Solvay gives up selling Latin American assets

Daniela Manique — Foto: Ana Paula Paiva/Valor

Daniela Manique — Foto: Ana Paula Paiva/Valor

Belgium’s Solvay, owner of Rhodia, closed the doors to a potential sale of assets in Latin America after deciding to split businesses into two independent, public companies. Instead, the operation will gain prominence within the global essential chemicals company to be formed from the split, said Daniela Manique, Solvay’s chief executive in Latin America. “There will be no divestment in the region”, she said.

As Valor reported last year, Solvay studied selling Coatis, a division whose operations are concentrated in Brazil, and attracted potential buyers including large domestic and foreign companies and private-equity funds.

Two months ago, however, the parent company unveiled plans to split businesses into two new companies, dubbed EssentialCo and SpecialtyCo for now, in order to “sharpen strategic focus, optimize growth opportunities.” The final names of the new companies, which will be controlled by the Solvay family and trade on the Euronext in Brussels and Paris, are expected to be confirmed in the first quarter of 2023, and they are likely to be operational by the end of that year.

“The proposed spin-off will allow each company to pursue growth and capital investments under distinct capital structures and with different underlying cash generation patterns,” Moody’s said in a report. According to the agency, “EssentialCo activities will be in more mature and highly consolidated end markets and are highly cash generative.”

“Given the large carbon footprint of its soda ash activities, the necessary high investments to facilitate the energy transition and other measures to reduce EssentialCo’s CO2 output will be very different from SpecialtyCo,” the agency said.

EssentialCo will retain the main mono-technology businesses, including soda ash, peroxides, silica and Coatis, with net sales of €4.1 billion in 2021. SpecialtyCo will keep the materials operations, covering specialty polymers, high performance composites and solutions, which last year generated net sales of nearly €6 billion.

All Brazilian assets will remain with EssentialCo, except Novecare’s plant in Itatiba, São Paulo. In addition to its own operations in the region, Solvay is a partner of PQM (Produtos Químicos Makay) in Peróxidos do Brasil. Right now, the joint venture is investing $78 million to increase the production capacity of hydrogen peroxide in Brazil and Chile.

According to Ms. Manique, Latin America will represent about 20% of the essential chemicals company’s revenues, compared with 8% now. “From this division, we expect more investments and growth for the region, which becomes relevant again,” she said. Investments in Brazil total around R$150 million a year.

Brazil is seen by Solvay as a relevant market and future source of sustainable solutions, given its potential for the green economy and the strategic location of the group’s largest operation, in Paulinia, São Paulo – near major suppliers of energy and renewable raw materials.

Solvay is a great defender of the free gas market, but has reevaluated the use of biomass for power generation in the country amid the recent appreciation of oil prices. In addition, it has a project for the use of biogas together with Raízen – which already supplies biomass to Solvay’s power cogeneration unit in Brotas, São Paulo. Next year, the company is expected to consolidate itself as the world’s leading supplier of renewable essential solvents.

According to the executive, there have always been companies interested in the assets of the group in the region, and Solvay’s stance has always been to keep the doors open for possible conversations. “Now it is closing this door to focus on the spin-off and on growth,” she said. Solvay has set up a working group to handle the spin-off, and Ms. Manique is the ambassador of this group in the region.

Last year, Solvay grossed €1.3 billion in Latin America, up 35% over 2020 – worldwide, net sales reached €10.1 billion. In 2022 so far, the CEO said, business in the region is up 15% year over year, and the company expects a positive evolution during the year, despite the uncertainties regarding economic conditions in the second half of the year.

“I am afraid of inflation and its impact on the purchasing power of Brazilian consumers,” she said. The successive lockdowns in China and the oil prices are also factors of attention. The logistical bottlenecks in the world, on the other hand, have a limited impact on the Brazilian operation, which has greater exposure to the Brazilian market both in the purchase of inputs and in the sales of products.

Source: Valor International

https://valorinternational.globo.com

/by

Vocational education is key for Brazil but a pact is needed

Guilherme Lichand — Foto: Thays Bittar/Divulgação

Guilherme Lichand — Foto: Thays Bittar/Divulgação

The advancement of vocational education to 40% or 50% of the places offered in high schools, from 10% now, is a strategy that can contribute to the country’s development, with increased productivity, reduced inequality, and increased opportunities for young people, experts say. Considered “revolutionary” by some, this path requires time and needs to be on the country’s agenda, with the participation of leaders from the public sector and also from companies.

