Brazil is expected to increase oil production this year by around 300,000 barrels a day, which will lead to a 10% increase in national production, Mines and Energy Minister Bento Albuquerque said on Wednesday at the opening of the International Energy Agency (IEA) ministerial meeting in Paris.
According to Mr. Albuquerque, the increase in crude oil production will be Brazil’s contribution to the “stabilization of global energy markets,” directly affected by the effects of the Russian invasion of Ukraine.
“This is the result of regulatory advances, modernization of the Brazilian energy market and consistent investments in the pre-salt layer,” the minister said, citing Brazil’s offshore reserves.
Two weeks ago, Valor reported that the Brazilian government had committed to the United States to expand oil and gas production as a way of helping to maintain regular supply in the world.
At Wednesday’s event, Mr. Albuquerque argued that “the energy transition must go hand in hand with energy security.” He said that Brazil has made a “significant leap” in clean and renewable sources, such as bioenergy, biofuels, solar and wind, in addition to energy efficiency.
The minister took the opportunity to talk about the launch of the Brazilian biomethane program earlier this week. According to him, the effort is in line with the commitment assumed by Brazil at COP-26, for being able to bring more energy security, reduction of CO2 emissions and replacement of fossil fuels.
“The consistency of our policies over time and stable and predictable regulatory frameworks have been crucial for the private sector to make the investment decisions necessary to increase the scale and speed of the energy transition in Brazil,” Mr. Albuquerque said.
The opening panel of the event was led by IEA’s executive director, Fatih Birol.
Agriculture and construction have driven the growth of investments between 2019 and 2021 in the country. An exclusive study by Fipe’s Center for Capital Market Studies (Cemec-Fipe), linked to the University of São Paulo, found that the two industries accounted for two-thirds of investments in machinery and equipment between 2019 and 2021. During the period, the country faced the first year of the pandemic, the recovery after the height of the crisis and the slowdown of this recovery over the past year.
The concentration helps explain the expansion of investments even in an unfavorable macroeconomic context, said Carlos Antonio Rocca, the coordinator of Cemec-Fipe, who led the study.
“Some key factors for investment decisions are not encouraging. The recovery of the economy has lost steam, the growth expectation for the next three years is the lowest since 2006, and we also have uncertainty. But we investigated who has driven the increase in investments and we found that this came mainly from agriculture, with the good performance of commodities, and from construction, with interest rates still relatively low,” he said.
The study was motivated by the assessment that the growth of investments in the period was “somewhat surprising” since the country has high levels of idle capacity, there is a continued reduction in growth expectations for the coming years and uncertainty remains high, Mr. Rocca said.
Statistics agency IBGE detected investment rates of 15.5% in 2019, 16.6% in 2020 and 19.2% in 2021. The study by Cemec-Fipe excludes 2020 to avoid specific effects of the first year of the pandemic and directly compares the variation between 2019 and 2021, which were more typical years.
To understand the origin of this investment expansion, however, Mr. Rocca takes into account work done by economist Gilberto Borça Jr. showing that the investment rate actually achieved 18.2% in 2021, compared with 16.2% in 2019.
This finding excludes two factors that affected investments in the period. The first is the change in relative prices between the capital goods that make up the gross fixed capital formation (GFCF) and the prices of service goods that make up the GDP, due to the increase in the exchange rate, which affects imported capital goods.
The second is the impact of the value of Petrobras’s rigs. A tax change – the end of Repetro, a special customs regime that eased imports of goods for oil exploration – caused investment to be driven by imports of capital goods recently.
“Even so, it was still a big growth in investments, of two percentage points. And when we look at GFCF data between 2019 and 2021, we see that the highlight is machinery and equipment and construction. From there, we looked at the production of machinery and equipment, and we saw this great weight of those linked to the agricultural sector and construction,” Mr. Rocca said.
Considering IBGE’s index of physical production of capital goods, the segments focused on agriculture grew above 40% in real terms (43.8% in agricultural and 47.8% in agricultural parts) between 2019 and 2021. Capital goods for construction, on the other hand, advanced 40.48%, considering the same base of comparison.
