Sales of durable goods in April and May may have been better than in the first quarter — Foto: Edilson Dantas/Agência O Globo
Despite the difficult phase faced by retailers of durable and semidurable goods since last year, there are signs that April and May may have been better than the first quarter, which has made asset managers and executives more hopeful about a change in the consumer environment after the second half of the year.
This started to become clearer with the release of results from the companies this month. Although the sales data from January to March show what was already expected – sales volume in decline and costs on the rise – companies such as Via, Centauro, Carrefour and GPA say they saw better figures in April than in March, and May sees demand and foot traffic levels in line with April.
Via, the owner of Casas Bahia and Ponto chains, reported the best Mother’s Day since 2018. Americanas, which sells everything from food to laptops and linens, said that brick-and-mortar stores have been expanding foot traffic and show resilience.
The partial authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts, the stabilization of unemployment rates (the quarter ended in February saw the lowest rate since 2016) and early payment of 13th salaries (a year-end bonus) of pensioners may have driven results, economists say.
The companies also cited the effect of Auxílio Brasil, a social program with larger monthly cash transfers than its predecessor Bolsa Família, as well as the higher number of consumers in the streets.
Another aspect that drew the market’s attention was the fashion retailers’ ability to pass on price adjustments to consumers in the first months of the year without any reduction in the volume sold.
In a way, according to analysts’ reports, this can also be understood as a sign of a greater possibility of improvement in the retailers’ margins.
Renner’s management team mentioned last week that it has been passing on higher costs to products without noting negative reactions from buyers. Centauro’s management team said it has partly passed on higher costs from input and freight without losing sales.
Despite being companies more focused on middle-class consumers, any recovery in consumer spending typically starts with this segment. As a result, consumer spending specialists expect that a little more consistent recovery may gain strength later among low-income consumers.
Despite the sharpest drop in foot traffic in January, Marisa, a fashion retailer focused on the middle class, cited an “expressive recovery” of same-store sales in February and March compared to the same months in 2019, a phenomenon noted in April and May as well.
Market analysts will monitor in the following months the higher portion of payments in arrears in point-of-sale loans. They see a slight pickup in demand in the second half as a possible outcome, despite the fact that many consumers are still paying for previous purchases.
In Marisa, Via and Carrefour first-quarter results, net losses in customer portfolios or payments in arrears (up to 90 days) drew the attention of analysts. They are already adjusting the release of POS loans, but say that the situation is under control.
Marcus D’Elia and José Luiz Alquéres — Foto: Reprodução/Valor
The proposal to privatize Petrobras, announced by Mines and Energy Minister Adolfo Sachsida, would not ensure lower fuel prices in Brazil. That’s what Marcus D’Elia, a partner at Leggio Consultoria, and José Luiz Alquéres, advisor of the Brazilian Center for International Relations (Cebri) and former CEO of Eletrobras and Light, said in Tuesday’s live-streamed interview with Valor.
“The price of diesel and gasoline depends on demand and supply. Therefore, privatizing Petrobras in Brazil has no effect on the price of oil,” says Mr. D’Elia. He recalled that there is already a divestment program at Petrobras in which several assets are being sold and Petrobras is already a well-structured company with good productivity and good professionals.
Mr. Alquéres says that privatizing the company a few months before the elections would be “a monumental nonsense.” The executive compares it to the privatization of Eletrobras, in which several proposals to the sector were inserted in the bill and would cost even more to society.
“If the Eletrobras privatization bill received unrelated amendments, try to figure a Petrobras privatization bill in the hands of [Chamber of Deputies speaker] Arthur Lira. This is a bad joke, an abuse of common sense and an aggression to the Brazilian people,” he said.
For them, earth-quaking statements by the minister only cause noise in the market. The ideal would be new private-sector refineries and more port infrastructure, which would increase competition and possibly stabilize prices.
The surge in Brazil’s investment rate between 2016 and 2021, to 19.2% from 15.5% of the GDP, is due entirely to the increase in the private sector’s slice, whose rate rose to 17.5% from 13.6% of the GDP in the period, while public investments shrunk to 1.64% from 1.93%, the same level as the previous two years. The estimates for 2020 and 2021 are from the Center for Capital Market Studies at the Economic Research Institute Foundation (Cemec-Fipe), based on data from the Applied Economics Research Institute (IPEA), the National Accounts of the Brazilian Institute of Geography and Statistics (IBGE) and the National Treasury.
Cemec recalls that, since 2018, investment rates reflect the impacts of oil rig accounting criteria, in addition to changes in relative prices of gross fixed capital formation (GFCF) and the GDP in the period. “Cleaning up” the data from these effects, based also on a paper by economist Gilberto Borça published in Valor, Cemec estimates that the private investment rate, in relation to GDP, rose 2.9 percentage points between 2016 and 2021, above the 2.7 points growth of the total rate.
