Projections for activity in 2022 improve despite inflation

The analysts’ mood with the Brazilian economy this year has improved, in the wake not only of a higher-than-projected carry over from 2021 to 2022, but also of stronger current data for the first and second quarter. The assessment is that the first half of the year will be positive, despite the discomfort with rising inflation, due to the recovery of employment, the normalization of services and the extra drive to consumption and credit with government measures. For the second half of the year, however, when the effects of monetary policy on activity should become clear, a falling GDP are expected. In addition, estimates for growth in 2023 waned throughout the year.

The Focus survey’s median of expectations for the 2022 GDP went to 0.7% from 0.3% at the beginning of the year – but there were projections of recession. Financial institutions have promoted revisions to numbers closer to 1%, as did Safra (to 0.8% from 0.2%) and Barclays (to 1% from 0.3%) last week. “Retail trade and agriculture have contributed to economic activity in the first quarter of 2022, proving more positive than anticipated,” says Safra, raising its GDP estimate for the period to 0.7% from 0.3%.

The still ongoing normalization of services – especially those provided to households, but also government services – will be a “big driver” for this year’s GDP, especially in the first quarter, points out Wether Vervloet, economist at ACE Capital. The company, who came to project contraction of 0.5% for the 2022 GDP at the turn of the year, now forecasts a 1.5% growth, with 1.1% in the first quarter and 0.6% in the second. “The data that has been coming out over the year has also been strong.”

The S&P Global service sector Purchasing Manager’s Index (PMI), for example, reported its highest growth in 15 years in April and helped push the private sector manufacturing index (composite PMI) to the highest since October 2007, despite the slowdown in manufacturing, which is not expected to make a very favorable contribution to 2022 GDP.

Last Friday, Itaú raised its projection for inflation in 2022 to 8.5% from 7.5%, but kept the GDP at 1%. According to the team led by Mario Mesquita, the rise in commodities, fiscal stimulus and the reopening of the economy are contributing positively, and the first half is expected to be “robust”.

The expectation is 1% for the GDP in the first quarter and 0.6% in the second, “but our daily indicators at the end of the first quarter (with a relevant statistical carry over effect for the following quarter) and the beginning of the second quarter (data from April) indicate a risk of increase of this projection,” Itaú says.

Economists are also warning about employment. “The latest data on the labor market, together with the improvement in some confidence indicators, confirms more dynamism in consumption/services in the coming months,” writes Roberto Secemski, chief economist for Brazil at Barclays.

The effect of measures since the turn of the year, such as the 10.2% hike of the minimum wage and the expansion of cash-transfer program Auxílio Brasil, which replaced Bolsa Família, may have been underestimated at first, according to Rodrigo Nishida, economist with LCA Consultores. Add to that policies for this year – within the electoral logic, he notes – such as the access to the Workers’ Severance Fund (FGTS) and bringing forward the payment of 13th salary, a year-end bonus, for retired people, as well as the apparent dissaving of families.

Igor Velecico — Foto: Silvia Costanti / Valor
Igor Velecico — Foto: Silvia Costanti / Valor

Igor Velecico, chief economist at Genoa Capital, adds that the increases in the state civil service’s wages and the appreciation of the exchange rate, in relation to the beginning of the year, also have an effect on the available income of families. And, in his assessment, credit is still expanding at strong rates. “It is a little more resistant,” he says.

Genoa, which has also projected a 0.5% contraction for the 2022 GDP, now expects a 1.5% increase, and Mr. Velecico indicates that a range up to 2% seems adequate. Fernando Honorato, chief economist at Bradesco, projects 1% for the GDP in 2022, but also did not rule out, during an event, the chance of reaching 2%.

More cautious, Silvia Matos, coordinator of the Macro Bulletin of the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), maintains the GDP growth projection for 2022 at 0.6% and says she will be surprised with an advance very close to 1% in the first quarter — the FGV Ibre expects 0.4%. “There was a certain bad mood, I never had recession [for 2022]. But the drivers for maintaining growth in the year are weak, services should lose steam, there is very high inflation eroding purchasing power,” she says.

Mr. Nishida, who for now projects the 2022 GDP at 0.7%, says he shares the feeling that activity is stronger, at least in the short term. “But we are a little wary of revising too much upward. It’s still a complicated scenario, with several shocks. Internationally, you have the war and, recently, circulation restrictions in China, which threaten to make supply chains worse again.”

The effect of the strong cycle of interest rate hikes underway since March 2021 is also expected to affect growth in 2023. The projections for next year’s GDP expansion went to the current 1% from 1.8% at the end of December 2022.