Thus, by the accounts of Cemec-Fipe, the production index of capital goods rose 14.8% between 2019 and 2021. Of this increase, 6.44 percentage points came from the agricultural segment and 0.91 percentage point from agricultural parts, totaling 7.35 percentage points, or almost half (49.7%) of the growth. Capital goods for construction, meanwhile, account for 2.47 percentage points, or 16.7% of the expansion. The weight is much higher than the industrial capital goods segments (only 1.01 percentage point), for instance.
“If you consider the agricultural segment and the agricultural parts segment, virtually 50% refers to machines for the agricultural sector. If you also consider construction, there are two thirds of the investments for these two segments,” Mr. Rocca said.
In addition to evaluating the impact of these segments in the growth of investment, the study also collects investment data from 472 public companies. According to the survey, agribusiness-related companies saw a 52% expansion of the GFCF indicator in the period (considering the evolution of the value of their assets), compared to a much lower rate (24%) for the average of public companies as a whole. The investment measure in this case considers the evolution of the value of assets in the financial statements, both fixed assets (such as real estate and machinery) and intangible assets (such as systems and software, for example), in nominal values.
“Agribusiness-related companies had much stronger growth in this measure of investments than the sample average. This reinforces the data we saw about the substantial growth of agricultural machinery. Public companies have a great weight in the economy, they account for a quarter of the added value, and show a general trend,” Mr. Rocca said.
The volatility caused by the pandemic gave rise to several small cycles in the capital markets — Foto: Silvia Zamboni/Valor
Wednesday’s trading session marked the second anniversary of when Brazil’s benchmark stock index Ibovespa reached its lowest point during the Covid-19 crash. Since then, the global economy and the capital market have gone through several cycles that helped to distorted the prices of several stocks in the Brazilian stock market.
A survey carried out by Valor Data found that, two years after Ibovespa reached its lowest level, of 63,569 points, and its strong recovery – it closed at 117,457 on Wednesday – some companies are still strongly depressed, in some cases with a market capitalization below the one seen on that low point.
This is the case of retailer Magazine Luiza, which on Wednesday had a nominal market cap R$8.6 billion lower than the one seen two years ago. Or developer Eztec, which shrunk by R$2.1 billion in the period. Construction company MRV, toll road operator EcoRodovias and BR Malls have recovered from losses recently and posted a positive balance of R$728 million, R$363 million and R$675 million, respectively.
Since the index almost doubled in score, there are also clearly positive highlights, mostly blue-chip companies. Among banks, Itaú grew R$51 billion, Bradesco advanced R$58.5 billion, Santander gained R$44.8 billion and Banco do Brasil is worth R$36.6 billion more now. Oil giant Petrobras and mining company Vale, which start from a higher base given their size, gained R$279 billion and R$302 billion in market cap in the period.
But despite the snapshot, the Ibovespa could not have been in a less static way in the last two years. The volatility caused by the pandemic gave rise to several small cycles in the capital markets, making stocks gain and lose attractiveness quickly.
Alexandre Sabanai, a manager at Perfin, recalled that in March 2020, while the stock markets crashed, the market spent a few days without a reference. At that point, six circuit breakers were triggered in eight days between March 9 and 18.
“Agents price risks and returns well, but they don’t know how to deal with uncertainty. We didn’t know how lethal the virus was, how long it would take for infections to stabilize, so the start was difficult. When the initial panic passed, investors started to evaluate the sectors that would suffer the most.”
So while part of the assets showed a first sign of recovery, mainly from essential sectors such as supermarkets, pharmacies, sanitation and energy, others had a harder time, such as shopping centers, airlines, highway concessions and street retail.
Phil Soares, head of equity analysis at Órama Investimentos, recalls that the race for technology assets emerged at that point, while there was talk of the “new normal.” In the international market, the big techs emerged as natural winners, while in Brazil, with no companies on the technological front, the beneficiaries were companies that already had or accelerated their digital presence. Via Varejo rose 200% between March and September and the newcomer Locaweb jumped 450% in the period.
The market experienced a more generalized rally in late 2020, reflecting some hope with the beginning of mass vaccination, until the second wave of Covid-19, and a second lockdown, generated again a few more months of volatility in early 2021.
