Project aims to restore 1m hectares of forest

Ricardo Rodrigues, Bernardo Strassburg and Thiago Picolo — Foto: Leo Pinheiro/Valor
Ricardo Rodrigues, Bernardo Strassburg and Thiago Picolo — Foto: Leo Pinheiro/Valor

A group of major investors, renowned biodiversity researchers and economists has created a company to implement the largest project to restore degraded areas in the country: re.green is born with initial capital of R$389 million and the pioneering goal of restoring 1 million hectares of Atlantic Forest and Amazon rainforest.

The initiative to regenerate tropical forests on a large scale is unprecedented in Brazil and perhaps the world. One million hectares is almost half the area of the territory of the state of Sergipe and 250 times the size of Tijuca National Park, in Rio de Janeiro. It is equivalent to the area of Suzano’s native forest, one of the largest private protected areas in the country.

“re.green is born from science, contains science, and intends to do a lot of science,” says one of the founders and partners, economist Bernardo Strassburg, a reference in global studies on priority areas for ecosystem restoration. “It will be by far the largest experiment in tropical ecology on the planet,” he says.

To get an idea of how big the ambition is, in Brazil’s climate commitment launched in 2015, one of the strategies for the country to cut its greenhouse gas emissions by 43% from 2005 levels was to restore and reforest 12 million hectares by 2030. This has not even begun.

re.green took one year and a half to mature and stimulated four heavyweight investors close to environmental agendas — BW (family office of the Moreira Salles family), the manager Lanx Capital and its private equity arm Principia, Gávea Investimentos and Dynamo.

The return on investment will come with the sale, in a few years, of premium carbon credits — because they will include, at the same time, benefits in climate, communities, and biodiversity — and timber and non-timber products from the regenerated forests. The plan is to capture 15 million tonnes of CO2 per year.

re.green’s board is chaired by Marcelo Medeiros (former partner at Banco Garantia and executive at Credit Suisse) and its members include João Moreira Salles, Fábio Barbosa (ex-Santander and Grupo Abril, and partner at Gávea), Arminio Fraga (Gávea), Marcelo Barbará (founding partner at Lanx and Cambuhy), and Ana Luiza Squadri (partner at Principia Capital Partners).

The intention of re.green’s founders and partners is to restore a large part of Brazil’s environmental liabilities by turning degraded and abandoned pastures, for example, into forests again. Or to establish partnerships to restore large areas on private and corporate properties. The third front is to restore areas in conservation units.

One of the strategies is to buy areas and form biodiversity corridors. “We will plan the space to expand the habitats of native species, preferably near conservation units,” says Ricardo Rodrigues, one of re.green’s partners.

He is a professor of Restoration Ecology at the University of São Paulo and a reference in the field of restoration in the Tropics, with more than 30,000 hectares of Atlantic forest restoration. He founded in Piracicaba (state of São Paulo) the Bioflora nursery, the most symbolic of native seedlings of the Atlantic forest, with almost 30 years.

In the case of partnerships, re.green provides the seedlings, the seeds, and the implementation of the forests, and keeps the carbon credits, explains economist Thiago Picolo, CEO of the new company. “The purchase of properties is a possibility, mainly because of the permanence of the projects and the carbon credits. It is essential that we can guarantee that the restoration will last forever,” explains Mr. Picolo, who was CEO of Hortifruti Natural da Terra, a food retail chain focused on fresh and organic products that was sold in 2021 to Americanas S.A.

The choice of priority areas to be regenerated is one of the distinguishing features of Mr. Strassburg’s new company and study area.

“We are using science to prioritize where we will regenerate forests. Where it will have the most impact for biodiversity, for carbon capture, and where it will be financially viable,” he says.

It is not a random choice, but areas that, if regenerated, can have ten times more impact on climate and biodiversity than others, explains Mr. Strassburg, a professor of sustainability science at the department of Geography and Environment at the Catholic University of Rio de Janeiro (PUC-RJ).

The first place of interest for re.green is in the South of the Bahia state, a region that is a biodiversity hotspot with great impact also for carbon sequestration. Another priority region is in the state of Pará. In the case of the purchase of areas, the promise is to return to society the land restored and as a conservation unit.

Mr. Rodrigues reminds that a current trend in restoration projects and carbon sales is concentrating on “easier situations”. These are areas with potential for natural regeneration. “If we only have this option we will leave a trail of degraded areas that no longer have the potential for natural regeneration because they have been so exhausted. re.green has not shied away from this. It’s a huge challenge,” he says.

In the case of carbon credit sales, re.green’s project is to qualify for the sale of carbon removal credits, which have, on average, a price five times higher than avoided deforestation credits. They are at a premium because they seek Verra CCB certification (which certifies projects with simultaneous climate, community, and biodiversity benefits).

“The restoration economy is a complex ‘business case’. It requires a lot of initial investment and returns over time. You have to wait for the forest to come back. It’s a patient capital,” says Mr. Strassburg.

The initial strategy is to divide the regeneration efforts equally between the two forest biomes. “The beauty of this project is also the fact that it generates an entire restoration chain, with social impact in the generation of jobs for seed collectors and in the seedling nurseries,” says Mr. Rodrigues.