Source: Valor International

https://valorinternational.globo.com

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Decolar expands focus on Brazil after $22m in acquisitions in 2 years

In the last three years, of the five acquisitions made, three were in Brazil — Foto: Pixabay
In the last three years, of the five acquisitions made, three were in Brazil — Foto: Pixabay

Despegar, the Argentine travel group that controls Decolar, has increased its efforts to grow in Brazil. In the last three years, of the five acquisitions made, three were in Brazil, said Marcelo Grether, the company’s chief M&A and new business officer. In total, about $22 million were invested to bring Brazilian businesses to the group. The most recent one was the acquisition of ViajaNet, an online tourism agency, for nearly $15 million – the largest purchase to date.

“ViajaNet is a 13-year-old company that knows a lot about technology, which is key for us. We aim to grow a lot in Brazil, acquire more companies and look for deals. And this is a company that, along with Koin [a platform partly owned by Despegar since 2020] will help Decolar to be more important, relevant and competitive,” he told Valor.

Under the terms of the agreement signed to buy ViajaNet, 60% of the purchase price will be payable at closing; 20% in 24 months after the acquisition, and the remaining 20% 36 months after the acquisition. To move forward with the deal, Decolar was advised by law firm Tauil & Chequer Advogados, while ViajaNet was advised by Kroll Corporate Finance.

The talks involving the sale of ViajaNet were first reported by Valor in January. The news then was that the crisis caused by the pandemic in the industry has put the travel agency business in jeopardy and encouraged several mergers and acquisitions in recent months, such as that of Flytour and Queensberry. In January, Valor reported that ViajaNet would be the next and that Decolar was interested in cutting a deal.

ViajaNet reported audited revenues of nearly $30 million in 2019. During 2021, ViajaNet’s online sales accounted for 98% of total sales, with 88% of gross bookings originated in the B2C channel and the remainder via the B2B channel. In addition, 98% of gross bookings were within the air segment of Brazil’s travel market. According to Decolar, this gives the company the opportunity to cross-sell its portfolio of lodging and other travel products to ViajaNet’s customers.

Both companies will maintain their brands and work independently in their commercial management. The closing of the transaction is expected to take place in the second quarter of 2022.

Despegar remains on the lookout for acquisition opportunities, moves that have been encouraged by the crisis caused by the pandemic in the industry, Mr. Grether said. “Three things are important to us in acquisitions. One is the location – our focus is on Latin America, especially Brazil. The companies must add value, with great synergies. In addition, integration is as important as the purchase. When we buy something, it has to be something that adds synergy quickly.”

The company has seen a firm recovery in demand, especially after March, when the omicron variant of coronavirus started to affect the tourism industry, the executive said. He declined to elaborate citing that the group will report results next week.

The company reported revenue of $124.6 million in the fourth quarter, up 134% year over year, but 14% below pre-pandemic levels. The group also saw net loss of $10.7 million in the quarter, compared with $28.8 million a year earlier.

Source: Valor International

https://valorinternational.globo.com

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CPP sees favorable moment for long-term investors

John Graham — Foto: Silvia Costanti / Valor
John Graham — Foto: Silvia Costanti / Valor

John Graham, CEO and president of CPP Investments, doesn’t feel uneasy about investing amid a geopolitical conflict coupled with rising inflation and interest rates in the developed world. At the head of a Canadian investment manager with more than $550 billion in assets under management worldwide, the executive believes that in times like these markets favor long-term investors.

“The best time to invest is when there is fear in the market. The way I think about investments is from the bottom up, from company to company and sector to sector,” Mr. Graham said. In the first half of last year, despite all the concerns brought by the pandemic, CPP took part in several fundraising rounds of Brazilian companies, including Nubank and Iguá, a basic sanitation company.

The best way to protect capital in the face of unchecked inflation around the world is a diversified portfolio, Mr. Graham said. CPP achieves that by having 85% of its portfolio abroad. That amount is divided into real assets, equity stakes and other projects around the world. “I am very grateful that we have built a global footprint, because it helped us a lot during the pandemic,” he said.

The executive believes that real assets such as real estate and infrastructure are naturally protected against inflation. This investment class is precisely the most important for the group in Latin America. The region accounts for 10.1% of CPP’s real assets, 1.2% of investments in private equity, and 8.3% of credit. CPP has $26.2 billion invested in Latin America.

With a strong focus on sustainability-related investments, CPP is one of the controlling shareholders of power generation company Auren in Brazil, together with Grupo Votorantim. One of Auren’s main assets is a hydroelectric power plant, Porto Primavera, which also boasts a renewable power complex that includes solar and wind power generation.

