is that the creation of mechanisms to stimulate demand at Galeão artificially increase competition at Guarulhos airport. In this way, the São Paulo concession would be doubly affected by the increase in competition, since the federal government also plans to auction Congonhas airport, in São Paulo.

A source says that, if Galeão is benefited, the concessionaire of Guarulhos will have to plead an economic-financial rebalance or similar advantages – for example, the creation of restrictions also in the new concession of Congonhas.

For a source who closely followed the structuring of the project, Guarulhos’ complaint makes sense, since the São Paulo airport is Galeão’s main competitor today in international flights.

For Fábio Falkenburger, a partner at Machado Meyer, the creation of restrictions at Santos Dumont airport could be a solution to avoid a dispute with Rio de Janeiro and Galeão. However, it would represent a change of attitude on the part of the federal government in relation to airport auctions and, therefore, could create a precedent for other concessions to raise similar questions.

“The positioning so far has always been: the risk of passenger demand is an exclusive problem of concessionaires. That was the stance in the clash between Confins and Pampulha [in Minas Gerais], in the questioning of concessions in São Paulo regarding the possibility of a fourth airport in the state. So, if a protection is created in this case, there is room for questioning from other groups,” he says.

An alternative already suggested by the Ministry of Infrastructure would be, instead of imposing restrictions on Santos Dumont, using the fixed concession payments to generate investments in access to Galeão. This would be the ideal solution, says Renato Sucupira, a partner at BF Capital. “Putting a limitation on the airport goes against common sense, it would be cut in Rio de Janeiro’s own throat. It would be much better to create improvements to Galeão than to destroy investments in Santos Dumont,” he says. Mr. Sucupira recalls that the federal government has already converted Guarulhos fixed concession payments into investments in mobility to improve access to the airport – therefore, there would be no lack of equality in this case.

Asked about the Guarulhos issue, the Ministry of Infrastructure stated that “the concessions follow strictly technical criteria and the public interest”, as well as the regulatory principles of freedom of supply and tariff freedom.

The ministry also states that the feasibility studies of the auction took into account the impacts of the new concessions on the local economy where the airports are located, and that the creation of the working group indicates that the government “keeps the dialogue channel open with the stakeholders in the process to improve the proposal.”

The National Agency of Civil Aviation (Anac) stated that “any change that may be made to the modeling will be widely discussed and analyzed by the technical staff.”

Right now, analysts don’t see the risk of disputes as a factor that will drive investors away. The creation of the working group by the federal government was seen as an attempt to neutralize the negative effects, says Caio Loureiro, with law firm Cascione Pulino Boulos Advogados.

“This discussion is not good, it generates some risk, which the market could see as negative. At this point, it’s not enough to drive [investors] away, but it’s a point of attention. Because the working group may also not reach any conclusion and the airport may go to auction with this resistance,” he says.

Even with possible restrictions in the operation, the assessment is that Santos Dumont – which will be auctioned in block with the airports of Jacarepaguá (Rio de Janeiro), Montes Claros, Uberlândia and Uberaba (Minas Gerais state) – remains attractive to the private sector. However, limitations tend to affect the price of offers, highlights Bruno Aurélio, a partner at Demarest. “It can impact the price, by reducing the number of flights and non-fare revenue,” he says.

Another possible impact of the imbroglio is the delay of the auction. In this case, he believes that it would be interesting to separate the Santos Dumont block from the other two lots planned in the seventh round — São Paulo-Pará (which includes Congonhas) and the North (with Belém and Macapá).

Source: Valor international

https://valorinternational.globo.com/

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World’s largest rate hike casts doubt on Central Bank’s power to fight inflation

Inflation, hyperinflation and deflation? | Tendercapital

Brazil was the country that raised interest rates the most in 2021 and yet boasts one of the highest consumer inflation expectations for this year when compared to its peers. For some analysts, the figures show that inflation in Brazil has reacted little to increases in the Selic policy interest rate. This theory diverges from what members of the Central Bank’s Monetary Policy Committee (Copom) and other economists argue. They say monetary policy has gained “power” in recent years, as inflation is reacting more than before to changes in the basic interest rate. The discussion may gain substance among economists in 2022, in an environment of still pressured inflation and a presidential election.