Source: Valor International

https://valorinternational.globo.com

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Pix gains ground as payment method among online stores

Para especialistas, exclusividade do BC no Pix aumenta vulnerabilidade

Brazil’s largest online stores are increasingly adding Pix as a payment method, with a record share in March, while debt cards are losing ground since the launch of Central Bank’s instant-payment system, the latest edition of the payment study Gmattos found.

Last month, 69.5% of the analyzed stores offered the option of payment via Pix, compared with 16.9% in early 2021, when the survey was held for the first time. The method is behind credit cards (accepted by 98.3% of stores) and banking bar-coded bills known as boletos (accepted in 76.3% of them). The study included 59 online stores, which account for 85% of e-commerce in the country.

According to the survey, the availability of debit card payment, which has never been very high, has been dropping substantially. In the January 2021 edition, it was 37.3%; two months later, it peaked at 42.3%; last month, it dropped to 27.1%.

Gastão Mattos, co-founder and CEO of Gmattos, believes that debit cards are close to the floor, but sees no sign of recovery. Rogério Panca, head of the Brazilian Association of Credit Card Companies and Services (Abecs), told Valor this week that the expansion of payments with debt cards in e-commerce is a priority of the trade group.

Mr. Mattos believes that Pix may reach 90% of stores by the end of this year or early next year. He recalled that 72% of stores that don’t work with Pix are making some kind of cash payment available, including boletos and debit cards. In other words, they have some propensity, in terms of business strategy, to also offer the Pix.

“In these stores, the option is not offered yet probably due to technological difficulties, such as integration,” Mr. Mattos said. Companies that do not offer any cash payment alternative typically work with higher average ticket sales.

The acceptance of boletos, on the other hand, has remained relatively stable. With the growth of Pix, the spread between both has shrunk, and the instant-payment system could soon reach the second position in the ranking, although there is no direct competition between payment methods.

According to Mr. Mattos, the number of online stores that offer some kind of discount for consumers who pay with Pix has been increasing. In addition to the fact that payment is instantaneous, the method also increases the cart conversion rate, or the number of purchases actually completed after the items are added to the online shopping cart. This rate is around 30% with debit cards and 80% with Pix.

Credit cards, a traditional driver of e-commerce, remains in the top of the ranking. Mr. Mattos points out, however, that alternative installment plans are on the rise. “This is a strong trend for the year. The existing options are clearly not meeting everyone’s needs,” he said, citing installment plans via boleto and direct financing with large banks. “I think smaller, digital banks will also offer more such options.”

Wallets were accepted by 44.1% of the stores analyzed in March, up from 54.2% in the same month of 2021, Gmattos said.

Source: Valor International

https://valorinternational.globo.com

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Apollo wants Novonor shares in Braskem

Odebrecht diz que vai vender a Braskem. Falta combinar com a Petrobras | Brazil Journal

The sale of Braskem became competitive again. U.S.-based asset management company Apollo Capital made a non-binding offer of R$44.57 per share for the stake that is in the hands of Novonor (ex-Odebrecht), Valor has learned. Three sources familiar with the matter confirmed the interest of Apollo, which in the past had a relevant stake in the petrochemical company Lyondellbasell.

At the price offered by Apollo, the Odebrecht holding company would raise R$13.6 billion with the sale of 38.8% of the total capital of the petrochemical company. The amount is higher than the price of the company’s PNA share at Wednesday’s closing on the B3, of R$43.36.

Apollo has resumed talks and is interested in Braskem’s assets, a source familiar with the matter said. In Brazil, Starboard is a partner of Apollo. Although it has submitted the best offer in terms of price for Braskem, the fund is not alone in the competition for the Brazilian petrochemical company.

According to market sources, rival Unipar is still evaluating the assets, and holding J&F Investimentos, owned by the Batista family, is also in the race. J&F is being advised by CF Partners, of former Braskem CEO Carlos Fadigas, in the search for investment opportunities in energy and petrochemicals, a person familiar with the matter said. However, the holding company has not yet made a bid to Novonor.

BTG Pactual is also committed to the proposed purchase of Novonor’s debts with creditor banks, which total almost R$15 billion, as Valor reported in March. With the transaction, BTG would take over the petrochemical company shares that guarantee these debts. The talks are still at an early stage and would have to be approved by the creditors.

The buyer of Novonor shares will have to extend the offer to Petrobras, Braskem’s second largest shareholder, with 47% of the common stock and 36.1% of the total. The state-owned company has a tag-along right, which allows it to sell the shares it holds under the same conditions offered to Novonor, according to the company’s shareholders’ agreement.

For a market source, the R$44.57 per share that would have been put on the table may not convince Novonor, which together with Petrobras gave up selling part of its position in a secondary offering in January, because the price investors were willing to pay, around R$40 per share, was considered low. With the capital market stuck due to the adverse external scenario and volatility because of the elections in Brazil, there is no expectation that the secondary offering will take place in the first half of the year.

The petrochemical company’s strategy is to spin off its green plastics division to unlock market capitalization. To do so, it is seeking investors for this business.