Tania Chocolat, managing director of CPPIB in Brazil, still sees several opportunities in infrastructure in the country and said that the fund is aware of them. “We have achieved greater regulatory stability and today we are in a better position than 25 years ago. There is still a lot of room for investments in sewage systems, for example. It is a way of supporting the country considering the substantial infrastructure bottlenecks we have.”

Mr. Graham recalled that sustainability is much more than just investing in renewable power. “We believe that the global economy will try its best to make a transition to carbon neutrality by 2050. And many calculations are made about whether this will cost $60 trillion or $70 trillion. Either way it’s a big figure, and this economic transition will require patient, long-term capital and partnerships,” he said.

CPP’s portfolio is expected to grow to $1.7 trillion by 2040. The firm’s annualized rate of return is 11.6% for the past 10 years.

John Graham revealed that one of his goals is to have a larger stake in emerging markets in the next five years. “In five or six years, we envision continuing to invest in emerging markets and we expect the percentage in those markets to continue to increase because the importance of emerging countries in global GDP will grow.”

Mr. Graham also said that he sees sustainability and technology as the two main trends of the future. “All companies need to think about what the role of technology is in their industry.”

CPP has expanded its exposure to growth companies, especially startups. “We opened an office in San Francisco to be closer to the U.S. technology industry,” he said.

Source: Valor International

https://valorinternational.globo.com

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Inflation, interest rates impact home appliances

The production of household appliances faces a deep decline in 2022 due to rising inflation and interest rates. The segment had already been struggling to receive inputs and saw costs soar amid a disrupted production chain and higher commodity prices brought by the pandemic. Now, consumers’ tight budgets – eroded by higher spending on food, electricity and fuel – are taking a toll on manufacturers.

The production of appliances plummeted 25.3% year over year, a survey by statistics agency IBGE shows, the third consecutive quarter of decline. A double-digit contraction is also clear in segments like white goods (refrigerator, stove, washing machine), brown goods (TV and stereo) and portable appliances. At the same time, the prices of appliances and equipment rose 7.46% in the same period, up 20.43% in the 12 months through March, according to data from IBGE and the Extended Consumer Price Index (IPCA), reflecting the higher production costs in the industry.

The war in Ukraine and the new outbreak of Covid-19 in China further aggravate a situation considered “challenging” by executives, who want to avoid a negative tone. The Asian country is shutting down plants due to lockdowns, especially in Shanghai, which impacts some companies.

Some companies are already seeking new suppliers of inputs – dual sourcing has expanded because of problems faced during the pandemic – and also air freight to shorten travel times for some products, while others are adopting a wait-and-see approach. Officially, all companies rule out the possibility of interrupting lines, but part of the market may face this risk.

Sergei Epof — Foto: Divulgação
Sergei Epof — Foto: Divulgação

“The drop in the first quarter is very much related to the consumer’s cash flow. Inflation has risen sharply and default rates too. The money available among Brazilian consumers for buying home appliances has been used for food, electricity and gasoline,” said Sergei Epof, Panasonic’s vice president of appliances in Brasil. His team focuses mainly on the white line, since the company halted the production of the brown line in the country last year, following a global strategy.

The Brazilian market is experiencing a combination of weaker demand, more expensive goods – as higher costs are passed on to prices – and more expensive credit, he said. Given the high interest rates, the consumer has been paying more for loans and default rates are on the rise.

“Demand has fallen and the price of appliances has risen. We had a lot of cost increase, which includes international freight, because of oil, the foreign exchange rate, which remains high despite the small recent drop, and inputs such as steel, resin and semiconductors,” Mr. Epof said. Part of the cost was passed on to consumers, he added.

As a result of inflation of inputs and falling purchasing power, “demand virtually disappeared,” said Marcelo Campos, managing director at Esmaltec. The company, which makes household appliances for Ceará-based Edson Queiroz group, has seen disappointing results since the middle of last year, especially in the last quarter of the year, typically a good time for durable goods sales due to Black Friday and the holidays. This happened after a surge in demand for appliances after the initial months of the pandemic, as people stayed at home.

The higher cost of components especially impact companies like Esmaltec, which works with the so-called entry-level products – those with lower prices, Mr. Campos said. Steel rose 163% in 2021, according to him, and is up 20% this year. This affects items such as compressors, evaporators and condensers for refrigerators. “Part of the cost has been passed on to consumers, but there is also a great effort to review negotiations with suppliers and processes to hold on some of the pressure,” he said.

The worsening of Covid-19 cases in China brought back the concern of shutdown factories at a time when the supply of inputs was already normalized, said Silvia Tamai, head of marketing for Latin America at Philips Walita, the company’s division of portable appliances.