Three-quarters of this increase occurred between 2019 and 2021, when the private investment rate, with adjustment, advanced two percentage points of the GDP. At that time, Cemec notes, the growth rate of the GFCF index reached 8% per year, almost double of what was seen in the entire period from 2016 to 2021 (4.5% per year), despite a sharp drop in 2020. “My interpretation is that this is an investment recovery cycle that began after the recession started in 2014, in 2016-2017, was interrupted by the pandemic shock in 2020, but then recovered strongly,” Cemec’s coordinator Carlos Antonio Rocca said.
The study suggests that the increase in private investment has been concentrated in agribusiness and the construction industry. In the period from 2016 to 2021, the physical production of agricultural capital goods and their parts grew 3.9% and 7.3% per year, respectively, only below the capital goods for the construction industry, whose production advanced 11% per year.
This performance was strengthened in the 2019 to 2021 period, rising to more than 18% per year in the case of agricultural capital goods and parts, and to 16.6% among construction capital goods. The housing industry was favored recently by household spending on renovation and maintenance in the pandemic and, mainly, by falling interest rates and the drop in financing costs for construction and selling of residential properties. The production and investments in agriculture had a strong incentive from the increases in prices of agricultural commodities and the exchange rate, says Cemec.
Mr. Rocca – who, at Cemec, closely follows public companies in Brazil – also notes that since 2018 the rate of return on total capital invested by these companies was very close to the weighted average cost of capital, but in 2021, this rate of return has improved a lot. “The relevance of these data is that one of the important elements for making the decision to invest is to knowing how the return on this invested capital will be,” explains Mr. Rocca.
Given the financial constraints on public investment, there has indeed been an effort by the government to adopt a privatization and concessions agenda as an alternative, said Manoel Pires, coordinator of the Fiscal Policy Observatory at Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV). But there are also, he says, some statistical and/or temporary effects that help explain the recent boost in private investment.
Besides the internalization of the oil rigs, which do not present new investments, Mr. Pires notes that the inflation of investment goods was higher than that of the GDP. “When you take the value of investment and divide it by the GDP, the investment rate goes up, but the price effect is not exactly new investment,” he says.
Looking ahead, Mr. Pires says that with the rise in interest rates, the trend is that construction, for example, will no longer be such a strong factor in the growth of private investment. Another element that may have helped explain the higher rates, according to him, is that many businesses needed to invest to adapt to the pandemic and continue producing, what could tend to create a temporary effect of increased investment. “We will have to wait a bit to better evaluate the trend, but these questions serve to say that it is difficult to see we are living a new cycle of investments with the information we have now, that can raise the growth of the economy,” he ponders.
In a recent report, Inter B. Consultoria, headed by economist Claudio Frischtak, said that Brazil still invests little in infrastructure specifically. “In recent years, less than 2% of the GDP – and we have not gone beyond 1.73% in 2021,” he said, projecting 1.71% for 2022. Inter B. sees room for more public investment in infrastructure – which is expected to decline to 0.57% of the GDP in 2022 from 0.59% of GDP in 2021, the consulting firm estimated – provided it is based on a government reform that creates fiscal space for a responsible expansion of resources, with “a new governance, with better planning, and less discretion.”
Vital do Rêgo, a member of the Federal Court of Accounts (TCU) that requested more time to study the Eletrobras privatization trial, will tell the court this Wednesday to halt the analysis of the case until alleged irregularities in the company’s financial statements are corrected.
One issue is related to a R$2.7 billion debt that Eletronuclear has with Eletrobras. The liability, created by the withholding of dividends, is allegedly not recorded in Eletrobras’s results. The company replied that it will not comment on the case.
Another issue identified by the TCU member is in contingencies reported by Eletrobras for possible unfavorable decisions in courts. According to Mr. Rêgo, who requested an audit of the contingencies, the way the operation was designed could represent losses to the country.
Only in the third quarter of last year, the company increased by R$9 billion the amount of the provisions, which reached R$26 billion. If Eletrobras wins the lawsuits in court, the funds will return to the balance sheet as profit and then be partially distributed as dividends.
In this case, Mr. Rêgo said, the government could lose, since its stake in Eletrobras – and, consequently, in dividends – will be smaller after privatization. The government expects its slice to fall to 45% from 72%.
If Eletrobras is defeated in the courts, the state could also lose. This is because the company went to court to ask that the state be considered “jointly” liable. The liability arose from compulsory loans made over the years through electricity bills.
If the Superior Court of Justice (STJ) rules that the state is jointly liable, half of the R$26 billion in provisions would be transferred as a liability to the Treasury.
Despite Mr. Rêgo’s points, the plenary is expected to approve the opinion of rapporteur Aroldo Cedraz and release the privatization. In this case, the government expects to move forward with a capital increase in July that will transfer the control of the state-owned company to the private sector.
On Tuesday, unions representing Eletrobras servers filed a complaint against the company with the U.S. Securities and Exchange Commission (SEC). They say that the company is allegedly hiding from the shareholders the dimension of the financial risks of the hydroelectric plant of Santo Antonio, in Rondônia.