However, with a new reopening of the economy in April and government stimuli taking effect, economists revised activity data upward and companies again delivered great results, taking advantage of the low base of comparison of the previous year amid a buyer appetite, said Fernando Bresciani, an investment analyst at Andbank. On June 7, 2021, the index closed at 130,776 points, reaching 131,190 during the session.
China, which stimulated its economy after the crisis, also stimulated the metallic commodities, making iron ore reach the $220 level. But it was short-lived. Inflationary pressures began to trigger interest rate hikes and, in addition, the country was still dealing with a water crisis and uncertainties linked to the fiscal situation and elections. Thus, the local market suffered in the second half of 2021.
At the beginning of 2022, amid higher oil prices and the recovery of minerals, local assets started to call the attention of international investors. By March 21, R$81 billion had been invested, with a focus on blue-chip companies.
Agents expected the flow to trickle down to assets linked to the local economy, but as the Russia-Ukraine war again affected inflation, there is no longer a consensus. For now, the Ibovespa is on the rise. On Wednesday, the index gained 0.16%, to 117,457 points, its sixth consecutive advance, with local shares testing the thesis that some companies are trading at a discount here.
“We still can’t see strong growth, since there are many uncertainties around interest rates and inflation. But volatility drives these movements,” Mr. Bresciani said.
São Paulo – The revenue of Brazilian companies in the tourism sector reached BRL 15.3 billion (USD 3.1 billion) in January, 22.9% more than in the same month of 2021. Compared to January 2020, before the COVID-19 pandemic, the result was 19.2% lower. The data, released on Tuesday (22), are from the Federation of Trade in Goods, Services and Tourism of the State of São Paulo (FecomercioSP).
“Although the sector was harmed by the Omicron variant, the movement of tourists due to the traditional period of school holidays helped to boost the result of the month, in addition to the weakened basis of comparison,” says the text of the explanatory note of the entity.
According to the FecomercioSP survey, the January result was mainly influenced by aviation, which grew 60.6% in the first month of the year, year on year. However, the revenue of the air sector was 13.6% lower than the pre-pandemic level.
The room and board services group posted the second highest growth in January, up 14.7% year on year, but 19.2% below the pre-pandemic revenue level. Cultural, recreational and sports activities registered an annual growth of 10.4%, but a decrease of 21.6% compared to January 2020.
Education Minister Milton Ribeiro was recorded admitting to give priority to the release of funds through the intermediation of evangelical pastors with no connection to the government. As a result, he has been under pressure, even by the governing coalition in Congress, to explain the news, and is likely to be summoned by the Senate Education Committee. The case has eroded his reputation with part of the evangelical caucus, which supported his name for the position.
Mr. Ribeiro was caught on audio released by newspaper Folha de S.Paulo saying that he favors, at the request of President Jair Bolsonaro (Liberal Party, PL), the release of works intermediated by two pastors who, without having a position in the government, act to obtain funds. In exchange for the funds, the minister says in the recording that “the support we ask for is no secret.” “It is support for the construction of churches.”
The head of the Senate Education Commission (CE), Marcelo Castro (Brazilian Democratic Movement, MDB, of Piauí), announced that senators are likely to approve this week the order for the minister to provide an explanation. “If this is not influence peddling, I don’t know what influence peddling is,” he said. The request, if approved, forces the minister to appear, under penalty of incurring a crime of responsibility. “If this government were honest, with the story that we have today [in the newspapers], with the recording, he would no longer be a minister,” Senator Omar Aziz (Social Democratic Party, PSD, of Amazonas) said.
Lawmakers from opposite ends in the political spectrum asked the Federal Supreme Court (STF), the Federal Court of Accounts (TCU), the Prosecutor General’s Office (PGR) and Federal Prosecution Service to act against President Jair Bolsonaro, Minister Ribeiro and the evangelical pastors. The presidents of the Senate, Rodrigo Pacheco (PSD of Minas Gerais), and of the Chamber of Deputies, Arthur Lira (Progressive Party, PP, of Alagoas), called for clarification from the minister.