Guilherme Lichand, a professor of economics at the University of Zurich, believes that it is necessary to change the way vocational education is seen in Brazil.

“There is a vision in Brazil that vocational education is inferior. People desire higher education, and see the vocational education as something for those who didn’t get there. This is not the case in Europe, where more than half of population choose vocational education and only 20% or 30% go to the university,” he said.

Brazil follows the U.S. model, in which only higher education seems suitable, he said. “This is not desirable. There are no jobs for that. Just look at the enormous student loan debt that [U.S. President Joe] Biden had to forgive. In Brazil, we will have a similar problem in 10 years.”

The view that vocational education is subservient to industry and geared exclusively to training labor is mistaken, said Olavo Nogueira Filho, the executive director of NGO Todos pela Educação.

“The key is to do it with quality. Offering vocational and technological education makes it possible to raise the quality of high school, which, besides facilitating the insertion of young people into productive activities, also makes it possible for them to continue their studies throughout their lives. It is not a second-choice option.”

For him, the data from developed European countries show this. In countries that are members of the Organization for Economic Cooperation and Development (OECD), on average 40% of high school places are connected to vocational and technological education, said Mr. Nogueira Filho. In Brazil, he compares, this rate is around 11%, and in Latin America, 20%.

Expanding the share of vocational education in the country is a strategy that can be carried out together with more investments in higher education, he added.

Examples show that vocational and technological education integrated to high school becomes much more effective when it comes to the students’ interest. He says that one challenge of high school is precisely to be attractive to young people, with an education suited to their reality.

Mr. Lichand, who has a PhD in political economy from Harvard University, points out that there are great challenges to migrate from a system that offers vocational education to 10% of high school students to one that offers it 50% of students. It is necessary, he says, to discuss how to do this on the necessary scale and how to aim for the right country model.

Since 80% of the students in Brazil’s basic education are in public schools, certainly the public sector will have a huge challenge and will need to decide what vocational education will be, whether there will be purchases of vocational education systems, Mr. Lichand.

“But we need more. It is necessary to define a country agenda and make a pact involving the public and private sectors.” In the European model, Mr. Lichand said, vocational education includes theoretical classes and also practical experience in industrial companies. “You need experience in the field and that’s why you need to partner with companies. You need to expand with quality even if the private sector accounts for part of it. The key is to understand how to certify, monitor and evaluate to ensure high-quality training, not cheap labor.”

The fields and curricula, argues Mr. Lichand, must be defined together with the companies. For the professor, the ideal time to build this would be 10 years, with companies committing to finance it in some way.

There are two major challenges in this process, he points out. Convincing the business community that the student is not cheap labor and convincing the school that the curriculum must be discussed according to the companies’ needs. “If this pact can be built, it could be the best of all worlds. There will be people trained who fit perfectly with what the industry needs. Today we have situations where there are unemployed people and companies that can’t fill vacancies.”

The private sector, says the professor, is not organized for this because it doesn’t see that it also needs to lead this process. It is not just a problem for public education. For him, it is necessary to have a national leadership in the public sector shared with business leadership as well. Without a pact, it will not work, he said, as shown by European experiences. It is a process that must involve society as a whole, with multiple leaderships.

“It could be revolutionary. Cash-transfer policies have already helped improve inequality indicators in some periods in Brazil. But low productivity is something that seems insoluble in the country. Vocational education could improve these indicators.”

Source: Valor International

https://valorinternational.globo.com

/by

Red-hot sanitation market taps tax-exempt bonds

The advance of basic sanitation, a red-hot market since a new legal framework came into effect about two years ago, has been increasingly financed by private-sector funds – and not only in those places that auctioned water and sewage services. The use of tax-exempt infrastructure bonds to finance projects in the industry is growing rapidly and is already at all-time high levels this year.

Individual investors are exempt from paying income tax (IR) over these bonds. Any proposal for issuing the securities must be authorized by the government in order to guarantee the tax break.

This year to last week, the National Sanitation Secretariat passed proposals for the launch of R$3.018 billion in tax-exempt infrastructure bonds by companies in the industry.

Of this total, a little more than a third (R$1.12 billion) has already been approved, and the remainder (R$1.898 billion) is on its way for that – an ordinance must be published by Regional Development Minister Daniel Ferreira.