The sale of Braskem’s assets has become a complex negotiation, full of comings and goings. Last year, Braskem was approached to sell the assets in sliced form, but the negotiations fell apart. Lyondellbasell even made an offer for the company, but dropped out of the deal.

Novonor, CF Partners, J&F and Unipar declined to comment. Apollo did not immediately reply to a request for comment.

Source: Valor International

https://valorinternational.globo.com

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Pátria seeks buyer for data center company

Odata would be valued at about $1 billion — Foto: Divulgação

The asset management company Pátria Investimentos decided to put its data center division up for sale and is already in advanced talks with international M&A boutiques and foreign investment banks to define who could take over the business, sources familiar with the matter say. Odata would be valued at about $1 billion and is likely to attract the interest of foreign rivals in the sector and investment funds, sources say.

Created in 2015, the data center division of Pátria began as a startup offering infrastructure to house servers that process information with global distribution. The business has grown in recent years and has a presence in Colombia and Mexico.

Late last year, the company took a $30 million loan from the International Finance Corporation (IFC), a World Bank arm, to finance the expansion of its data center structure in Brazil and Latin America.

For 2022, Odata has investment plans of around R$1.2 billion to strengthen its expansion in the state of São Paulo and also in Rio de Janeiro, the company told Valor recently.

A good part of Odata’s revenue comes from large cloud computing service providers, with long-term contracts – the company did not reveal the exact turnover. Besides service providers, the company has clients in education, telecommunications and finance.

The data center sector has received heavy investments. The consultancy IDC Brasil estimated that the companies’ spending on public cloud services in Brazil could reach $3 billion last year.

Sources say that Pátria’s business division may attract foreign groups, which are consolidating this segment in the international market.

In a more recent move, the Rio de Janeiro-based investment group Piemonte Holding bought five data centers from telecom Oi, which is under judicial reorganization and sold several assets, for R$325 million, and committed to invest R$42 million in the operation.

The Digital Colony group, owner of Highline in Brazil and which bought the towers auctioned by Oi, also has plans for multimillion investments to build new data centers in Brazil, Chile and Mexico through its company, Scala Data Centers.

With about $24 billion in assets under management at the end of last year, Pátria has heavy investments in companies in the country through funds in the infrastructure and real estate industries, as well as relevant stakes in the healthcare, agribusiness, food, and financial services industries.

Last year, the asset management company tried to draw investors for part of its businesses. However, the adverse international backdrop since last year and the political uncertainties due to the presidential elections in Brazil left the plans frozen for the end of this year or 2023.

Among the fund’s assets that may go public are the health companies Athena and Elfa. Another Pátria’s company that may go public is Lavoro, of agricultural inputs distribution, with presence in Latin America.

In January last year, Pátria’s private equity firm made its debut on the Nasdaq after raising $588 million. A good part of the proceeds will be used for acquisitions.

Pátria and Odata declined to comment.

Source: Valor International

https://valorinternational.globo.com

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Government picks Ferreira Coelho to run Petrobras

José Mauro Ferreira Coelho — Foto: Leo Pinheiro/Valor
José Mauro Ferreira Coelho — Foto: Leo Pinheiro/Valor

After setbacks in the last few days, the government managed to appoint José Mauro Ferreira Coelho as Petrobras’s CEO and Márcio Andrade Weber as chair of the state-owned oil company.

The two positions were open after Adriano Pires and Rodolfo Landim gave up, this week, to run for these positions, respectively. The new names were seen by sources familiar with Petrobras as a victory for Mines and Energy Minister Bento Albuquerque, to whom the company is subordinated. “Bento has succeeded,” a source said.

Mr. Coelho is supported by his technical background in the industry – he chairs the state-owned company PPSA –, while Márcio Weber, the new candidate to be Petrobras’s chair, was an “internal solution” since he is a member of the current board of the oil company. He has experience in the oil market and enjoys the respect of the board members.

Coelho has a military background, having been an officer in the Army between 1983 and 1991, and a researcher at the Military Institute of Engineering. He also held the board of the Energy Research Company (EPE) and was secretary of oil and gas at the MME before joining the PPSA board. He has defended the practice of parity to international prices, a policy that Petrobras has followed since the Temer administration and that has been a frequent reason for the company’s wear and tear with President Jair Bolsonaro. The last two presidents: Roberto Castello Branco and Joaquim Silva e Luna were fired for readjusting fuel prices in the domestic market following oil variations in the international market. Silva e Luna remains in the presidency of the company until next week.

After the frictions caused by the nomination of Adriano Pires, Mr. Coelho’s announcement was seen as a new demonstration of strength by Mr. Albuquerque. Mr. Coelho was seen as his right-hand man in the ministry and, with this appointment, the minister will have two names of his trust in strategic state-owned companies in the sector: Itaipu and, now, Petrobras.

The two nominations pave the way for Petrobras shareholders to elect the company’s new board of directors at the Annual and Extraordinary General Meeting (AGOE) scheduled for next Wednesday. Since the retreat of Messrs. Pires and Landim, the federal government’s ticket was incomplete. From the original eight names, six were left. On Tuesday night, the ministry said that it had filled out the list of the federal government, the company’s controlling shareholder, for the board.