According to the newspaper “O Estado de S. Paulo”, the pastors are at the head of a parallel office within the Ministry of Education and participate in Mr. Ribeiro’s agendas that define the ministry’s priorities and the use of funds destined to education in the country. The funds are managed by the National Fund for the Development of Education (FNDE), an agency of the ministry controlled by politicians from the so-called Centrão (a cluster of right and center-right parties). Mr. Santos and Mr. Moura have no ties to the public administration.
The newspaper “Folha de S.Paulo” obtained an audio recording in which Mr. Ribeiro admits, in a private meeting, that the government prioritizes municipalities whose requests for release of funds were negotiated by the pastors. The minister claims that he meets the demands of the religious leaders at the request of President Bolsonaro. “It was a special request the president of the Republic made to me on the issue of [pastor] Gilmar”, says Mr. Ribeiro in conversation with mayors and the pastors.
“Why these two pastors, who do not have a position in the federal government and do not hold public office, would be legitimized by President Bolsonaro as interlocutors of mayors in the office of the Minister of Education, which is also headed by a pastor? We have the right to know the real story behind this free transit and direct impact on public money. The ‘parallel education office’, created by the Bolsonaro administration, directly affects the distribution of FNDE resources. We are filing representations to investigate evidence of high crimes and misdemeanors and administrative impropriety,” said the PSOL leader in the Chamber, Sâmia Bomfim (São Paulo), in a statement sent to the press.
Considered one of the most active lawmakers in the education field, deputy Tabata Amaral (Brazilian Socialist Party, PSB, of São Paulo) also went to Twitter to criticize the existence of the parallel cabinet and raised a hashtag for the departure of Mr. Ribeiro.
“The most incompetent MEC in history is also a hotbed of corruption, administrative impropriety and influence peddling. The audios in which the minister himself shows that his objective was never education are scandalous. We will demand measures from the Prosecutor General’s Office (PGR). One more minister will fall,” wrote Ms. Amaral.
Mr. Ribeiro denied on Tuesday that he has benefited evangelical pastors and churches in the distribution of ministry resources, as suggested by an audio released by Folha de S.Paulo. In a press release, the minister denied any irregularity or favoritism in the transfer of funds, without citing the record of the meeting.
“Unlike what was reported, the allocation of federal resources follows the budget legislation, as well as the technical criteria of the National Fund for the Development of Education (FNDE),” Mr. Ribeiro said.
In the press release, the minister also denies that Mr. Bolsonaro ordered pastor Gilmar Santos to indicate the distribution of the ministry’s funds. “I also say that the president of the Republic did not ask anyone for preferential assistance, he only asked that he could receive everyone who came to us, including the people mentioned in the report,” says the minister’s statement.
According to Mr. Ribeiro, all requests for resources are sent for evaluation in the respective technical departments, “in accordance with legislation and based on the principles of legality and impersonality.”
At the head of MEC since July 2020, Mr. Ribeiro is a pastor of the Presbyterian Church and, in the press release, stated that his religious background does not influence his management.
“I reaffirm my commitment to the secularity of the State, a commitment I signed on the occasion of my inaugural speech at the head of the Ministry of Education. I emphasize that there is no hypothesis and no budget forecast that makes it possible to allocate resources to churches of any religious denomination,” he added.
Braskem plans to spin off its biopolymer (green plastic) business into an independent company that will have other partners and shares traded on the stock exchange in Brazil or the United States, sources say. As a result, the Brazilian petrochemical company, which still have fossil raw material as its main source, seeks to go global and unlock market capitalization.
Braskem, which is controlled by Novonor (formerly Odebrecht) and Petrobras, hired Citi to draw strategic and financial investors to the project. The deal is valued at around $2 billion — the company plans to raise around $500 million, two sources familiar with the matter said.
According to another source, the format of the operation, which will finance the expansion of the production capacity of bioethylene and plastic resins from renewable sources, like ethylene glycol, is expected to be defined in two or three months.
Braskem intends to reach an installed capacity of 1 million tonnes of green plastic in the world by 2030, compared to the current 200,000 tonnes per year. Investments are estimated at $1 billion to $1.5 billion in this period.
To accelerate the project, the petrochemical company has been talking to potential financial partners, holders of innovative technology and suppliers of renewable raw materials. Fund Advent was one of the possible investors approached by the company. The manager, which has businesses in the chemical segment, was not interested because it would have a minority stake, sources say.