To offer a glimpse of the pace of requests and approvals, the previous record of tax-exempt infrastructure bonds in the basic sanitation segment was R$2.8 billion for the whole year, in 2021. Companies such as Paraná state’s utility Sanepar, Águas de Teresina and Rio Claro-based BRK Ambiental were authorized in recent months to raise funds through tax-exempt bonds.

Pedro Maranhão — Foto: Divulgação
Pedro Maranhão — Foto: Divulgação

Sanitation Secretary Pedro Maranhão told Valor seven other proposals to issue tax-exempt bonds are under analysis. They total R$13.8 billion, almost five times the combined amount of the projects authorized last year.

In the secretary’s view, new sanitation concessions are not the only factor driving the market. The goal of universalizing sanitation services – 99% of regular drinking water supply and 90% of sewage collection/treatment – by 2033, set in Law 14,026/20, has also speeded up requests from state-owned companies. Besides Sanepar, regional companies like Sabesp (São Paulo), Copasa (Minas Gerais), Cagece (Ceará) and Saneago (Goiás) have issued tax-exempt bonds.

Companies managing sanitary landfills have also started to explore this source of financing. Ciclus Ambiental, for example, is tapping these securities to finance investments in works related to the management of solid urban waste.

In June 2021, the company was authorized to raise up to R$450 million for a landfill in Seropédica, Rio de Janeiro. The funds can be used to put in place a new leachate treatment plant and a 2.8 MW biogas-fired power generation unit.

“We are talking more with companies, trying to convince them that bonds are an interesting financing mechanism,” Mr. Maranhão said. “On the other hand, we did an internal restructuring and managed to reduce to four from eight months the time for analysis of requests filed with the ministry.”

In recent years, even before the approval of the new legal framework, the Brazilian Development Bank (BNDES) and Caixa Econômica Federal had already been losing ground among the sources of credit for basic sanitation. Between 2016 and 2019, they had already seen their share of loans to private-sector water and sewage companies drop to 40% from 58%.

“The demand for investments is so high that diversification of financing is necessary,” said Ilana Ferreira, the technical head of Abcon, an association of private-sector sanitation concessionaires. For her, after starting to raise funds through tax-exempt bonds, the use of the mechanism in the industry skyrocketed. She believes that the next challenge is to lengthen the terms of the securities – the redemption period is still half of that offered by power companies, a market in which the bonds are better known.

Ms. Ferreira sees state-owned sanitation companies issuing more bonds after the economic and financial verification process to keep their contracts, which occurred in March. They needed to prove they were able to universalize services by 2033. Now they need to invest to offer drinking water and sanitary sewer to millions of people.

According to a financial adviser who works structuring projects and asked not to be named, the four privatized blocks of Cedae (Rio de Janeiro) are likely to raise billions of reais through tax-exempt bonds in the coming months.

Other concessions auctioned recently – in Alagoas, Amapá and Mato Grosso do Sul – also raise the expectation of billions of reais in investments in the industry over the next few years.

/by

Healthcare groups lose profit margin

Hapvida was the most affected operator in the quarter — Foto: Divulgação
Hapvida was the most affected operator in the quarter — Foto: Divulgação

The 14 publicly traded healthcare companies — hospitals, diagnostic medicine laboratories, and health insurance companies — had a loss in profitability in the first quarter, when compared to the same period last year. The earnings reports were impacted by the macroeconomic environment, which led to more cancellations of health insurance plans, and by the wave of the omicron variant of Covid-19 earlier in the year, which reduced the performance of other medical procedures and generated lower revenue for service providers.

Besides this, as most of the healthcare companies are undergoing a strong process of mergers and acquisitions, which require resources and increase indebtedness, the financial result has deteriorated with the rise in interest rates, reflecting on the net income.

The most affected in the quarter were operator Hapvida and broker and administrator of medical insurance plans Qualicorp, both with great loss of clients. Hapvida, which concluded its merger with NotreDame Intermédica in February, had 431,000 contracts suspended and another 157,000 cancelled due to layoffs in companies that offered the benefit to their employees. There were 524,000 new sales, but they were not enough to cover all the losses. The same happened with Qualicorp, which gained 115,100 clients, but had 131,100 losses in its portfolio.

On the day the quarterly numbers were released, Quali’s shares depreciated 13% on the stock market, and Hapvida’s dropped almost 17%, due to the weak results, but also because of the prospects. The scenario from now on is uncertain, with high interest rates and high increases in the health insurance plans, with prices expected to swell between 15% and 20% on average.