A survey by Emilio Chernavsky, doctor of Economics from the University of São Paulo, shows, for example, that the variation in interest rates in Brazil was much larger than in other countries. According to data from the Bank for International Settlements, the 7.25 percentage points hike in the Selic last year puts Brazil firmly in the lead of the ranking of countries with the biggest increases in the basic interest rate. In second place comes Russia, with 3.25 points. In the case of consumer inflation expectations for this year, Brazil has the fifth highest estimate, of 4%, behind Turkey (14.5%), India (4.9%), South Africa (4.5%) and Russia (4.3%), according to the International Monetary Fund.

“Monetary policy is very little effective in Brazil,” Mr. Chernavsky said. “We were by far the country that raised the basic interest rate the most, and this did not lead us to comfortable inflation, despite the fact that our economy is already stagnant,” he added, pointing out that the cycle of hikes has not yet ended. The median projection of Focus, Central Bank’s weekly survey with economists, for the basic interest rate, currently at 9.25% a year, is 11.75% by the end of 2022.

The economist cites some reasons why he considers that monetary policy is not very effective in Brazil. One is the fact that commodities and regulated prices have a large weight in the Extended Consumer Price Index (IPCA), Brazil’s official inflation. In practice, this means that changes in the basic interest rate affect only 70% of the IPCA, according to him. Another reason is the high volatility of the real, which in many cases generates a “precautionary cost pass-through.”

He also highlights the role of “systematically large” spreads in Brazil, or the difference between the rates charged for loans and for raising funds. Mr. Chernavsky cited credit cards as an example, “one of the main ways of financing consumer spending” in the country.

“In the case of a 7-percentage point increase in the Selic, even if this is passed on in full, the final rate will rise, say, to 307% per year from 300%,” he said. “The impact on the loan installment will be negligible.”

On the other hand, increases in the Selic rate of the same magnitude increase costs for companies by putting greater pressure on the cost of working capital lines of credit, whose annual rates “are at 20%, 30%.”

“So the thing is: the credit channel works very badly,” he said. “Selic hikes hardly impact demand, but increase costs for companies. So the net effect on inflation ends up being small.”

Given these distortions, Mr. Chernavsky is in favor of using other instruments besides the basic interest rate to keep inflation in check. Among them are reserve requirements (collected by the Central Bank through rates levied on funds raised by financial firms), a Tax on Financial Transactions (IOF) and a “fiscal fund” to help give more stability to fuel prices.

The Central Bank has been defending the thesis of increased monetary policy power since 2019. In its quarterly inflation report for the first quarter of 2020, the monetary authority discussed the reasons why it considered that the power of the interest rate had increased. More recently, at the end of last year, the then director of economic policy, Fabio Kanczuk, reinforced this idea, citing the approval of the Long-Term Rate (TLP) in 2017 and the reduced role of the Brazilian Development Bank (BNDES) as reasons why inflation is reacting more to Selic hikes.

For Zeina Latif, an economic adviser at Gibraltar, it is not possible to say that the cycle of basic rate hikes last year and the inflation projections for this year show a loss of power of monetary policy.

“Any way to measure this now would be very limited because of natural lags in monetary policy,” she said. In the current cycle, the Central Bank first raised the basic interest rate in March last year, to 2.75% a year from 2%.

“We are now starting to feel some first signs of the hikes on economic activity,” she said. “Only then come the impacts on inflation. Definitely, there wasn’t time yet to feel the impacts on inflation.”

Ms. Latif says that monetary policy has gained power since the Rousseff administration, but believes that part of this gain was reversed in the last two years, when a “fiscal deterioration” began. The strongest sign, according to her, are the higher projections for the neutral interest rate, the one that neither accelerates nor decelerates inflation. In December, the Central Bank itself raised its estimate for the annual neutral interest rate in real terms, to 3.6% from 3%.

“If monetary policy is underpowered, the interest rate has to be higher. To stabilize inflation, you need to make a greater effort, so the neutral interest rate is higher,” she said. “Fiscal deterioration puts a burden on interest rates. There is no way. Monetary policy and fiscal policy are communicating vessels.”

Carlos Kawall, director at Asa Investments, says that “monetary policy clearly gained potency when there was the change of the parafiscal regime [linked to BNDES and subsidized interest rates] and the implementation of TLP.”

“Today it doesn’t seem that we have an ineffective monetary policy,” he said.

According to him, inflation in Brazil is “higher than the global average, but not as high as it was in the past.” The path of prices “higher and more resistant to decline” is a common factor to emerging countries, compounded in Brazil by the “inertial component,” which is how much past inflation affects current inflation. For Mr. Kawall, using the comparison between the cycle of interest rate hikes and inflation projections to say that monetary policy has little power is to “criticize the medicine instead of look at the disease itself.”