The unions argue that Eletrobras has been delaying the disclosure of sensitive financial details about the plant in an attempt to speed up privatization – even as this imposes losses for the company and its shareholders in the future.
Analyzed in two stages, the privatization case was passed in both cases by TCU’s technical team and has the support of most of the court’s members. This week, the new minister of Mines and Energy, Adolfo Sachsida, met with several TCU members to ensure support for the project.
If privatization is approved, a general meeting of the company’s shareholders is still planned, followed by the publication of the 20-F form, which contains information about the operation for SEC and foreign investors.
The timetable also foresees the publication of the prospectus of the stock offering, the book building and, finally, the liquidation of the operation.
Despite the warnings made by Mr. Rêgo, however, government sources heard by Valor believe that the privatization will pass this Wednesday in TCU. The subject was discussed Tuesday at a meeting held at the Ministry of Economy, attended by the minister himself, Paulo Guedes, Mr. Sachsida, the Federal Attorney General Bruno Bianco, Eletrobras CEO Rodrigo Limp and specialists from the ministries and the company. “We believe that it will be approved by the TCU, with Vital voting against it,” a government source said.
Another source from the Economy explains that “the doubts that the TCU specialists had have all been answered,” but acknowledged that the trial is also “political.”
(Lu Aiko Otta and Estevão Taiar contributed to this story.)
Carlos Marinelli, Denise Santos and Jeane Tsutsui — Foto: Ana Paula Paiva/Valor
With an investment of R$678 million, BP (Beneficência Portuguesa), Fleury and Bradesco Seguros (through Atlântica Hospitais, the insurer’s the hospitals and clinics arm) have joined forces to create a company specialized in oncology. The investment, which will be made in the first five years of operation of the new project, is intended for the construction of clinics and cancer centers in the country. Each one of the partners will have a 33% stake, and the investment will be in the same proportion.
The laboratories of the Fleury group, whose main shareholder is Bradesco Seguros, and the medical clinics of Atlântica, which has 27 units in seven states, may be service providers of this new company, whose name is still being defined. Surgeries, on the other hand, will be in charge of the Beneficência Portuguesa Hospital in the case of patients in São Paulo. In other cities, the idea is that the more complex cases will be executed at the new company’s own cancer centers or accredited hospitals. This new company will operate nationwide and the service can be provided through healthcare plans or privately.
“Besides the investment in the structure, we will put our expertise, doing oncology research in this new company,” BP CEO Denise Santos said. “It is a way of expanding our knowledge of so many years in oncology in Brazil.”
With this partnership, the hospital group, the network of medical diagnosis and the health insurance company will invest at the same time in cancer treatment — one of the diseases with the highest incidence in the world, and with an estimated 66,300 new cases this year in Brazil — and a medical service model known as integrated care. In this format, which is one of the world’s main trends in the sector, health companies participate in all stages of medical care.
The verticalized operators were the first to bet on this model as a tool to reduce costs and trim the dependence on health service providers that gain in volume. At the other end of the chain, about three years ago, medical diagnosis company Dasa was the first to adopt this concept of integrated care by also investing in hospitals to participate in the entire chain.
In 2020, Fleury decided to diversify its business and is also betting on medical clinics to be present in yet another link of the chain. “Considering the aging population and the consequent increase in cancer cases, early diagnosis is essential,” Fleury CEO Jeane Tsutsui said.
According to Carlos Marinelli, general director of Atlântica Hospitais, the boarding of Bradesco Seguros in the business “is a way for the insurer to participate in the healthcare value chain.” Last year, the insurance company created a healthcare arm to invest in hospitals. According to sources, this strategy intensified after SulAmérica, its main competitor, was sold to Rede D’Or. In this scenario, there are also uncertainties about the future of UnitedHealth, owner of Amil, in Brazil and the merger between the verticalized operators Hapvida and NotreDame Intermédica, which together have more than 80 hospitals.
Mr. Marinelli, who started discussing the creation of the new oncology company before the pandemic, when he was still CEO of Fleury, explains that there are synergies between the new company and Atlântica’s network of clinics. “Patients who have finished their cancer treatment can be followed up by a doctor from our clinics,” said Mr. Marinelli.
The executive added that the service contracts of the Atlântica clinics and the accreditation of Bradesco Saúde with the new company will have the same market criteria. The creation of the new company still depends on the approval of the antitrust regulator CADE.
The speech of the Central Bank’s monetary policy director, Bruno Serra Fernandes, in an event held by Goldman Sachs on Monday morning greatly reduces the chances of Brazil’s benchmark interest rate Selic being raised beyond 13.25% per year.
He classified the extension of the cycle of interest rate hikes in the next meeting, in June, as likely, but not certain. He also acknowledged that he is considering two options to contain the inflation surge: raise interest rates further or postpone the Selic cuts planned for next year.