Two sources said that Braskem does not rule out running the project through a “special purpose acquisition company” (SPAC), taking advantage of environmental, social and governance (ESG) elements. In practice, SPAC is a listed company that does not have any asset.
In Brazil, Embraer resorted to a similar operation to enable the growth of its urban air mobility company. Eve is on its way to being listed on the New York Stock Exchange (NYSE) through Zanite, a U.S.-based SPAC founded by Kenn Ricci, co-owner of Directional Aviation, one of the largest executive jets operators in the world, and Steve Rosen, with Resilience Capital Partners.
According to sources, Braskem is also in initial talks with Cosan, which already supplies ethanol for the production of green ethylene by the petrochemical company in Triunfo (Rio Grande do Sul). According to a source familiar with the matter, Cosan is not interested in equity participation at this first moment.
The spin-off of the green ethylene business could drive Braskem shares, despite being a small operation compared with others in the company “This is a business that generates value, but that is not yet included in the price of the company as a whole,” said a source in the financial market, who asked not to be named.
In January, Braskem tried, without success, to carry out a secondary offering. It was not for lack of interest in the shares, but because investors were asking for discounts to take part in the operation.
Currently the largest biopolymers maker in the world, Braskem is investing $90 million to expand the production of green ethylene in Triunfo, which will start operating in December this year. With the contribution, the production of green ethylene will rise to 260,000 tonnes per year from 200,000 tonnes per year.
The second factory is expected to be installed in Thailand and the plan is to build two other production units, totaling four. There is no new expansion project in Triunfo so far, but the Rio Grande do Sul complex could be a candidate for future investments.
In Thailand, Braskem signed a letter of understanding with one of the largest local petrochemical companies, SCG Chemicals, to evaluate a joint investment in a new bioethanol dehydration plant to obtain green ethylene and produce biopolyethylene.
Braskem, Advent and Citi declined to comment. Cosan denied that it is in talks with Braskem.
The presentation of three amendments to the constitutional amendment proposal PEC 63 — which had been stalled for eight years — generated expectations in the Senate that the bill will soon be put on the agenda. This proposal reinstates an additional 5% to the salary of judges and public prosecutors every five years — hence the name quinquennium. It was outlawed in 2005.
If the expenses foreseen for the two careers included in the original bill (judiciary and federal and state prosecutor’s office) are computed, the annual budget impact is R$3.6 billion. There are amendments that extend the bonus to public lawyers, federal prosecutors, public defenders and chief police officers. This would add R$900 million to this bill, without taking into account state employees in those categories. These estimates refer to active servers. The inclusion of retirees at least doubles these figures.
The president of the Association of Judges of Brazil (AMB), Renata Gil, says she has received the support of the Federal Supreme Court Chief Justice Luiz Fux. All his predecessors in office in recent years, she says, have supported AMB’s request. When contacted by Valor, Justice Fux did not return the call. Senate President Rodrigo Pacheco (Social Democratic Party, PSD, of Minas Gerais) denied that the PEC will be put on the agenda this week.
This is not the first time that a legislative proposal ignores the article 114 of the Constitution, which conditions the increase in expenses to the indication of the relevant source of revenues. The uniqueness of this PEC is the support it receives from the state careers whose mission is to ensure compliance with the Constitution.
The proposal, authored by former Senator Gim Argello, has been in the Senate since 2013. As of March 10 this year, it received two amendments from the Workers Party (PT) and one from the União Brasil (UB).
The Constitution, however, was not enough to prevent PEC 63 from being rescued during this legislature. The sign that it might be put on the agenda was given by the presentation of three amendments between March 10th and 16th, after eight years frozen in the Senate. Two of those amendments are from PT senators Humberto Costa (Pernambuco) and Rogério Carvalho (Sergipe), and one from União Brasil Senator Soraya Thronicke (Mato Grosso do Sul). All of the amendments add categories to be benefited by the reintegration of the five-year term to the public service.