Source: Valor international

https://valorinternational.globo.com/

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Government mulls opening healthcare data to encourage competition

Marcelo Queiroga — Foto: Cristiano Mariz/O Globo
Marcelo Queiroga — Foto: Cristiano Mariz/O Globo

The federal government is mulling over a provisional measure — a legal act that allows the president to enact an interim law prior to Congress voting — aiming at increasing competition in the health insurance market, by the creation of an “open health” system. It is inspired by the open banking platform — a system conceived by the Central Bank to give greater transparency to the banking sector.

Health Minister Marcelo Queiroga told Valor that the idea was formulated from conversations with Central Bank President Roberto Campos Neto and has already had the approval of President Jair Bolsonaro in recent weeks to implement the plan in the country.

The measure is still being developed in Brasília, but the main idea is that, similarly to what is being implemented in stages in Brazil with the banks, there will be greater transparency in the health insurance sector. A large, extensive national registry of data on patients and indicators on supplementary health would be created to be shared between operators and patients.

According to the Mr. Queiroga, the sharing of client data, through the “open health” platform, would allow an operator to offer a cheaper plan for a patient who uses few hospitals or healthcare services.

Government officials also explain that, in the future, the intention is to facilitate the portability of beneficiaries from one plan to another, which currently takes about 90 days.

Mr. Queiroga believes that if there is more competition and supply of health plans, Brazil’s public healthcare system (SUS) can stop being overloaded and part of its public migrate to the private sector.

The “open health” is inspired by a model adopted in the financial market in Australia and is inserted in the general guidelines approved by the National Council of Supplementary Health (Consu) at the end of last year. It is supposed to encourage a greater offer of health services, stimulate the appearance of more operators in the sector, and reduce the prices in this market in the future.

The Consu, in turn, is a collegiate body formed by ministers Queiroga, Paulo Guedes (Economy), Anderson Torres (Justice) and Ciro Nogueira (Chief of Staff).

In the evaluation of the health ministry, there is room for the entry of more companies in the supplementary health segment, because there were more than 2,000 health plan operators in the country at the beginning of the 2000’s, when the National Agency for Supplementary Health (ANS) was created.

Last Monday, Valor released a study conducted by CADE, the antitrust watchdog, which indicates that the number of health insurance companies dropped 47% between 2011 and 2020. This trend of market concentration over the last decade has been criticized by ministers.

President of the Brazilian Association of Health Plans (Abramge), Renato Casarotti says he has seen the Minister of Health mention many times the benefits of “open health” in public events in the sector. The entity, however, has not yet been called to a specific meeting on the matter.

“The idea is good, it is timely with the General Law of Data Protection, of information belonging to the beholder. The logic makes a lot of sense,” says Mr. Casarotti. “The important thing is to understand how this fits into the health sector, which is a little different from the banking sector.”

According to him, there are two main issues that tend to limit at some level the impacts of the federal government’s proposal. The first is that medical information about patients is still “very fragmented” in Brazil, without the existence of a single medical record.

“In the health sector, there is data with the doctors, hospitals, laboratories, operators, that still don’t talk to each other,” he said. “If the single medical record existed, then ‘open health’ would make perfect sense.”

Source: Valor international

https://valorinternational.globo.com/

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Monte Capital grabs 25% of Invepar with bond purchase

Mont Capital Asset : Gestão Profissional dos seus Investimentos

Monte Capital Management has acquired three quarters held by the Yosemite fund in Invepar, the parent company of the São Paulo International Airport, in Guarulhos. Together with FI-FGTS, the investment arm of the Workers’ Severance Fund, which owns a quarter of Yosemite, Monte will take a 25% stake in the infrastructure holding company, whose remaining capital is held by pension funds Petros, Previ and Funcef, with equal-sized stakes.

The arrival of a new partner in Invepar has been speculated since OAS left the group, in 2019, and the Yosemite fund was created with former creditors of the construction company. In the market, the assessment is that the infrastructure company was “leaderless” without OAS and that it would need a partner with a strategic view of the sector to return to growth.

The restructuring of Yosemite, led by Sinchro Partners, included the sale of 100% of the remaining economic rights of bondholders (former creditors of OAS) abroad, packaged in equity linked notes. Monte Equity Partners, another company of the group Monte, already held most of the bonds.

In addition, Monte injected capital into the fund for payment of creditors in Brazil. The amounts were not disclosed.