In another sign of little willingness to go beyond 13.25% a year, he said that the Central Bank considers the sacrifice ratio, or the price paid in terms of economic activity to disinflate the economy faster – although he highlighted that the fight against inflation weighs more.
Finally, he defended the inflation projection for 2023, the main guide for the size of the monetary tightening cycle, which stands at 3.4% and is well below the estimates of 4.1% by private-sector analysts at this month’s meeting of the Central Bank’s Monetary Policy Committee (Copom).
Financial market analysts are divided about the signals given by the Copom in the last meeting. Some believe that the Central Bank signaled that it will raise interest rates to 13.25% per year from 12.75% and stop the cycle at that level. Others think that policymakers did not commit to anything and that it will continue to raise interest rates.
Apparently, the signaling is at the halfway point. The economic backdrop of the meeting in May supports a likely extension of the rate hike cycle beyond the previous final rate of 12.75% in June. But, as always, the signals are conditional and will depend on the evolution of the economy by the meeting in June.
Mr. Serra’s speech on Monday, however, brings more elements about the Central Bank’s own signaling and about how high the requirements for a possible extension of the cycle are.
A key point is that Mr. Serra made a point of highlighting that the Central Bank has signaled a probable extension of the cycle. This is what the Copom wrote in its statement and in the minutes of the last meeting, but some analysts understood that the monetary authority was probably not referring to the extension of the cycle, but to a minor raise.
In other words, what the Copom has signaled, without confirming, is the possibility of an extension of the cycle. Mr. Serra emphasized, in the event, all the uncertainties surrounding the inflation projections and also the cautious tone adopted by the Central Bank.
Surely the most important part of Mr. Serra’s speech was the indication that the Copom is evaluating two alternatives to reach the inflation target: raise interest rates to a higher peak, or postpone the downward cycle expected for next year.
In other words, even if, due to the circumstances of the scenario, the Central Bank concludes that it will have to increase interest rates even higher, it is not certain that the alternative will be to keep on increasing them. The additional tightening may come through a postponement of the interest rate cut.
When answering one question, Mr. Serra got mixed up and mentioned that the Central Bank could potentially postpone the meeting of the inflation target after 2023. He corrected himself soon after. He was actually referring to a postponement of the cycle of cuts.
Strictly speaking, there was no mistake: if the option is to postpone the interest rate cut scheduled for 2023, instead of raising it now, in fact, the Central Bank will be displacing its target to 2024, given how long it takes for monetary policy to reach price indexes.
Mr. Serra had said in a live-streamed speech earlier this year that there was little room to fight inflation in 2023 by postponing interest rate cuts. Today, this space is much smaller.
Mr. Serra also discussed the sacrifice ratio of monetary policy. This is a topic slightly different from the concern with activity cited in the balance of risks of the last meeting of the Copom. On that occasion, he referred to the downside risk to inflation of an eventual negative surprise in economic activity. This time, he spoke directly about the price in terms of activity paid to disinflate the economy.
In his considerations, Mr. Serra said that the choice of the Central Bank today should lean more towards inflation because society demands this at the present moment around the world. But the director also put on the agenda the concern with the activity, which emerges as a secondary objective in the monetary authority’s mandate.
Finally, Mr. Serra defended, in a way, Central Bank’s inflation projections. This had already been done in the Copom minutes released last week. He cited several factors that explain why Copom’s projections are below market projections.
This is important because, if the Central Bank was revising its methodology to get closer to the market consensus, it would find a higher inflation projection. Again, this would require a higher interest rate dose. It must be remembered that the Copom has taken the upside asymmetry out of its inflation projections, within its balance of risks.
Overall, Mr. Serra’s remarks were in the direction of not raising interest rates beyond 13.25%, although he didn’t close the door on it, citing the conditional nature of the monetary policy signals.
Mr. Serra is seen as part of the “dovish” wing of the Copom, formed by directors less inclined to raise interest rates. It’s necessary to follow what other members of the Copom will say from now on to gauge the direction of monetary policy.
The acquisition made by CSN Cimentos of the assets of LafargeHolcim in Brazil for more than $1 billion may face questioning in the analysis of the operation by the antitrust regulator CADE, not scheduled yet. It may be postponed to the second half, according to sources consulted by Valor, and may be subject to some remedies, such as giving up assets, to be approved by the watchdog.
The delay was not foreseen by CSN, which was expecting an outcome in April. Now, the company has already acknowledged that it may come out at the end of June.
Announced at the beginning of September, the approval of the operation — without any restriction by the antitrust body at the beginning of April — was questioned by competitor Cimento Tupi. The order favorable to the deal was issued by the acting superintendent, Diogo Thomson de Andrade, on March 31.
Tupi argued — in manifestations and appeals submitted to the CADE (seen by Valor) — that the deal generates high concentration power. The company points out up to 50% in some markets of the Southeast region, especially Minas Gerais and Rio de Janeiro.