The ticket is now composed by Márcio Weber, José Mauro Ferreira Coelho, Sônia Villalobos, Ruy Schneider, Luiz Henrique Caroli, Murilo Marroquim, Carlos Eduardo Lessa Brandão and Eduardo Karrer. There are also seven candidates of suggested by minority shareholders for the board.

There are, therefore, 15 candidates for ten seats. The federal government’s candidates must face two minority shareholders’ candidates in a multiple-choice system in which the individual candidates with the most votes win. The remaining minority shareholders’ candidates will face each other in two elections in which the federal government does not vote.

One is in the separate election of the controlling shareholder related to the common shares (three names for one seat) and the other related to the preferred shares (two candidates for one seat). Petrobras’s board has 11 members, but the 11th person is elected by the employees. The name is Rosangela Buzanelli Torres, who is also already on the board. The mandate is for two years, until the 2024 general meeting, but with presidential elections ahead, chances are the board will be changed again next year.

It is not clear yet if there will be enough time until next week’s meeting for the names of Messrs. Coelho and Weber to be evaluated by Petrobras’s corporate governance bodies, responsible for analyzing if the names fit the company’s rules and the Law of State-Owned Companies. The eligibility committee (Celeg), linked to the people committee (COPE), can make this analysis in time for the meeting. “I believe they will try to do it,” a source said. If it is not possible, this check can be left for after the meeting. Mr. Weber’s name has already been checked, since he was on the first federal government list and is a candidate for reelection.

On Wednesday, Celeg concluded that Mr. Weber meets the necessary requirements and has no restrictions to run for the board. The committee said, however, that Mr. Weber will need to “adopt the necessary measures so that the company in which he has a stake formally abstains from providing services to Petrobras and its equity stakes, as well as relevant suppliers and competitors in the oil and gas sector”. Mr. Weber advises the PMI group that operates four deepwater drilling rigs that have Shell and ENI as clients.

Source: Valor International

https://valorinternational.globo.com

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Toll road market to be tested by auctions this month

One of the most awaited auctions is that of the north stretch of the São Paulo beltway — Foto: Zanone Fraissat/Folhapress
One of the most awaited auctions is that of the north stretch of the São Paulo beltway — Foto: Zanone Fraissat/Folhapress

Inflation of inputs and global uncertainties have affected highway auctions this year, but the calendar of projects remains active. In April, three important state projects are planned: a block of roads in Rio Grande do Sul, the Belo Horizonte beltway (skirting the capital city of Minas Gerais) and the São Paulo beltway. The contracts add up to R$11.4 billion in investments in new projects.

There are groups studying the three assets, but there is uncertainty about the bids. This is the case of the auctions in Minas Gerais and São Paulo, scheduled for the last week of April. Some groups have requested the postponement of the projects to have more time for analysis. There is no decision yet. The Rio Grande do Sul government decided to keep the scheduled date, even in the face of uncertainties, as a test. The bidding will take place on the 13th, and the envelopes will be delivered this Thursday.

The highway segment is going through a challenging moment. The cost of raw materials such as asphalt and steel skyrocketed, increasing projections for investments. In addition, the high interest rates in Brazil increase the cost of debt for companies. To make things worse, the country will hold presidential elections this year, and the world faces the uncertainty caused by the war in Ukraine.

“There is a huge challenge, because the market has changed a lot between the definition of model and the date for the delivery of the bids,” said Guilherme Martins, head of structuring of companies and divestments at the Brazilian Development Bank (BNDES). The state-owned bank is carrying out studies for several highway projects in Rio Grande do Sul, Minas Gerais, Pernambuco and other states.

These challenges have been dealt with on a case-by-case basis, he said. In some, there will be a need for adjustments, for example, with the reduction of mandatory construction works or an increase in the tariffs of the bidding.

Despite that, the Rio Grande do Sul government has chosen to test the market. “We decided to keep the auction because we found that the project had ‘fat’, which would draw bids despite all the challenges. We believe there will be interest. Maybe less than in a calmer environment and maybe with a not-so-relevant discount [on the tariff]. If it fails [to draw bids], we will reevaluate,” said Leonardo Busatto, the secretary of partnerships of Rio Grande do Sul.

The government plans to bid three blocks of highways. The asset to be offered this month is block 3, which includes roads connecting Caxias do Sul to the capital city and other cities in the countryside. “We gave priority to this block because it is smaller and has a greater possibility of drawing interest, including from regional groups,” the secretary said.

The Rio Grande do Sul highway auction will be an important test for the other projects in the sector, Mr. Martins, with the BNDES, said. “It is the first relevant concession this year and since the beginning of the war. It will be a barometer for the market.”

One of the most awaited auctions is that of the north stretch of the São Paulo beltway. It is a public private partnership that includes completing the construction work and operation for 31 years. Investments are expected to total R$3 billion, of which R$1.7 billion will be required to complete construction.

Part of the funds will come from the government, which is willing to disburse up to R$2 billion. The amount, however, will be the selection criteria for the auction, so it may be discounted depending on how competitive the bidding is.

The project is considered very complex and challenging. The main concern is about the condition of the track already built – about 25% of the construction work remains to be done.