Ms. Gil says that the PEC does not bring a hike, but a “restructuring” of the careers, as it happened recently with the military and public defenders. The judges also felt hindered in comparison to the careers of the Federal Attorney General’s Office (AGU), federal prosecutors who began to earn attorney’s fees borne by the loser as of 2016. Of the 12,253 employees of these careers (including retirees who are also contemplated), 62% receive R$10,000 in those fees per month in addition to their salaries (the minimum wage of the segment is R$21,000).
The head of AMB says that the funds must be sought in the budget itself from an adjustment of accounts of each court. She defends that the restructuring is a way to avoid that the outgoing salary of the judges is similar to the incoming one, but it does so without reducing the former and, instead, by increasing the remuneration along the career with quinquennia that are not subject to the remuneration ceiling of the Federal Supreme Court.
Ms. Gil says that the Brazilian Judiciary system, one of the most expensive in the world, is not so costly because of the judges’ salaries, but because of the free access to justice guaranteed by the Constitution. According to AMB, there are 75 million cases being tried in Brazil, which gives an average of 4,000 cases for each of the 18,000 active judges. This is due to the free costs of lawsuits, which also explains why there are 1.3 million lawyers in the country. In Portugal, she says, the restriction in access means that there are only 400 cases per judge.
The pressure for the return of the quinquennia grew with the accumulation of three years without salary increases for the judiciary. It is a movement to get around the fiscal limitations, like the one that happened in 2000, with the creation of the housing allowance. The difference is that now the circumvention of the cap seeks shelter in the Constitution. The categories to be contemplated have a floor of R$21,000 (AGU and Public Defense) and a ceiling of R$39,300 (Supreme Court).
If the bill is passed, it will lead to a cascade of claims throughout the federal civil service. Judges and prosecutors claim 20% losses since 2019 while half of federal servants have no salary increases since 2017, accumulating losses of 28.5%.
*We inform you that our partner Alberto Murray Neto has been appointed to integrate, as an effective member, the Special Committee on Business Law of the Brazilian Bar Association. Alberto becomes a member, therefore, of two Commissions of the Brazilian Bar Association, namely: (a) Compliance and Integrity; and (b) Business Law.*
After distributing more than R$7 billion in dividends and investing $2.1 billion in acquisitions, JBS released Monday its 2021 results, which confirmed that the year was the best in the company’s history in several aspects — from growth, with record revenues and EBITDA, to shareholder remuneration, which achieved a return of more than 70%.
Boosted by strong demand for beef in the United States, in Brazil and in the international market, JBS reported a net income of R$20.5 billion in 2021, more than triple that of the previous year (R$4.6 billion). Alone, the fourth quarter result was already higher than the full year of 2020. From October to December, JBS profited R$6.4 billion, up 61% year over year.
The second largest non-financial company in the country, behind Petrobras, JBS had net revenues of R$350 billion last year, an advance of 29.8%. In the fourth quarter, revenues, mostly generated in the U.S., rose 27.8% to R$97.2 billion.
Thanks to the exceptionally positive moment in the operations abroad, especially in the U.S., the pressure of costs that harmed the business in the Brazilian market (Seara, above all) was not able to bring down the result of JBS. In the year, EBITDA increased 54.5%, to R$45.6 billion. With this, the adjusted EBITDA margin rose 2.1 points, to 13% in 2021. In the fourth quarter, adjusted EBITDA reached R$13.1 billion, an increase of 86.9%. Thus, the margin advanced 4.3 points, to 13.5%.
In an interview with Valor, CEO Gilberto Tomazoni celebrated the ability that JBS had in 2021 to combine multi-billion investments in acquisitions and organic expansions (there were more than R$20 billion last year) with shareholder returns. “JBS is the best option in the market. Not only for what it delivers in the short term, but for the potential it still has,” he said.
With share buyback programs (R$10.6 billion) and dividends (R$7.4 billion), JBS made a “dividend yield” of 8.2% in 2021, CFO Guilherme Cavalcanti said. When you add up the valuation of JBS shares on the stock exchange (the share rose 60.4% last year, while benchmark stock index Ibovespa declined 11.9%) and the return to shareholders in the form of dividends and buybacks, JBS’s total shareholder return reached 73.4%, Mr. Cavalcanti said.