This fact, it argues in the documents, was ignored by CADE’s acting general superintendent. The company’s appeal, dated April 19, was accepted by the rapporteur Luis Henrique Bertolini Braido on May 2. The case had already been analyzed by the member Lenisa Rodrigues Prado, also in April, who favored a deeper investigation by the antitrust body.
Tupi – which is under protection from creditors – operates in Minas Gerais, Rio de Janeiro and São Paulo, with production units in Carandaí (Minas Gerais) and Mogi das Cruzes (São Paulo). The installed capacity totaled 3.4 million tonnes per year. In 2015, it had to close its mill in Volta Redonda after the end of the supply of basic slag by CSN’s steel unit that is located in the city. The case generated a dispute between the companies that lasted several years and was even analyzed by the CADE. At the beginning of the battle, in 2004, CSN was not yet active in cement.
With the acquisition of LafargeHolcim’s assets, CSN jumps from three production units to nine units in the Southeast — four in Minas Gerais, three in Rio de Janeiro, one in São Paulo and one in Espírito Santo. The acquisition also adds to the cement company a plant in Paraíba and another one in Goiás.
A source who knows well the industry and the behavior of CADE in cases of market concentration told Valor that from the point of view of the volume involved in the merger of the operations in the Southeast region, the unrestricted approval of the acting superintendent-general goes against the decision of the body itself, in 2014, when it analyzed the merger of Lafarge and Holcim in the country. The source says that at the time, the operation involved 12.9 million tonnes of combined capacity. “Now it is 13.9 million tonnes. What has changed?”. At that time, the CADE forced the two companies to sell assets totaling 3.7 million tonnes.
Besides this issue, another point raised by Tupi is the transportation logistics, via MRS railroad, in which CSN is one of the controlling companies. Both Tupi (for transportation of inputs and final products) and LafargeHolcim are major users of the railroad.
Tupi also questions the supply of basic slag, a byproduct of steel production which is a relevant input in the manufacture of some types of cement, such as CP-III, added to the clinker in the grinding unit. It alleges that CSN would be left with more than 50% of this input available in the Southeast region. Tupi produces CP-II-E, which contains 34% slag.
The major suppliers of slag besides CSN are Ternium Brasil (formerly CSA), ArcelorMittal Tubarão, Usiminas, Aperam and Gerdau, but all already have long-term contracts committed to other cement companies, including Lafarge Holcim. CSN supplies its own grinding mill located in Volta Redonda, Rio de Janeiro.
Tupi’s lawyers also point to the coordinated power of the deal, saying it could prevent small producers from having access to raw materials and logistics infrastructure.
According to their information, in the markets served by the Barroso and Rio de Janeiro plants, the participation of CSN+Lafarge is between 40% and 50%. In the case of Pedro Leopoldo+Cantagalo the percentage ranges from 30% to 40% and this was not allowed.
By the CADE’s criteria, the market is analyzed within a radius of up to 300 km and between 300 and 500 km, counting from the plants’ units. Even admitting that there is concentration higher than 20% — a reason for deeper analysis — Mr. Andrade said in his order that “after an individual analysis of each cement market affected by the operation, it was found that the levels of rivalry existing in each one are sufficient to make unlikely the exercise of market power by the applicants (CSN and LafargeHolcim).”
According to Tupi, among such rivals mentioned by CSN in the case are not very significant companies, such as UAU (250,000 tonnes) and Hypermix.
Ms. Prado, in her order, pointed out several concerns in the operation, which “should be further investigated by the court.” She also said that the sheer existence of rivalry would not be enough to justify approval without restrictions.
Meetings may take place soon between Mr. Braido (rapporteur), the third interested party (Tupi) and CSN before the case is sent to the court for a final decision.
In a note, CSN said that it “continues to cooperate with the instruction made by the rapporteur in the process of acquisition of the assets of LafargeHolcim Brasil.” Tupi said its allegations are in the documents sent to the CADE.
(Beatriz Olivon contributed to this story from Brasília.)
The 25 new plants already announced have investments of around R$60 billion by 2030 — Foto: Barbosa Neto
Viewed in the past as a niche source, biogas is already starting to find a relevant space in the power mix, either as generation or fuel. A significant step was taken this month with the partnership formed between the Brazilian Association of Piped Gas Distributors (Abegás) and the Brazilian Biogas Association (ABiogás).
The two associations have formed a working group to develop actions to boost the injection of biomethane (highly pure biogas) in the distributors’ network, at a time when many companies are seeking to reduce greenhouse gas emissions.
According to ABiogás’s executive manager, Tamar Roitman, 25 new plants already announced have investments of around R$60 billion by 2030 to offer 30 million cubic meters a day – out of a potential that would surpass 120 million cubic meters a day.
“We want to transform this potential into reality,” said Marcelo Mendonça, Abegás’s head of strategy and market.
Data by CIBiogas, a reference center for the biofuel, show exponential growth of the source in the last five years, rising to 755 plants in 2021 from 271 plants in 2017. They produced 2.3 billion cubic meters of biogas, and supply is expected to increase by 22% as 56 plants under construction or renovation go online.