On the one hand, the recomposition of medical inflation will provide improvement in revenue and other gains to the companies, but at the same time there is a higher risk of default and withdrawal from health insurance plans. “A weak 2022 start, but is the worst already over?” was the questioning made by Itaú BBA analysts, in a report.

Insurers SulAmérica, Bradesco Saúde, and Porto Saúde saw their loss ratio increase in the first quarter, which was offset by the improvement in the financial result. The insurers have a better indicator because they have a larger volume of reserves than the operators and are not promoting acquisitions at the same pace as their competitors.

OdontoPrev, the largest operator of dental plans in the country, also felt the impact of the economic environment. In the first quarter, the company lost 28,000 users and the average ticket fell 1.2%.

The five hospital groups – Rede D’Or, Mater Dei, Dasa, Kora and Oncoclínicas – saw the EBITDA margin fall, with variations between 0.2 to 3.7 percentage points. At the beginning of the year, the spread of omicron made the average ticket of the procedures performed in the hospitals lower. In Rede D’Or, the reduction was 3.2%, and in Mater Dei, 12%. “We see the drop in ticket, pressure of margins and high leverage as a worrisome combination for the results in the short term,” says XP in a report.

Among the diagnostic medicine chains, there is loss of profitability due to Covid and negative financial results. But the performance among them varies a lot. Fleury and Hermes Pardini reported double-digit revenue growth, but the bottom line of the earnings report was pressured by financial expenses. Alliar, taken over by businessman Nelson Tanure, had worse results in its main indicators. The company attributed the bad performance to the Covid wave, which led to a reduction in elective exams and professionals leaving the company.

In common, the executives of the companies highlighted in their conference calls with analysts and investors that the scenario in March was of recovery, with a lower volume of layoffs in the companies that contract health insurance plans. Besides this, there is a positive expectation with the increase of the tickets coming from the price hikes of the plans and the resumption of elective procedures, which generate more profit, with the easing of Covid infection levels.

Most of the CEOs and financial heads of the healthcare groups said that, despite the current level of the Selic rate and its impact on the earning reports, they do not intend to reduce the growth strategy through acquisitions. They pondered that the analyses are more careful, but there was no change in plans. Hapvida has 20 assets for purchase on the radar. Dasa informed that the acquisitions will not take place at the same pace as in the last two years. In this period, the company, controlled by the Bueno family, promoted nine acquisitions with disbursements of $2.5 billion.

In recent months, the highlight deals were the acquisition of SulAmérica by Rede D’Or and the joint investment of R$678 million by BP — Beneficência Portuguesa, Bradesco Saúde, and Fleury — in an oncology company.

Source: Valor International

https://valorinternational.globo.com

/by

BR Properties sells assets to Brookfield to get back in the black

Martin Andres Jaco — Foto: Claudio Belli/Valor

Martin Andres Jaco — Foto: Claudio Belli/Valor

BR Properties agreed to sell 12 business buildings and two plots of land to Brookfield. The deal signed Wednesday is expected to generate a net result of R$5.5 billion, the company’s chief financial officer André Bergstein said.

The amount will be set aside for prepayment of debts –BR Properties’s net debt amounts to R$2.1 billion – but the company has not decided whether it will be fully paid.

The sale makes sense because the company’s portfolio is mature and able to generate a capital gain, considering that high interest rates increase the company’s debt, BR Properties CEO Martin Jaco said. “The financial cost erodes our result, but the financing was prepared to be prepaid. For that, we needed cash,” he told Valor. “We are going to eliminate this financial cost.” BR Properties expects to make cash flow positive with the proceeds of the deal.

The company is also studying which portion of the proceeds will be distributed as dividends to shareholders. The remainder is likely to be invested in the company’s logistics warehouse projects and part will remain in cash.

The company is rebuilding its portfolio in the industrial and logistics segment after having sold all such assets four years ago.

BR Properties has no plans to rebuild the size of its portfolio in the short term, the CEO said in a conference call about the deal. “The market is not easy, so we will maintain this volume for some time,” he said.

Following the approval of the sale, the next step will be to discuss new investments or a plan to take the company private.

The sale includes six business buildings in São Paulo (the entire portfolio of the segment in the city), one in Alphaville (an affluent district on the outskirts of São Paulo), one tower in Brasília and four towers in Rio de Janeiro, totaling a gross leasable area (GLA) of 385,400 square meters. The two plots of land are located in São Paulo, with a GLA of 9,300 square meters.