“There is a difficulty in understanding the state of the work that has been executed, and there is a concern of a mismatch between the described and the effective quality,” said Caio Loureiro, a partner at law firm Tozzini Freire. For him, the period given until the auction is considered exiguous and the participation of the private sector is a question mark at this moment.

The São Paulo state government said that “it is confident in the auction result.” And added that the Institute for Technological Research (IPT) has prepared independent technical reports, and that the contract provides, after signing, “a period of six months for an independent rapporteur to analyze the work. In addition, “any divergence may be resolved by an independent technical commission.”

For Lucas Sant’Anna, a partner at Machado Meyer (who worked on modeling the project), the expectation is positive. “We have seen reasonable interest from large groups in the sector,” he said.

Among analysts, the perception is that the interest in the Belo Horizonte beltway has been even greater than that of São Paulo. Four companies are interested, including international groups, said Fernando Marcato, the state’s secretary of infrastructure.

The government mulls postponing the auction at the request of the interested parties. “As some groups are based abroad, the crisis in Russia brings some uncertainty and requires additional studies. The industry is going through difficult circumstances. We are studying the matter. Chances are we will postpone it because we want to draw competition,” he said.

The Belo Horizonte beltway project is also a public-private partnership expected to draw R$5 billion in investments. Of this total, about R$3 billion will come from the government – the funds come from the agreement signed by the state with mining giant Vale after the massive dam failure in Brumadinho.

Since this project will be built from scratch, the contract is seen as very challenging, but also very attractive, said Ana Cândida Carvalho, a partner at law firm BMA Advogados.

One of the main risks is the expropriation required for the construction work. “This is always a bottleneck, and in this case, because it is a metropolitan region, the list of properties to be expropriated is long. The cost is not the biggest concern. The timeline is the most concerning factor instead, because it depends on lawsuits,” she said. Even so, she sees a lot of interest in the project, especially from large operators.

Source: Valor International

https://valorinternational.globo.com

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Market eases bets on longer cycle of interest rates hikes

Central Bank building — Foto: Jorge William/Agência O Globo
Central Bank building — Foto: Jorge William/Agência O Globo

The yield curve has fallen over the last three weeks as the Central Bank’s Monetary Policy Committee (Copom) signaled that it is likely to end the tightening cycle in May after raising the Selic, Brazil’s benchmark interest rate, to 12.75%.

Market agents not only removed bets on a longer cycle as a result. They also started to see cuts totaling 250 basis points in 2023 – around two times what they projected in March 16, the last meeting of the Copom.

Since then, the market has bought into the Central Bank’s statements that the tightening cycle will end in the next meeting of the Copom, and now consider in the future interest curve an interest rate between 12.75% and 13% for this year. In the period, the two-year rate, more associated with short-term inflation, dropped almost 100 basis points, to 12% from 12.935%. The five-year rate also saw a crucial loss of risk premium, to 11.10% from 12.17% — falling below the level seen before the war.

“There was a very strong repricing of the curve as the Central Bank was more emphatic in its statements about stopping the tightening cycle and insisting that the 12.75% level is enough for inflation convergence [with the target],” said Filippe Santa Fé, a fixed-income manager at ASA Hedge. “In this context, it is normal for the market to bet that the rate will plummet along the curve.”

The still challenging inflation scenario is key for the market to adopt a structural bet on lower future interest rates. BTG Pactual projects that the IPCA, Brazil’s official inflation rate, is likely to peak between April and May. This factor, added to the prospect of the end of the tightening cycle, is expected to remove more premium from the fixed rate curve ahead, said economist Álvaro Frasson.

“We see an important disinflation ahead, even though it will be slower than expected,” he said. “The Selic will probably be forced to remain high, between 9% and 10%, in order to deal with any fiscal risk.” BTG estimates that the Central Bank will not be able to interrupt the tightening in May and will raise the benchmark interest rate for the last time to 13.25% in June. The bank foresees a rate of 9.5% at the end of 2023.

The pricing extracted from the yield curve points to a scenario for the moment in which the Selic will end 2022 between 12.75% and 13%, then decline to 10.5% in 2023, still well above the median of 9% of the most recent Focus, Central Bank’s weekly survey with economists. Before the last meeting of the Copom, nominal market rates projected a basic interest rate of 13.5% at the end of this year and 12.25% at the end of next year.

“I don’t think a 250-basis points cut is too much, given that the Selic is likely to have risen more than 1,000 points by the end of the cycle,” said Vinicius Alves, a strategist at Tullett Prebon. The market underestimates the risk of an accelerated tightening in the United States that could limit the eventual impetus for interest rate cuts, he added. “That’s something that would cause the dollar to gain ground globally, pick up inflation and require the [Brazilian] central bank to keep a tight policy for longer,” he said.

Christiano Clemente, the chief investment officer of Santander Private Banking, is dissenting from the recent pricing of Selic declines. “The market is thinking that the Central Bank will stop raising in the middle of this year and, in a matter of four to six months, start to cut the rate,” he said. “It doesn’t make sense to me to raise interest rates and then start cutting them soon after. The most reasonable thing would be a rate that remains constant over a certain time horizon.”