“The situation of delays and lack of inputs had already been very much reduced. Our prospect in January was very positive as we had returned to a normal level. But the situation started to concern again around a month and a half ago.” Despite that, she still expects higher sales volumes in 2022 than last year.

The problems affect both the inputs used directly in the plant in Varginha, Minas Gerais, and the portion of products imported directly from other units, such as some models of coffee makers that come from Europe. Most of the inputs and products are produced in Brazil, she said, but even so the imported ones impact the production flow.

“There is a filter that goes into the espresso machine that comes from China. We bring the product from Europe, but they also depend on some component that comes from China,” she said.

Electrolux said in its global first-quarter financial report that falling sales in Latin America are linked to the decline in demand in Brazil, since inflation and high interest rates affected consumers’ purchasing power.

Whirpool, owner of Brastemp and Consul brands, did not mention the situation in Brazil in its first-quarter report, but predicted a decline in the household appliance industry as a whole in Latin America, Europe, Middle East and Africa this year.

Source: Valor International

https://valorinternational.globo.com

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Financial investment boosts revenues of states, capital cities

Juliana Damasceno — Foto: Leo Pinheiro/Valor
Juliana Damasceno — Foto: Leo Pinheiro/Valor

The combination of higher revenue flow, driven by surprising growth in tax collection, cash availability and rising interest rates raised the income from financial investments by states and municipalities in the most recent period. These revenues totaled R$17.7 billion considering states and state capitals in the 12 months through February. This is more than two times, in real terms, the amount seen in the previous period – R$7.8 billion. In relation to the 12-month period through February 2020, the pre-pandemic period, the real increase is 25%.

With the hike in Brazil’s benchmark interest rate Selic last Wednesday, to 12.75%, and still high cash availability, revenues are expected to increase even more this year given the expected lengthening of the monetary tightening cycle to tackle inflation.

In the case of capital cities, which totaled income revenue of R$3.9 billion in the 12 months through February, the amount is equivalent to 8.5% of service tax ISS revenue collected in the same period. The amount is less representative for states. There were R$13.8 billion, or little more than 2% of sales tax ICMS. This tax is the most important one for states, with the largest collection in the Brazilian tax system, equivalent to 7.6% of the GDP in 2021.

“We are going to see revenue from financial investments rise even more this year,” said Juliana Damasceno, an economist with Tendências and an associate researcher at Fundação Getulio Vargas. The increase in the 12 months through February this year reflects the strong monetary tightening cycle last year, when the Selic was escalating, she said. “In 2022, we already have a double-digit interest rate,” she said. This will lead to income revenue growth, even though we no longer have the same help from the revenue cycle, which advanced over the past year with some economic growth, but with “a very strong contribution from inflation.”

As for the capital cities, there was also a gradual pickup in services after the sharp decline in 2020 under the impact of the Covid-19 pandemic, she said. The scenario was conducive to improved revenue flow and greater cash availability.

The cycle of interest rate hikes and revenue growth have the “same root, which is the rise in inflation,” Ms. Damasceno said. “We shouldn’t celebrate fiscal adjustment because of inflation or because of the medicine used to fight it, which is high interest rates. We know the harmful effect that the lengthening of the monetary tightening cycle has on the economy,” she said, citing the effect on consumer spending and household indebtedness amid a very critical social situation.

The data on income from financial investments were collected by Valor based on state reports submitted to the National Treasury Secretariat. The revenues received were considered, adjusted by Brazil’s official inflation index IPCA in the 12-month periods to February 2020 and 2021.

Most municipalities are likely to benefit from the higher Selic on revenues from investments, said Giovanna Victer, Secretary of Finance of Salvador and chair of the national forum of municipal secretaries of Finance within the National Front of Mayors (FNP). Those in debt are the exception because the higher interest rates and inflation increases the debt service. In the capital city of Bahia, according to the fiscal reports, these revenues totaled R$130.2 million in the 12 months through February, almost three times, in real terms, the amount reported in the previous 12-month period (R$45.5 million) and up 7% from the 12-months period through February 2020.

Among capital cities, São Paulo stands out. Brazil’s most populous city totaled R$1.6 billion in revenue with income from financial investments in 12 months to February this year, compared with R$517.8 million in the previous 12 months. The city also saw an increase of 93.3% compared with the period from March 2019 to February 2020.

The great advantage of those revenues is that they are not earmarked, said George Santoro, who was Finance Secretary of Alagoas until May 4. The revenues are mostly free and are not subject to the constitutional allocations for health and education. One exception is revenue from the Fund for Maintenance and Development of Basic Education (Fundeb) and some other transfers. In these cases, the investments follow more limited rules and the earnings are earmarked for the same purpose as the funds that gave rise to them.