The deal covers more than half of BR Properties’s portfolio. Now, the industrial segment, which includes logistics warehouses and land for them, accounts for the largest area in the portfolio. The company remains in the business segment only in Rio de Janeiro, with properties like Passeio Corporate, a project with 82,800 square meters of GLA, and with a smaller project in Minas Gerais.

According to Mr. Jaco, the company is getting rid of 100% of vacant offices with the sale, which means a reduction in costs.

The company said Thursday that it will receive 70% of the value on the closing date of the acquisition of each property, and that the remaining 30% will be paid by Brookfield 12 months after the deal is closed, in amounts corrected by inflation and the interbank deposit rate (CDI).

The next steps are the approval by an extraordinary general meeting, since it involves more than 50% of the value of the company’s assets, and waiting for the approval of antitrust body CADE, which could take 45 to 70 days, Mr. Bergstein said.

Source: Valor International

https://valorinternational.globo.com

/by

Electricity bill reduction is new test for minister

Adolfo Sachsida — Foto: Dênio Simões/Valor
Adolfo Sachsida — Foto: Dênio Simões/Valor

Having passed the crucial stage of Eletrobras’s privatization, which was approved by the Federal Court of Accounts (TCU), Mines and Energy Minister Adolfo Sachsida will now negotiate a proposal to reduce electricity bills, which is under negotiation with Congress, and debate the use of public money for gas pipelines. The minister did not reply to a request for comment.

Both themes are seen as key by President Jair Bolsonaro’s allies. Regarding the increase in electricity tariffs, that exceeded 20%, the concern is with the negative impact of inflation on the popularity of the president and allies in search of reelection in regional elections.

Mr. Sachsida has already begun to point out alternative paths that would lead to the reduction of tariffs, which could become a package of measures if it adds other proposals from Congress. He is also trying to avoid other legislative proposals that concern the government, such as the one that imposed on the sector the construction of 8-gigawatt gas-fired thermal plants in regions where there are no gas pipelines.

The reduction in electricity bills meets the wishes of President Jair Bolsonaro, who is concerned with eliminating risks to his reelection. The skyrocketing cost of electricity, added to the cost of fuel, increases inflationary pressure and affects his popularity.

In a meeting with Chamber of Deputies Speaker Arthur Lira (Progressive Party, PP, of Alagoas), Mr. Sachsida signaled that he will use funds from the privatization of Eletrobras to neutralize part of the tariff increase. The operation itself already guarantees the transfer of R$5 billion this year to the Power Development Account (CDE).

When approving the 2022 CDE budget, in the amount of R$32 billion, the Brazilian Electricity Regulatory Agency (Aneel) considered the contribution of R$5 billion that already make up the calculation of the distributors’ adjustments. It remains to be seen whether the minister, when making the promise to Mr. Lira, will look for a way to bring forward the transfers that the “new” privatized Eletrobras will make to the CDE over 25 years. In all, the privatization will yield a total of R$32 billion to CDE.

Another way to bring more funds from Eletrobras’s capital increase to CDE this year is to convince the National Treasury Secretariat to give up part of the R$25.4 billion that will be received as fixed concession payment for changing the contractual regime of the plants. This would require more than good will from the economic team, since it would imply breaching the spending cap rule, which limits growth in public spending to the previous year’s inflation.

In recent days, the proposal to limit sales tax ICMS rate charged on electricity bills to 17% has gained strength, which would also be applied to other essential services. On Thursday, the Chamber speaker assured that the bill that deals with the issue will be put on the agenda next Tuesday.

The Brazilian Association of Power Distributors (Abradee) estimates that limiting the ICMS charged on electricity bills to 17% provides a 15% reduction in tariffs. The calculation was based on a ruling by the Federal Supreme Court, in December last year, which had already limited the state tax on power to 17%, also considering the essential nature of the service. Abradee estimates that the average rate charged to consumers is around 27% and believes that the state lacks goodwill in enforcing the Court’s decision.

More recently, on the initiative of Senator Fabio Garcia (União Brasil of Mato Grosso do Sul), Aneel came under pressure to speed up the use of tax credits related to the exclusion of ICMS from the calculation basis of PIS/Cofins. According to the senator, Aneel allows access to only 20% of what is made available.