Mr. Clemente notes that the term structure of interest rates is back to the level seen before the war in Ukraine, “returning” the post-war peak stress – the five-year rate even began to trade below the 10.16% seen before the conflict. “But no doubt the Central Bank has taken over the narrative and the more appreciated exchange rate has also helped the curve to fall,” he said.

Mr. Santa Fe also added a caveat about the rates, saying that the high inflation and pressured cores, as well as above-target inflation expectations for 2023, do not support a bet on an end to tightening, let alone monetary easing. “I think we will have a partial correction of this movement,” he said. “The exchange rate has helped the curve to fall and an interruption in that dynamic could lead to a rate adjustment.”

In fact, this was the tone on Tuesday: the rates saw strong advances, reflecting the general movement of higher global interest rates, especially in the U.S. The interbank deposit rate for January 2024 rose to 12% from 11.82%, while the rate for January 2027 rose to 11.1% from 10.85%.

It draws the attention of financial agents that the curve has deepened its “inversion” – that is, the difference between the two- and five-year interest rates became even more negative.

Huang Seen, head of fixed income at Schroders, says that short interest rates have remained high, but long rates have declined with foreign capital inflows.

Source: Valor International

https://valorinternational.globo.com

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Companies lack capital for railroad projects

Marcello Costa — Foto: Divulgação
Marcello Costa — Foto: Divulgação

The Bolsonaro administration has celebrated a wave of multi-billion investments in railroads since the creation of a new legal framework for the sector, but part of the projects are led by companies with share capital apparently incompatible with the size of the announced projects.

A research carried out by Valor suggests that at least five large projects already authorized or under analysis by the Ministry of Infrastructure – with 3,200 kilometers in length and almost R$50 billion in promised investments – were registered by companies with less than R$1 million in capital.

One is Macro Desenvolvimento Ltda., founded in November 2020, which has signed contracts for two new railroad sections: one linking Presidente Kennedy (Espírito Santo) to Sete Lagoas (Minas Gerais) and other linking Sete Lagoas to Anápolis (Goiás). Together, they total 1,326 kilometers and are expected to cost R$29.6 billion, but the company has equity inversely proportional to the boldness of the project: only R$10,000.

Regardless of the apparent contradiction in values, the estimates of multi-billion investments around the new railroads have been used in official events and on social media to expand the list of achievements of President Jair Bolsonaro, who will run for reelection in October.

These projects are based on Law 14.273, passed by Congress in December last year and signed into law by Mr. Bolsonaro, which allows new railroads under the authorization regime.

Under this model, investors are exempted from entering an auction and competing for a public concession. At their own risk, they can simply present a project to the government, which signs an “adhesion contract” with the entrepreneur. The compatibility between the equity and the size of the project is not among the preconditions.

According to market executives interviewed by Valor, who prefer not to be named, this has led to the proliferation of the so-called “paper railroads.” In practice, they are just a kind of title given by the government – the concession – which gives companies the right to build a certain railroad. Without enough capital to make the authorized project viable, they run after investors – usually abroad – who are willing to inject funds and assume the risk.

Given the uncertainties, the chances of “mortality” increase for a good part of the projects authorized or about to be authorized. Despite this, the government boasts that the new legislation is transforming the sector. The law was preceded by a provisional measure (MP 1.065), published in August, which created legal support for the presentation of projects.

As soon as it was published, the provisional measure of railway authorizations soon became part of the showcase of actions of the federal government. In early September, the Planalto Palace held a ceremony with Mr. Bolsonaro to launch the Pro Trilhos program, directed to the projects of the new contracting regime.

In February, the Special Secretariat of Communication (Secom) tweeted that the Pro Trilhos program foresaw R$240.8 billion in investments, with 79 requests from the private sector for the creation of new railroads and the expectation of generating 2.6 million jobs.

The post provoked immediate reaction from government supporters. Among praise for Mr. Bolsonaro and the then Minister of Infrastructure, Tarcísio Gomes de Freitas (Republicans), one post talks about accelerating the sector’s plans of “100 years in three.” Another post classifies the initiative as “incredible!” and mentions that the ministry’s budget is only R$8 billion. “Now, imagine R$240 billion of investments in railroads,” it commented.

Macro Desenvolvimento, which vows to build the two 1,326-kilometer railroads, presents itself as a “project and business solutions developer” with experience in initiatives such as a liquefied natural gas (LNG) regasification terminal and thermoelectric plants.

It also acts as a “strategic partner” for Porto Central, a project that already has the necessary permits and would be the point of arrival of the first railroad. The partner responsible for Macro, Fabrício Freitas, said that the company will receive new injections and foresees that the company will build the stretches in up to 12 years.

“The development of a new project, from its first cost, must be within a structured investment and accounting process,” Mr. Freitas said. “We signed the authorization contracts in December and, from then on, all the funds for the project are being injected into Macro. The accounting process, including capital increases and contributions, is just beginning.”

“The corporate model for the investment is being validated by the shareholders and investors based on the legal guidance we are receiving from specialized law firms, hired for this purpose. We started the project in the simple model of a limited liability company, with fewer costs, and we will continue with the contributions and adjustments as we move forward,” he said.