“The 4% of plants under construction account for 15% of the volume of biogas, which signals that the new plants will play a larger role,” said Karina Navarro, a member of the technical team of CIBiogás, in a study called “Panorama do Biogás no Brasil em 2021” (“Panorama of Biogas in Brazil in 2021”).
Changes in regulation have the effect of forming markets, and it couldn’t be different in the segment of biogas or biomethane. One example is the regulatory framework for distributed generation in small and very small grids, in force since 2012 and updated last year, which made it possible the emergence of biogas generation companies, which receive credits when they inject electricity into the distributors’ grid.
Another example was the legal framework for basic sanitation, which sets a deadline for the end of dumps, forcing the destination of solid waste to landfills, with some kind of treatment – laying the foundation for biogas. Financial incentives have also been helping biogas to make room: at the end of March, the federal government launched the Methane Zero program, which aims at encouraging production through the creation of lines of credit for new projects.
There are three main sources of biogas production: residues and waste from agriculture, from industry (producer of organic waste) and from basic sanitation – landfills and sewage system.
Of these three, agriculture accounts for most of the supply, but the vinasse resulting from the ethanol production process has been growing strongly. Raízen, for example, recently announced the construction of its second biogas plant – the first one focused on biomethane – from vinasse and filter cake, two residues from ethanol production.
The plant located in Piracicaba will have the capacity to produce 26 million cubic meters per year, enough to supply 200,000 households. The output has already been sold to Yara Brasil Fertilizantes and Volkswagen, in both cases through long-term contracts. Raízen CEO Ricardo Mussa said that the new unit represents the materialization of the company’s plan to expand business in renewable energy.
Although incipient, there are already investments in basic sanitation. Urca Energia started this week the commercial operation of its third biogas-fired power plant, in Mauá, São Paulo. The 5-MW plant accounts for 27% of the company’s capacity.
Two other plants totaling 9 MW are in operation: Seropédica (Rio de Janeiro) and Ipiranga do Norte (Mato Grosso). A fourth, 5-MV plant is expected to start operating in the second half of this year in São Gonçalo (Rio de Janeiro). Therefore, there will be 19 MW in distributed generation, totaling R$82 million in investments.
In addition to Eva Energia, the group acquired biomethane producer Gás Verde at the beginning of the year, in a R$1.2 billion deal. Among Gás Verde’s assets is a plant, also in Seropédica, with a production capacity of 120,000 cubic meters per day, with an expansion plan for 200,000 cubic meters per day.
“We have noticed a great interest on the part of companies in adopting biomethane in their production and, thus, enabling an effective change in their operations to a cleaner mix,” said Marcel Jorand, Urca Energia’s executive director.
In this sense, according to Ms. Roitman, with Abiogás, and Mr. Mendonça, with Abegás, the injection of biomethane into the network also aims to draw another segment – heavy transportation, currently impacted by the volatility of diesel oil prices. The volume of diesel imported today would correspond to the 30 million cubic meters a day offered by the next projects, the Abegás executive said.
“With more infrastructure for distribution, the interest will certainly increase; there is growing expectation from both sides [producer and distributor],” Ms. Roitman added.
Companies that went public last year started talks with financial advisors to seek capital injections or even merge with rivals, sources say. Of the 45 companies that went public in 2021, only nine are traded above the IPO price – the remainder saw stocks fall, and most of it perform well below Brazil’s benchmark stock index Ibovespa, a survey of Valor Data shows.
“There was a very strong correction [of stock prices]. When this happens, you bring to some companies a renewed focus on value creation through M&A [merger and acquisition],” a source in the financial market said. “Secondary offerings end up leaving the conversation because the market is closed to them, and especially because it punishes controlling shareholders due to the dilution.”
Given this scenario, the natural way is to talk to rival companies, see potential synergies and try and explore this route, the source said. At least 14 of the 45 companies that went public last year are in talks to find an investor, get a convertible loan or merge their businesses.
However, even for the companies that are willing to negotiate the entry of a partner, contribution and even merger, the equation is not simple. Talks have stalled on the pricing of assets, sources say.
Technology and education companies are among those moving in this direction, people familiar with the matter said.
Furniture and decoration e-commerce companies Mobly and Westwing are among groups that have already tried to get closer. However, the talks have not progressed, two sources familiar with the matter said. One source said that Mobly is open to investors and may negotiate a controlling stake. Mobly dropped 86.5% since the IPO, while Westwing is down 82%. In a note, Mobly CEO and founder Victor Noda said he does not comment on market rumors, but affirmed that the company is well capitalized and following the investment plans aligned with investors.
Companies in this industry are going through restructuring. Etna, owned by the Kaufman family (which also controls Vivara), announced it is gradually closing stores – the company unsuccessfully tried to find an investor in the last years. Competitor Tok&Stok is also looking for an investor for the business and has been talking to competitors, sources say. At the beginning of last year, it gave up going public due to market uncertainties.