The tax credit, estimated at R$60.2 billion, was also generated by Federal Supreme Court’s ruling. Of this total, R$48.3 billion, which has been declared final and unappealable, have already been qualified by the Federal Revenue. However, only R$12.7 billion were considered in the adjustments, causing tariffs to fall 5%.

Source: Valor International

https://valorinternational.globo.com

/by

Russia became fifth-largest exporter to Brazil despite war

The value of what Brazil bought from Russia grew 142% year over year — Foto: Portos do Paraná/divulgação
The value of what Brazil bought from Russia grew 142% year over year — Foto: Portos do Paraná/divulgação

The Brazilian imports of Russian products accelerated at the beginning of this year at a much faster pace than the total of foreign purchases. As a consequence, the Russians, despite being at war with Ukraine, have climbed up the ranks and became, from January to April, the fifth-largest exporter to Brazil. In the same period last year, they were in the 12th position.

China is still the absolute leader in the supply of products to Brazil from January to April of this year, followed closely by the United States. Germany and Argentina come next. Russia, in fifth place, sold to Brazil in the period a total of R$2.4 billion, practically tied in value with India, which comes right after. In relation to last year, the Russians left behind countries such as Korea, Mexico and Japan.

Brazilian purchases from Russia grew 89% from January to April this year in relation to the same period in 2021. Overall, Brazilian imports rose 28% in this same comparison.

Specialists point out that Russia’s current position among Brazil’s five largest suppliers is not permanent, but the result of a scenario that came with the pandemic and was exacerbated by the Russia-Ukraine war.

The composition of our economic activity and the items Brazil buys from Russia help explain this. Fertilizers or chemical fertilizers are the main ones and account for 70% of the basket. Coal accounts for 15%, while petroleum fuel oils represent 7.1%.

Russia is one of the largest global suppliers of fertilizers. From January to April, Russians supplied $1.65 billion in these items, which represented a quarter of what Brazil imported in the period. The value of what we bought from Russians grew 142% year over year.

The increase in value was driven by prices and purchases brought forward. The prices of fertilizers imported by Brazil jumped 130.7% in April year over year. The data is from the Foreign Trade Secretariat (Secex/ME) and is valid for all the fertilizer we imported that month. However, the input that came from Russia was also more expensive. Data from consultancy MacroSector show that the price of Russian fertilizers that Brazil bought in the first quarter of 2022 increased 149% year over year.

Price increases reflect an increase that had already been happening since the beginning of 2021, said Fabio Silveira, partner and head of the consulting firm. Under the effect of the pandemic, fertilizers became more expensive due to increased demand, shortage of supply and logistical bottlenecks. The war brought even greater fear for the shortage of raw materials.

When releasing April’s trade balance data, Herlon Brandão, Secex’s undersecretary of Foreign Trade Intelligence and Statistics, explained that, according to the agency’s survey, farmers moved up the acquisition of inputs, probably due to fear of shortages, now already under the influence of the war in Eastern Europe. The usual, he explained, is that the import of these inputs increases in the second half of the year.

Mr. Silveira recalled that the robust agricultural production last year created a kind of “euphoria” in the industry regarding the prospects for 2022. The agricultural revenue in 2021, he says, reached R$893 billion, up more than 50% year over year. Capitalized, with high expectations for this year and with fears of a shortage of inputs, farmers have moved up the purchase of fertilizers and pesticides, he said.

Weather issues, he recalled, later led to a reassessment of the 2022 harvest. In spite of that, important crops, such as grains, are expected grow around 3% in volume, he estimated.

Mr. Silveira recalled that fertilizers imported now is likely to be used for next year’s crop, since this year’s is already planted.

José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB), says prices are expected to remain high and there is no prospect of a greater adjustment, either in fertilizers or in oil as long as the war continues.

For Mr. Silveira, it is possible that in May imports of fertilizers, including from Russia, will remain high. For him, however, demand will not remain at this level, because prices are very high, with a big impact on producers’ costs. In case the account shows that the price of the agricultural product will not allow farmers to pass on costs, the purchase of fertilizers and other inputs will be reduced. Producers will, at least in part, choose to use already fertilized soil from previous harvests, which, in turn, is expected to reduce productivity, he said.