The other companies with share capital under R$ 1 million did not reply to requests for comment. One of them, Grão-Pará Multimodal, is heading a project valued at R$5.2 billion between Açailândia and Alcântara, in Maranhão. The route would connect Ferrovia Norte-Sul to a port where construction has not yet begun. The company was registered with equity of R$200,000.

Marcello Costa, secretary for Land Transport of the Ministry of Infrastructure, says that the new legal framework for railroads may still be adjusted and does not rule out defining some prerequisites for companies interested in big-ticket projects in the sector.

One possibility is to require a minimum amount of equity per kilometer of authorized railroads or the deposit of amounts proportional to the studies (economic, environmental, engineering) in an account linked to the project. “We may have a new provisional measure, a bill, or even a decree to regulate that which has been left loose or has not been sufficiently studied,” he said.

Mr. Costa evaluates that it is necessary, however, to ponder some differences between the model of concessions and that of authorizations for railroads. “When it is a concession, there is a partnership relationship and the government is looking for a partner. The logic of authorization is completely different,” he said.

First point: the authorization regime allows the emergence of another type of agent in the sector – the “railway developer.” As in real estate, the developer can act in the facilitation, in the solution of the deal. It can bring in investors, cargo owners, and even independent rail operators (who own the trains and take responsibility for transporting goods).

“This new business model allows not-to-big companies to operate and bring in partners. In fact, we are starting to see the emergence of new players in the sector. Several projects presented have a very high level of maturity,” he said.

Second aspect: there have already been 76 requests for authorization, totaling R$224 billion, submitted to the Ministry of Infrastructure. In the worst-case scenario, if only two or three actually get off the ground, the balance will already be positive, Mr. Costa said. Because the counterfactual, not having this legal framework, would be zero investment. The government loses nothing by allowing the authorizations, the secretary said.

“Before it was an impossibility. Without this, the option we had was to work with taxpayer money. We only have R$300 million a year for the Ferrovia de Integração Oeste-Leste [West-East Integration Railroad, known as Fiol], in Bahia, which is the only work in progress.”

Third point: the moment in December, according to Mr. Costa, was to pass the measure. The provisional measure 1,065 was about to lose its validity. The bill which originated the new law had been dragging on for years. “But, as with every new law, it needs some regulation and probably some kind of adjustment, which can be done calmly,” he said.

In this sense, there may be prerequisites for companies interested in large-scale projects. He has only one caveat: “What we cannot create is a selection of private-sector groups by the government ourselves.”

Source: Valor International

https://valorinternational.globo.com

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Healthcare companies still have appetite for acquisitions

Rede D’Or São Luiz reported profit of R$419.5 million in the fourth quarter of last year, up 38.5% year over year — Foto: Guilherme Pinto/Agência O Globo
Rede D’Or São Luiz reported profit of R$419.5 million in the fourth quarter of last year, up 38.5% year over year — Foto: Guilherme Pinto/Agência O Globo

Even after strong consolidation movements in the healthcare industry in recent months, companies maintain the appetite for more deals. Last week, executives from Dasa, Mater Dei and Rede D’Or cited the fact during conference calls. Among the largest recent acquisitions is the purchase of SulAmérica by Rede D’Or, announced in February.

“People talk about a game of musical chairs [in the face of various consolidations]. But we are actually having tectonic plate movements. The sector is changing significantly and quickly,” said Rafael Cardoso Cordeiro, Mater Dei’s chief financial officer.

Mr. Cordeiro did not elaborate, but said that there are still major consolidation moves on the radar. “The Mater Dei network is an important piece. We have been approached and we look for players in our sector. We are important players in the changes that are happening in the sector,” he said.

The company has 2,723 beds in its portfolio, considering recent acquisitions such as Hospital Santa Genoveva and Grupo Porto Dias. Since its debut on the stock exchange, in April 2021, the group has made six purchases – of five hospitals and a data analysis and artificial intelligence company – investing about R$2 billion and increasing twofold its service capacity.

In 2021, Mater Dei reported a record net revenue of R$1 billion, up 43% year over year. Overall, the sector has been supported by the return of elective procedures and drop in spending with Covid-19.

The largest hospital group in the country, Rede D’Or is moving forward to buy SulAmérica, an insurance company that has 4.5 million users of health and dental insurance. According to the terms of the deal, which still lacks regulatory approvals, SulAmérica’s shareholders will receive 13.5% of D’Or, with a premium of 49.3% over the share price on February 18. The purchase will be subjected to a shareholders’ meeting on April 14.

Rede D’Or’s CEO Paulo Moll said that the deal with SulAmérica does not interfere in the company’s plans to continue growing via acquisition. Rede D’Or added 2,213 beds with 17 acquisitions until the first quarter of this year since its IPO. “We don’t change companies’ business models. Most of Rede D’Or’s revenue comes from operators. And in SulAmérica’s case, we obviously see a lot of growth opportunity due to how strong the brand is,” he added.

Otávio Lazcano, chief financial and investor relations officer at Rede D’Or, was optimistic about the future of the business and said that there is room for several synergies, including better use of real estate assets, which can free up cash, and transaction cost reductions between the companies. There are also fiscal and tax efficiencies that the group hopes to capture.