Under the new shareholding structure, Yosemite is expected to pick two names for Invepar’s board of directors. Julio Zogbi, a co-founder of the asset management company, said he sees good prospects for Guarulhos this year, “both in terms of growth and of attracting new investors.”

The airport is the group’s main business. With the sale of assets, Invepar has managed to restructure its debt after two years marked by several difficulties, including a request for cancellation of the contract of the Yellow Line in Rio de Janeiro’s subway system and the pandemic.

At the end of last year, the group transferred the MetrôRio concession to its creditors, Mubadala and Farallon, which reduced its debt. The company’s debt with Farallon and Mubadala, which exceeded R$2.5 billion, fell to less than R$800 million, according to its financial statements.

Invepar may also transfer the Yellow Line to the creditors to pay off the debt, but this will still depend on a favorable decision for the company in the legal battle with the City Hall of Rio de Janeiro.

With the deal, Monte, which already operates highways, will also enter the airport segment with Guarulhos. The holding company also has four other highways and a stake in Rio’s light rail system.

The airport sector is seen today as Invepar’s main chance to return to growth. Since the end of last year, Invepar had been looking for a partner for the Guarulhos Airport – the effort to sell its stake in Yosemite and selecting a new partner had been running independently. The group had hired Goldman Sachs to finds interested parties, which could be operators such as CCR, international groups or investment funds.

Invepar’s plan, with the arrival of a new partner, is to create a platform to invest in airports and possibly take part in auctions.

Monte controls the concessions Bahia Norte, in Bahia, and Rota dos Coqueiros and Rota do Atlântico, in Pernambuco, through Monte Rodovias. Sources say that the company has made a bid for Concessionária Litoral Norte (CLN), in Bahia, which is going through a competitive sales process. The highway, controlled by Invepar, has 183 kilometers and connects the city of Lauro de Freitas, Bahia, to the border with the state of Sergipe.

Monte declined to comment on the potential purchase of CLN, but said it is studying 15 potential acquisition targets at the moment, mostly in the Northeast region. The company, which gave up going public last year, tapped the debt market to fund itself and raised R$200 million through two bond issues.

Fábio Bonini, chief financial officer of Monte Rodovias, says that the company is getting ready to compete in the auction of state highways in Pernambuco. “We are ready to make a good proposal,” he told Valor.

For larger auctions, such as those of federal highways BR 232 and BR 101, the company will need a new capital injection. “When there is a new window, we can talk about an IPO again. At the moment, the debt market is heated.”

Source: Valor international

https://valorinternational.globo.com/

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Auction for offshore wind power to be held next year

Potential investors in the offshore wind power segment are waiting for regulatory definitions from the federal government to start the race for new projects in Brazil’s waters with the usual legal certainty of the electricity sector.

The Brazilian Wind Power Association (Abeeólica) says it is eager to see the regulatory guidelines for offshore wind contracting, as investors in the international market are interested in Brazil. The entity helps in the economic and regulatory structuring to receive the investments and believes that in 2023 it will be possible to make the first competition viable.

“What we did in 2021 and will continue to do in 2022 is to arrange the economic and regulatory structure to receive the offshore investments. We already have companies in Brazil and 46 GW of projects under analysis by [federal environmental agency] Ibama. We will provide structure so to hold auctions in the near future, which I imagine will be in 2023,” said Elbia Gannoum, head of Abeeólica.

The Ministry of Mines and Energy (MME) is working with the Chief of Staff Office to consolidate contributions for the establishment of the first offshore wind power regulation in Brazil. “The work is likely to be concluded by the end of this month,” the ministry informed.

Some companies have actively collaborated in the discussions for the definition of the legislation to be adopted in the country, such as Neoenergia, whose majority shareholder is the Spanish company Iberdrola. With a defined legal framework, the expectation is that projects will move forward.

“We have three projects in the initial phase of licensing studies with the possibility of reaching a capacity of up to 9,000 MW,” the company said in a note.

Even big oil companies are looking to Brazil. Shell Energy has been evaluating the country’s offshore wind potential using its knowledge of the sea environment and with the deployment of those plants outside Brazil, and is also waiting for the regulation of the sector.

“Shell expects to soon report the start of environmental licensing of offshore wind complexes with Ibama, a field in which regulation is already known to entrepreneurs,” said Gabriela Oliveira, renewable energy generation project development manager at Shell Energy.