Source: Valor International

https://valorinternational.globo.com

/by

Petrobras mulls investing in offshore wind power

Petrobras CEO said company joined forces with Equinor to develop the 4-gigawatt offshore wind project Aracatu, in the Campos Basin — Foto: Brennan Linsley/AP
Petrobras CEO said company joined forces with Equinor to develop the 4-gigawatt offshore wind project Aracatu, in the Campos Basin — Foto: Brennan Linsley/AP

Offshore wind power generation is one alternative studied by Petrobras in the long run, considering the energy transition context, CEO José Mauro Coelho said.

“Offshore wind power has great potential in Brazil and synergies with Petrobras’s operations. This is one alternative under study. There are others,” he said.

In an event about the global carbon market in Rio de Janeiro, Mr. Coelho said that the Brazilian state-owned oil company joined forces with Norway’s oil company Equinor to develop the 4-gigawatt offshore wind project Aracatu, in the Campos Basin.

Energy transition will require cooperation, he said. “Challenges of this magnitude require broad dialogue and cooperation to seek a fair transition that protects the most vulnerable ones and safeguards energy security. The achievement of climate goals is key for social welfare, economic development, and for our own competitiveness,” he said.

The executive pointed out, however, that even in the most accelerated energy transition scenarios, there will be demand for oil around the world “for decades.” “We believe that the transition will be slow and that the world will demand oil for many years.”

In this sense, Mr. Coelho pointed out that pre-salt production, in ultradeep waters, is among those with the lowest emissions and highlighted the importance of Petrobras continuing to reduce carbon emissions in oil production to be competitive.

“Our oil is produced with 40% lower emissions per barrel than the world average. Producing oil with greater efficiency and lower carbon intensity is an immediate, relevant contribution to the reduction of global emissions,” he said.

Mr. Coelho pointed out that the company also has initiatives to reduce emissions in refining. “Petrobras will have one of the most modern and sustainable refining complexes in the world,” he added.

Source: Valor International

https://valorinternational.globo.com

/by

Reversal of monetary tightening depends on data, Central Bank says

Bruno Serra — Foto: Carol Carquejeiro/Valor

Bruno Serra — Foto: Carol Carquejeiro/Valor

Bruno Serra Fernandes, the Central Bank’s director of monetary policy, said Wednesday that the outlook is becoming more positive for inflation, but does not yet allow one to glimpse the beginning of the reversal of the monetary tightening cycle. According to him, the cycle seems to be coming to an end, but decisions depend on the trajectory of data.

“Looking ahead, I think we start to have more positive inflation, hopefully before the peers. But thinking about easing monetary policy is a step that lies ahead. We first need to see the effect of what we have done,” he said at an event in São Paulo.

Mr. Serra added that the cycle seems to be coming to an end, but that if reality imposes a more negative scenario, the monetary authority may extend it a little further.

This month, the Central Bank raised the Selic, Brazil’s benchmark interest rate, by 100 basis points, to 12.75% per year, and said that it sees “as probable” a new, smaller hike in June. In the minutes of the meeting that raised the rate, the directors reinforced their bet on the lagged effects of monetary policy to bring inflation and expectations to the target in 2023.

Financial market analysts see chances of the Central Bank adopting the strategy of high interest rates for a long time to combat the most recent inflationary pressures, instead of taking the Selic much higher than the current level. On Monday, Mr. Serra said that the Central Bank tries to avoid rate fluctuations, although it doesn’t always succeed.

On Wednesday, the director stressed that the effects of the interest rate hike are not yet fully tangible. He recalled that the tightening cycle was made in an intense and fast way, but that, until the second half of last year, the monetary policy was still stimulating the economy. And he said again that from the second half onwards the effects of the tightening will be clearer, here and abroad.

Mr. Serra emphasized the challenging international backdrop but said that he believes that central banks are working and equipped to bring inflation back to the target. For him, the U.S. Federal Reserve and other developed country central banks have “gotten into the game” to deal with global surplus demand.

Mr. Serra stressed that to conduct local monetary policy, it is key that global inflation moves toward about 2%, and that above that it is possible that the models will not work as well. He added, however, that he believes that the central banks are pursuing their targets.

Asked about fiscal pressures in the country, especially in an election year, he said that at the moment the spending cap, the rule that limits growth in public spending to the previous year’s inflation, is being attacked from “all sides” but that, from November on, it will be necessary to make clear the existence of an instrument that indicates the country’s fiscal direction.

“Right now, many people are attacking the cap, but I think that soon it will become clear that, whether it is the cap or something slightly different, we will need some fiscal target that addresses the situation, that reduces the fiscal uncertainty that weighs on asset prices,” he said.