In the education industry, rivals are also in talks. After raising R$1.2 billion on the stock exchange in February 2021, higher education company Cruzeiro do Sul began talks with Ribeirão Preto-based Moura Lacerda to take over the operation. The talks, however, fell apart – the company announced in a notice of material fact in March that it had given up on the deal.
The education company is down 72.7% since the IPO. The group is in talks with competitors like Ânima Educação, which is also publicly traded, sources say. Ânima wants to focus on medical courses, which have a higher ticket, and is not interested in merging with Cruzeiro do Sul, a source familiar with the matter says.
As a result, the company, owner of Positivo and Braz Cubas colleges, seeks synergies with other groups focused on distance education, and Yduqs is cited as a potential target to a merger. “In this industry, everybody is talking to everybody,” said a financial advisor who asked not to be named.
The consolidation movement involving companies that went public in 2021 began last year. In October, BTG Pactual’s Pan bank bought technology company Mosaico, owner of Bondfaro, Buscapé and Zoom brands. Two months later, it was Eneva’s turn to acquire Focus Energia. The power company shares ceased to be traded in March, a little more than a year after it debuted on the stock exchange. In January, XP bought Banco Modal – the deal involved an exchange of shares. At the time of the IPO, in April 2021, the share had been priced at R$20. On the day of the announcement of the acquisition, January 7, the share had reached its historical minimum: R$8.35.
Technology-related companies are among the most affected in the local stock market and abroad. Loyalty program company Dotz, which went public almost a year ago, saw stocks drop 80%. The company is open to merging with a competitor, a source said. CEO Roberto Chade denies. “We are always looking at opportunities, but no conversation has reached page 2.”
According to Mr. Chade, Dotz recently bought credit fintech Noverde and is likely to close the acquisition of another “tech company” complementary to the business “soon.” Since last year, Chinese giant Ant, the financial arm of Alibaba, has been a minority shareholder in Dotz.
As for GetNinjas, a digital platform that connects professionals from several fields to customers, market capitalization of R$185 million is lower than what the company holds in cash (about R$290 million). Sources say that the company does not rule out conversations with competitors, but is struggling. A source close to the company says that talks with rivals for partnerships are a natural move, but there is no negotiation in this direction.
A few weeks ago, Infracommerce, an e-commerce services company, knocked on the door of large private-equity firms seeking funds to finance its cash flow, Valor reported in April. The company, whose shares have dropped 73.25% since the IPO, may also raise funds through bonds, then convert them into stocks in the future.
In the healthcare industry, consolidation also continues steadily, but this movement has been even more intense in recent years. And despite having falling 45.75% since the IPO, Minas Gerais-based Mater Dei’s expansion plan is moving forward – the company has made six acquisitions since the IPO, including hospitals and an information technology company.
Oncoclínicas, which has Goldman Sachs as its main shareholder, had plans to use the proceeds from last year’s IPO for expansion. According to a financial advisor, however, this healthcare business is very specialized, so it makes sense, as stocks have plummeted, to be part of a larger group.
When they went public last year, companies did not expect such high interest rates – which resulted in increased financial expenses. The high inflation environment and economic policy uncertainties also contribute to the higher volatility of the stock market.
Daniel Wainstein — Foto: Carol Carquejeiro/Valor
Daniel Wainstein, a partner and CEO of Seneca Evercore, sees many similarities between the IPO drive of 2021 and the 2006-2007 boom, when real estate developers and medium-sized banks went public.
“There is a widespread belief that the public stock market is the most favorable environment for companies to raise capital,” he said. Mr. Wainstein recalled, however, that many companies that went public did not have a distinguished history or sufficient size to trade on the stock market.
Of the 19 real estate companies that went public between 2006 and 2007, the vast majority are valued below their net worth. Of the 10 IPOs of medium-sized banks, six went private, three remain listed and one went through liquidation, according to a survey by Seneca Evercore based on public data on the stock exchange.
With the shares of most companies devalued, it is very difficult to price assets for a private transaction, according to the banker.
“Pricing assets becomes more difficult in an environment where the exchange rate ranges between R$4.6 and R$5.7, the Selic [Brazil’s benchmark interest rate] goes to 12.75% from 2% in a matter of months and stock prices vary 10% or 15% in a single day,” said Fábio Medeiros, head of investment bank at Morgan Stanley in Brazil.
For him, this macro volatility, driven by the Russia-Ukraine war, also disturbs those in the micro level. “It brings insecurity to businesses when making decisions,” he said.
“Nobody likes to price a transaction at a time of great uncertainty,” said Ricardo Lacerda, a partner and CEO of BR Partners. The investment bank also listed on the stock exchange last year and its units are down 1.75% since then.
Mr. Lacerda notes that the window for offering shares remains closed. “Larger companies have found some windows [for secondary offerings], but it will depend on how far interest rate hikes go.”
M&A also slowed this year through May 10. Dealogic’s data show that total transactions in value totaled $20.7 billion, down 43% year over year.