Ibama has 23 requests for environmental permits under analysis, totaling more than 46 GW of power. However, the institute confirmed that only two have presented Environmental Impact Studies and Environmental Impact Reports (EIA/Rima). The agency has requested further information for the others.

Ana Karina Souza, partner for energy at law firm Machado Meyer Advogados, adds that the projects would have many challenges to be implemented without a stronger intention of the federal government to hold auctions in the regulated market. This gives room to doubts whether the projects would be viable in the free market.

“We have a technology that cannot be developed because of a void, of a regulatory gray area,” she said.

Other structural conditions still need to be overcome. Brazil needs to fix the infrastructure of ports and transmission, since the projects have a very large scale, and the recovery of the economy needs to come with strength so that investments accelerate.

Source: Valor international

https://valorinternational.globo.com/

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Share buybacks grow 44% at B3 in 2021

Carlos Sequeira — Foto: Divulgação

A drop in the Ibovespa index, attractively priced shares, flush with cash and less indebted companies. The combination of these factors led to a strong growth in the opening of share buyback programs, especially in the second half of the year, when stocks fell the most.

According to Brazil’s securities market authority CVM’s database on the subject, from January to December last year there were 108 programs opened, against 75 in the previous year, an increase of 44%, and December, with 18, was the month with the most buybacks.

January seems to maintain last year’s pace, with eight announcements in the first 17 days of 2022.

“The Brazilian stock market had a very important sell-off, going to around 100,000 points from 130,000 points in a few months,” said Carlos Eduardo Sequeira, head of research and analysis for Latin America at BTG Pactual.

The Ibovespa closed 2021 down 11.93%.

He adds that the value of the stock market, as a whole, is at levels considered attractive, trading below the historical average. “Companies design their budgets for the coming year at this time in December. They must have felt comfortable making their announcements, as well as taking advantage of the fact that stocks are cheap,” he said.

Buybacks are a way for public companies to give more resources to shareholders. The repurchased stocks reduce the amount in circulation and, therefore, increase the participation of investors in the distribution of dividends. The tool is also used to show confidence to the market that prices will rise.

That was the case of logistics company Sequoia. In the announcement of the buyback program, this month, the company made it clear that it considers its stocks cheap. “In the view of the company’s management, the current value of its shares does not reflect the real value of its assets combined with the prospects of profitability and generation of future results,” it says in the document.

Bradesco, which usually is not very fond of buybacks, started to use them more actively last year, amid pressure on financial sector shares caused by the pandemic and increased competition. When the bank announced the measure in April, it said it would adopt buybacks as an instrument to manage its capital level and as a complement to shareholder remuneration.

“Large companies, like Vale and banks, regularly leave their programs active, for when needed. Other companies, on the other hand, had a strong drop in prices and repurchased the shares for a cheaper amount,” said Rodrigo Moliterno, head of equities at Veedha Investimentos.

Construction was one of the sectors that most announced buybacks in 2021, in line with the performance of the segment’s shares, which fell 31%, said Rafael Passos, a partner at Ajax Capital. However, he notes that other activities linked to the domestic economy also underperformed. “Local companies suffered a lot. The same happened with consumption. Several, including retail, announced buybacks. Consumption had a devaluation of 26% in the stock market,” he said.

Antonio Marcos Samad Júnior, CEO of the proprietary desk Axia Investing, points out that the inflation and high interest rate scenario added to the elections “punished” many companies as investor fled. “Many companies are trading below their equity value, which makes no sense if the company is in good financial health.”

In addition to the downward prices, the fact that companies are capitalized contributed to the buyback drive. In 2021, many companies went to the market and are with comfortable financial statements positions, Mr. Sequeira said. For this reason, he states that it is “not surprising” that the wave of announcements will extend into 2022. “The consolidated debt of listed companies or the size of leverage has fallen a lot in recent years.”

A survey by BTG with 200 companies listed on the B3 suggests net debt ratio at 3 times in 2015, when the country entered into recession. The bank estimates that the indicator has fallen to close to 1.2 times last year.

In addition, companies have been pricing this year’s elections, which tends to drive volatility in the stock market. “After the election, I am reasonably confident that the Ibovespa will trade at higher values than today, regardless of who wins [for president],” said Mr. Sequeira, with BTG.

Mr. Moliterno, with Veedha, also believes that buybacks will continue at strong levels, and that companies may end programs already unveiled and start new ones if stocks remain at low prices. “It is natural, since we have had a very sharp drop in the stock market. Companies are likely to keep their programs active as a way to protect themselves from sharper swings.”