“[We also see] potential reduction in the debt of the expanded company. Rede D’Or has a very long cost of capital and debt term. And SulAmérica is cash positive and will contribute to EBITDA and allow us to reduce net debt,” he said.

The scenario brings strength for the company to accelerate future investments and, according to the executive, opens a window for dividend distribution. He said he was unable to provide monetary estimates for synergies for the time being. The company hopes to have a final verdict on the deal from regulators later this year.

Rede D’Or São Luiz reported profit of R$419.5 million in the fourth quarter of last year, up 38.5% year over year. Between January and December, Rede D’Or’s net income grew 265%, to R$1.67 billion. Net revenue advanced 23.2% in the quarterly comparison, totaling R$5.13 billion.

Dasa, a market leader in medical diagnosis, began its acquisition process in the hospital segment about a year and a half ago and since then has invested about R$2.5 billion in the purchase of nine hospitals. Currently, it has 15 hospital units, which together have 3,500 beds, the second place in the segment behind Rede D’Or.

Dasa’s CFO Felipe Guimarães said the company remains attentive to acquisition opportunities this year, although he argues that the focus for 2022 is to integrate the assets already acquired.

“We believe there are good opportunities to continue consolidations. It tends to be a year in which acquisitions continue, although at a lower level than in 2021,” he said.

On Friday evening, the company unveiled the purchase of Centron – Centro de Tratamento Oncológico, in Rio de Janeiro. In the fourth quarter, the company concluded the acquisition of Hospital da Bahia and São Domingos, which added 679 new beds to its portfolio.

Source: Valor International

https://valorinternational.globo.com

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Domino’s plans to open 35 stores in 2022

Domino's Pizza inaugura uma loja por semana até fim do ano – Meio & Mensagem

After negotiations last year with BK Brasil — which operates the Burger King and Popeyes chains in the country — fell apart, the Domino’s pizzeria chain is looking inward to accelerate expansion this year. The company plans to open 35 stores this year, with growth especially in the Northeast region and with the attraction of new franchisees.

The strategy comes in line with the most recent investment: in September, the chain opened its second pasta factory in Brazil, in Fortaleza, Ceará. Another focus is to further increase the strength of digital sales, which are expected to receive investments of R$10 million this year. Among the projects are the subscription club, to be launched in the first half of the year.

“The last quarter was a record sales quarter. Now, the first quarter also started quite positive, despite the greater concern of the whole sector with inflation,” Fernando Soares, CEO of Domino’s in Brazil, told Valor.

The Brazilian operation is the fifth largest of the brand in emerging countries and the vision of the U.S. group is that the country has the potential for 1,000 stores, well above the current 327 units, of which 217 are franchisees. Domino’s has more than 18,000 stores around the world.

“The growth potential of the segment dropped after the pandemic. We managed to do well due to our greater exposure to deliveries,” he said, reinforcing the plan to reach 600 stores by 2025, but in “new formats” – with smaller stores, according to him, and even more focus on quality and delivery time.

The company does not reveal the numbers for 2021 but says that sales grew more than 12% in the year. A year earlier, sales had been R$455 million. Mr. Soares adds that the company’s revenue today goes beyond the 700,000 to 800,000 pizzas sold monthly in the country. “Our company is structured in other verticals and each area has a revenue generation, such as the franchising, distribution, engineering and technology fields. When you look at it from this perspective, the post-pandemic company has doubled in size.” The company is the one that negotiates with suppliers and then delivers the ingredients to the units.

High on the executive’s agenda is organic growth. He reveals that the demand has increased since BK Brasil and asset management company Vinci Partners, owner of DP Brasil (which is the master franchisee of Domino’s in the country), announced the end of the acquisition agreement in October.

According to the arrangement, Vinci would keep 16.4% of the shares of BK Brasil, but the deterioration of the shares months later weighed on the deal. The company, however, still has the right to exercise preference, until July, in an eventual new purchase negotiation.

“The failure [of the merger] was very friendly. It was a momentary situation caused by the economy, and the doors remained open. But we have been approached by a lot of other players. Not necessarily a complete merger, but more like ‘can I be with you at that point?’ We are attracting a lot of attention from the market,” he said. BK Brasil declined to comment.

In 2020, the sales of limited-service pizzerias — as this type of self-service and delivery restaurant is called — fell 27%, but rose again 24.8% last year, totaling R$3.48 billion, says Euromonitor. Although the category is still below the pre-pandemic period, Domino’s aims to take advantage of the 8.2% growth outlook for 2022. In an extremely scattered sector, it has numerical superiority: it controls 17.3% of the market, followed by Pizza Hut, with 7%, and Patroni, with 6%.

For this, the focus is on the control and analysis of data from the most diverse distribution channels, such as the apps, websites, WhatsApp and telephone, whose service was transferred in 2021 to a call center and the processes were digitalized. According to the executive, the service time worsened, but the ticket grew 30%. Today, 65% of orders are born in digital channels, but the ambition is to exceed 72% still in 2022.

Source: Valor International

https://valorinternational.globo.com

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