In addition, the investments JBS has been making are remunerating shareholders’ capital well. In 2021, the return on invested capital (ROIC) metric reached 24.1%, up from 20.4% in 2020. This metric has been evolving at least since 2018, when it was 11.6%. “Our average cost of capital is 7.5%. That shows JBS’s value creation,” he added.
Last year, JBS’s capital structure also improved, which helped the company earn investment grade, reducing the cost of debt. In December, the net debt-to-EBITDA ratio in dollars was 1.46 times, the lowest in history. In September, it was 1.49 times. With cheaper debt issues — the group issued $1.5 billion in notes in January, JBS lengthened the average maturity from 5.9 years in 2020 to 8.1 years. The average cost of debt fell to 4.3% per year.
“Our capacity to cover debt service became stronger,” said Mr. Cavalcanti. The ratio between JBS’s EBITDA and financial expenses rose to 11.6 times from 7.8 times. “What it generates in free cash flow is greater than any debt amortization. The refinancing risk is zero,” stressed the executive. Last year, free cash flow generation totaled R$11.9 billion.
For 2022, JBS maintains positive expectations. In the United States, the demand for meat remains firm, while Asia buys more and more. The margin of the beef business in the U.S. is not expected to be as high as it was, unusually, in the last two years, but it is possible to say that it is structurally higher than in the past decade. In Mr. Tomazoni’s reading, even with a slightly lower supply of cattle in the U.S., margins would remain in the “high single digits.” In the past, U.S. slaughterhouses celebrated when they had margins of 6%.
The interruption of operations with Russia will lead the New Development Bank (NDB), the BRICS bank, to automatically extend credits to the other partners of the institution. Valor found that the expectation, which dates from before the war, is that financing for Brazil will total at least $6 billion over the next five years.
The dilution of the weight of projects in Russia in the portfolio of the BRICS Bank has entered the radar of rating agencies. Last week credit rating agency Fitch reaffirmed the “AA+” rating but revised the bank’s outlook from “stable” to “negative”. It explained that the revision was motivated mainly by the risk in the context of the Russia-Ukraine war, Russia’s role as a major shareholder in NDB (19% of capital at the end of 2021) and the bank’s exposure in that country (13% of loans).
At the same time, the agency reaffirmed the “AA+” rating, which it said reflected “the bank’s strong credit fundamentals, including its large capital cushions.” Also, the liquidity rating was unchanged at “aaa,” mainly reflecting the “excellent” liquidity buffers the bank must keep in relation to its short-term financial commitments.
In a statement, Fitch said it understood that NDB has frozen all operations in Russia and that given the dynamic growth of its loan portfolio, as a newly established bank, it expects a rapid dilution of the bank’s exposure to Russia in the coming years. “Despite Russia’s role as a key shareholder, we do not expect NDB to be directly affected by any sanctions imposed by the West,” Fitch said.
Taking into account the current shareholder structure, in which each of the BRICS countries (Brazil, Russia, India, China, South Africa) owns about 20% of the bank, Fitch thinks there is a risk that conflicting views on the Russia-Ukraine conflict could affect the relationship between the bank’s shareholders and the agency’s governance assessment. As a result, it has revised the ESG relevance score on the governance structure to “5” from “4.” Fitch cites the abstention of China, India and South Africa in the UN General Assembly vote to condemn Russian aggression in Ukraine. Brazil voted to condemn the aggression.
Fitch also thinks that Russia’s presence as a key shareholder in the NDB could dissuade future members from joining the bank if Russia remains isolated internationally. In its solvency assessment, it considers the bank’s main weakness to be its loan concentration risk, with the bank’s five largest exposures accounting for 85% of loans at the end of 2021.
For its part, the S&P global rating agency maintained the NDB’s rating at “AA+” (long-term) and “A-1+” (short-term) with a stable outlook on February 28, four days after Russia’s outbreak of war against Ukraine.
The NDB did not comment on the rating by the rating agencies. At the beginning of the month, it took a three-line statement, in a technical tone, to announce that it had put its operations with Russia “on hold”.
Now, the credit portfolios will increase for the other founding partners and the new partners — Bangladesh, the United Arab Emirates, Egypt, and Uruguay — will also start to obtain financing, while the relative size of Russia’s portfolio will shrink.
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