Companies can buy back up to 10% of the total outstanding shares, but the programs are not always that comprehensive. Nor does the company have to buy back the entire amount announced. In general, announcements state the maximum amount that can be repurchased. “The volume rose in 2021 compared to 2020 and is likely to increase again this year,” said Mr. Sequeira, with BTG, without detailing the amount purchased.

For Enrico Cozzolino, a partner and head of analysis at Levante Ideias de Investimento, there is no one better than the company itself to know if its stock is cheap. “The company may have a lot of cash on hand and instead of allocating the capital in an investment with daily liquidity, but a bad one, it can buy shares thinking of the more attractive ROE [return on equity],” he said.

Source: Valor international

https://valorinternational.globo.com/

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Development Bank to invest up to R$2.5bn in infrastructure funds

A cruzada inócua e cara de Bolsonaro contra o BNDES

The Brazilian Development Bank (BNDES) will invest up to R$2.5 billion in infrastructure funds, which will be selected through a competitive process. The state-owned bank opens a call for proposals this Monday to choose up to five funds. A maximum of R$500 million will be allocated to each of them. The bank expects, however, to draw at least R$5 billion more from the private sector through the effort.

Asset managers interested in receiving funds will have until March 4 to submit their proposals. The choice will be made by the bank, which will evaluate the fund’s investment thesis, governance and costs, as well as the manager and the team involved. The selection is expected to be concluded by the first half of this year.

It is a new investment mechanism of the bank. “The BNDES’s central objective is to increase its instruments for operating in infrastructure. We already have direct investments, financing, and now we want to allocate resources through funds,” said Bruno Laskowsky, head of shareholding, capital market and indirect credit at BNDES.

The plan is to boost both debt funds, destined to finance projects and companies, and equity funds, which will directly invest in the capital of the businesses. Of the five chosen, up to two will be debt funds and three equity funds.

The BNDES will give priority to investments in basic sanitation and urban mobility, segments that have a greater social impact. There is also a preference for funds from institutional investors (who manage third-party money) and with criteria for measuring social and environmental impact.

Mr. Laskowsky highlights two other focuses sought by the BNDES. The first is “project finance” operations, that is, in which the project is capable of “self-financing,” providing its cash flow as a guarantee. “We want to privilege the risk-taking of the project, and not necessarily the risk of the larger guarantor.”

The second goal is to lengthen the term of the loans. “We are looking for structures that follow the long-term timing of infrastructure projects, which is more like 15, 20 years, while the term of bank loans in general is 7, 8 years,” he said.

For this, the idea is that the funds are closed-end, with a minimum term of eight years, and up to 15 years (equity funds) and 20 years (debt funds), said Filipe Borsato, head of fund investments at BNDES. “The idea is, in the short term, to serve these companies and projects benefited, but also, in the long term, to bring institutional investors to the country and give them more security to put funds into infrastructure projects in Brazil,” he said.

The idea is for the BNDES to be a “relevant minority shareholder” in these funds, and for the allocation decision – that is, which projects or companies will receive the investments – to be made by the private-sector manager, the executives highlight.

“The choice of specific projects will be made by private-sector managers, not by the BNDES. Typically, the term for the allocation of funds is three to six years, so the benefited projects will be structured and selected over the next few years. It is not something thought out for the projects of 2022,” Mr. Borsato said.

For this reason, the fact that the process takes place in an election year will not be a problem, and potential changes in the bank’s direction is not a concern, Mr. Laskowsky said.

“We are talking about 15, 20-year projects. This goes beyond any administration. And the country has a huge gap in infrastructure. The math done when it comes to thinking about investments is: there are people prepared to execute the works, there are good project structurers, there is financing and there is demand. These factors are not trivial. Stability helps a lot, of course, but the central theme here is not electoral volatility,” he said.

As for BNDESPar the move is part of its “capital recycling” process, Mr. Laskowsky said. Since 2019, the development bank’s equity arm has been disposing of its shares in companies such as meatpacker JBS, paper and pulp maker Klabin and mining giant Vale, among others. The idea, the executive said, is to rebuild the portfolio having as guidelines innovation, environmental and social impact.

The investment in infrastructure funds will be a first experience in this investment model, which may be extended to other areas of BNDES’s operations. “This is the first call. We will understand how the process will work out. But one possibility is to give guidance, which could be annual, biannual, or triennial, and the bank will make subsequent calls in different strategic sectors, not just infrastructure,” he said.

Source: Valor international

https://valorinternational.globo.com/

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