Ânima, Cruzeiro do Sul, Goldman Sachs, Oncoclínicas, Yduqs and Westwing declined to comment. Etna’s spokesperson could not be reached for comment. Infracommerce did not immediately reply to a request for comment.
In a statement, Tok&Stok said it does not comment on market rumors regarding the consolidation move. “The company confirms that it has continued its expansion and development plans, independently of the IPO process it had been conducting.”
In a statement, Mater Dei said it has been following the thesis presented since the IPO – of regional hub definitions in key areas, through organic and inorganic growth. Regarding the performance of the shares, the company understands that “it is much more a matter of conjuncture reflexes and that its plan is medium and long term, (…) and has delivered with efficient and self-sustained growth to generate value to its entire ecosystem”.
U.S.-based multinational Alcoa, which has been operating in the Brazilian aluminum industry for almost six decades, is once again positioning itself in the country, with production ranging from bauxite mining to alumina and raw metal. Globally, aluminum has gained new market dynamics, with applications in the electrification of vehicles and other fields, such as electricity and recyclable packaging.
The company operates three sites in the country – in Juruti (state of Pará) it extracts and processes bauxite mineral; in São Luís (Maranhão), in the Alumar consortium, it has an alumina and primary aluminum plant; the Poços de Caldas unit (Minas Gerais) is focused on the integrated production of special alumina and has an aluminum scrap recycling unit. The company also holds stakes in four hydroelectric plants.
“It is a 57-year history that is gaining new momentum with the changing landscape for aluminum worldwide, new applications and the use of renewable energy, which will set the tone for the industry in the future,” Otávio Carvalheira, Alcoa president in Brazil, told Valor.
The executive knows the company and the industry well after working for 34 years in several functions in Brazil and abroad, including China. “I spent three years in Shanghai working in the aluminum rolling field.”
He returned in 2008 and took the helm of the Brazilian subsidiary in 2016, when Alcoa decided to split the operations that transform metal into finished products, creating Arconic.
A year and a half before, the company had decided to temporarily halt – almost seven years later – the production of aluminum in Brazil due to the lack of competitiveness in power prices. The input is the item of the greatest weight in the metallurgy of the metal. In the country, it has even exceeded 50%.
Under the new conditions of aluminum demand, high prices and the use of competitively priced renewable power – in long-term contracts – the company decided this year to restart its smelter at the Alumar consortium, in which it has a 60% stake and is the operator. The partner is Australia’s South32, with 40%, which made the same decision.
Together, the two companies are investing R$957 million ($186 million). Alcoa will inject R$520 million, the executive said.
In 2023, Alcoa already foresees placing 268,000 tonnes of primary metal on the market, relative to its stake in Alumar [the foundry’s total capacity is 447,000 tonnes]. The metal will be mainly destined for the Brazilian demand, which grew 11% in 2021. Local manufacturers have had to import a substantial amount of raw aluminum.
From 2010 to 2015, the production was halted in six foundries in the country, according to trade group Abal – only Alcoa and South32 are being resumed. The all-time high of 1.66 million tonnes was reached in 2008. It gradually fell back to 685,000 tonnes in 2020.
“Now, with the restart of Alumar, the country is again self-sufficient in primary metal,” Mr. Carvalheira said. This year, Alumar – which is 25 kilometers from the capital city of Maranhão and started operating in 1984 – expects to produce 120,000 to 130,000 tonnes with the gradual restart of furnaces.
The restart, Mr. Carvalheira said, led to the rehiring of 416 employees for the foundry. In all, including the alumina division, the consortium now has 1,250 employees.
“Alcoa has closed the cycle again and this is the result of a combination of factors: long-term vision, local and global demand, metal supply, environmental issues, use of competitive renewable power (wind and solar), a metal associated with electrification solutions,” the executive said. The scenarios, he said, show a consistent global demand for aluminum throughout the cycle – and, of course, the metal is at a favorable price in relation to the cost base.
Another investment front is the Poços de Caldas unit, where the company started in Brazil and operated through 2015. The facility was also closed for good due to the high cost of production, especially power, compared with the international market. Aluminum is priced in dollars on the London Metal Exchange.
Currently, the operations encompass mining, refinery, chemicals, remelting, and aluminum powder plant – one of the products generated are specialty aluminas, which are used in water treatment (aluminum sulfate), and in the refractory and abrasives industries, among other applications. The output reaches 180,000 tonnes per year.
At the moment, the executive said, the company is investing more than R$300 million to install a new technology for the unit’s waste treatment system – classified as industrial. In the filter press, which starts operating in June, the refuse originated in the refinery is transformed into a dry cake that will be placed in a proper area by the dry stacking method.
On the same site, Alcoa has a recycling facility, aimed at producing aluminum from scrap that is recovered through blending with primary metal. The result is ingots, billets and a product considered noble – aluminum powder. The volume ranges between 45,000 and 50,000 tonnes a year and goes to the domestic and foreign markets.
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