Source: Valor International

https://valorinternational.globo.com

/by

Court of Accounts greenlights privatization of Eletrobras

Aroldo Cedraz — Foto: Fabio Rodrigues Pozzebom/Agência Brasil

Aroldo Cedraz — Foto: Fabio Rodrigues Pozzebom/Agência Brasil

After almost five hours of speeches, the Federal Court of Accounts (TCU) passed in a floor vote Wednesday the government project for the privatization of state-run power utility Eletrobras. The majority of the TCU members followed the opinion of the rapporteur, Aroldo Cedraz, defeating TCU member Vital do Rêgo, who suggested several adjustments in the process. TCU is a public spending watchdog not related with Brazil’s Judiciary system.

The decision ends a process started in 2018, still in the Temer administration. If completed, it will be the first privatization of the Bolsonaro administration.

With the green light from the auditing agency, the government wants to file next week the operation to increase the company’s capital at the Securities and Exchange Commission of Brazil (CVM) and the U.S. Securities and Exchange Commission (SEC).

In parallel, the syndicate of banks responsible for the operation — led by BTG — will make a road show with local and foreign investors. Some financial centers, such as New York and London, will certainly be on the institution’s route.

The government will also launch, through Caixa Econômica Federal, a platform in the Workers’ Severance Fund (FGTS) application through which workers can opt to invest part of their funds to buy Eletrobras shares. The government plans to use up to R$6 billion from the fund.

Next, there will be the so-called book building: the collection of investors’ indication of interest in acquiring the stocks. The demand will determine the final price of the shares, when the settlement will finally take place. It is expected to take place by the end of June.

After the operation, the federal government’s stake in Eletrobras’s voting capital will be reduced to 45% from 72%. The control will then be held by individual shareholders, in a model known as corporation, in which there is no major shareholder.

TCU’s approval was announced after the presentation of a reviewing vote by Mr. do Rêgo. He pointed out at least six alleged illegalities in the privatization process, among them a possible involuntary privatization of Eletronuclear, a subsidiary that should remain under control of the federal government.

This would happen because Eletronuclear owes R$2.7 billion to Eletrobras, referring to dividends withheld since 2010. In addition to pointing out the absence of this debt in Eletrobras financial statements, Mr. do Rêgo said that the form of payment could transfer to individual shareholders the largest share of Eletronuclear.

Under the design presented by the government, at the end of the privatization, the federal government would have 64% of the voting capital of Eletronuclear, with the new Eletrobras holding the remaining 36%. The private-sector partners would also hold 99% of Eletronuclear’s preferred shares, without voting rights.

However, the debt between the two companies could change this correlation. According to current legislation, preferred shares become entitled to voting rights if dividends have not been duly paid.

In this scenario, considering the R$2.7 billion debt, the private-sector partners would have a majority in Eletronuclear’s voting capital, which in practice mean that it would be privatized. “Brazilian nuclear policy is going to be privatized. Not even the most democratic country in the world has abdicated its nuclear policy,” Mr. do Rêgo said.

He also presented problems in the Eletrobras contingency policy. The company set aside R$9 billion for potential legal expenses only in last year’s third-quarter earnings report, which raised the total amount of provisions to R$26 billion.

According to Mr. do Rêgo, depending on the outcome of the lawsuits that motivated the contingencies, the federal government could be harmed. This is because an eventual victory of the state-run company in the courts would transform the provisions into profit and, consequently, in dividends for individual shareholders, who will have a larger share.

He also pointed out flaws in hydroelectric dam Itaipu’s pricing and classified the privatization as “outrageous” and “a sweetheart deal.” “Itaipu is being almost given away. There is a plot behind all of this,” Mr. do Rêgo said.

The arguments were not enough to change the course of the trial and the privatization was authorized by seven votes in favor and only one against. The head of TCU, Ana Arraes, was the only one to show support for Mr. do Rêgo’s thesis. Even so, she did not vote, since this only happens when a tie-breaker is needed.

The other members defended the legality of the process and recalled that the market would correct any distortion presented by Mr. do Rêgo’s vote.

“Within the defeat of the thesis, we had a clear victory. The illegalities pointed out by me remain, in my opinion, unclear. During the debates, it was said that the market could adjust the directions of privatization. But it is not the constitutional duty of the market to correct the illegalities identified,” said the defeated TCU member. He believes that the case will eventually go to the courts.

Source: Valor International

https://valorinternational.globo.com

/by