According to the fiscal reports from Alagoas, the revenue with income from investments in the state totaled R$251.7 million in the 12 months through February, compared with R$73.8 million in the previous 12 months. In relation to the same period to February 2020, the increase was 70.3%.

Felipe Salto, Secretary of Finance of the State of São Paulo, says that the funds are likely to help execute investments planned for this year. The higher revenue from financial investments results from the increase in tax collection thanks to the state’s economic growth, he said, which made possible a cash availability of R$34 billion. According to the state reports, these revenues totaled R$3.1 billion in the 12 months through February 2022, almost four times the amount seen in the previous period (R$802.41 million) and two times the amount collected through February 2020 (R$ 1.63 billion) in real terms.

“This income is important, but it is not a trend in the medium term,” he said, considering the broader factors that contributed to the higher collection in 2021. He recalled that last year the collection of ICMS rose 17% year over year, in real terms. The perspective for this year is of “much milder growth,” between 3% and 4% in real terms.

In addition to the cyclical nature that led to the growth in revenues of the subnational entities, Ms. Damasceno said states must know that inflation and interest benefit revenues at first, but then take a toll on expenses. “The scenario provokes pressures for adjustments not only of servants, as we have seen since the beginning of the year but also of suppliers.” The effect on spending, she said, can happen more in the medium and long term. “You can’t get there in debt and have spent all that revenue. There may be a delay, but this adjustment will happen,” she said.

Ms. Victer, from Salvador, agrees that although revenues still reflect a recovery in the service sector, the picture is not one of tranquility, and caution is necessary in order not to commit “seasonal and temporary” resources with permanent expenses.

The more recent scenario of better revenue flow has led the states to better invest funds, Mr. Santoro said. One challenge, however, is the limitations of the public power to tap financial instruments. He recalled that early last year, the state held a bidding process to get a better return on investments for about R$400 million in cash surpluses.

The call for bids imposed several restrictions on the participating institutions, such as net worth and other indicators, the former secretary said. The winner, he recalled, was a private-sector bank that offered yields above 110% of the interbank deposit rate (CDI). The State Prosecutor General’s Office, however, understood that the government was prevented from contracting with private-sector institutions. State-owned banks, he said, offered at the time 95% of the CDI. The issue was taken to the Economy Ministry, in search of more flexible rules, but there was no success, which led the state to contract other financial investments with state-run banks.

After announcing the possibility of paying the property tax IPTU with cryptocurrencies as of 2023, the City of Rio de Janeiro is now studying investments in this new asset.

In a note, the Rio de Janeiro Finance Secretariat told Valor that the city mulls “a cryptocurrency investment policy and a governance model for decision-making.” According to the note, a Municipal Committee of Investments in Cryptocurrencies will be created to refine the methodology. The municipality also said that in March it reached a cash balance of R$9 billion, the result of a cost-cutting effort, expense containment and structuring measures, such as the new fiscal regime and a tax overhaul.

Source: Valor International

https://valorinternational.globo.com

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Petrobras to increase diesel prices

The hike in diesel prices by Petrobras in refineries is imminent, Valor has learned. The product had, on Friday, a difference of about 20% in relation to prices on the global market. A partial recomposition of prices, in relation to the international parity, is important, at this moment, not only for Petrobras but also for other market players, such as private refineries and importers. The measure, if confirmed, will relieve the pressure on the state-owned company, and may facilitate the purchase of the product abroad by smaller companies, reducing the risk of shortages, a hypothesis that has been denied both by the company and the government.

The situation is complex, which has required discussions at Petrobras’s top management. On Friday, at the end of the day, the board of directors of the oil giant met to analyze a possible position facing the continued attacks of President Jair Bolsonaro on the company, as anticipated on Friday, Valor PRO, the real-time news service of Valor.

A response would be necessary in the face of president Bolsonaro’s virulence. On Thursday, moments before the release of Petrobras’s first quarter results, he compared the company’s profit to a “rape”. On Saturday, in Santa Rosa (state of Rio Grande do Sul), Mr. Bolsonaro criticized Petrobras again, saying that “no one can stand” the fuel increases. Informed about everything that happens in Petrobras, he speaks to his supporters knowing the limitations to intervene in the state-owned company.

Valor has found that there was no consensus in the board to produce a statement. The answer should come, therefore, in the form of a diesel hike by the company in a percentage that would cover most of the current gap. Petrobras did not immediately reply to a request for comment.

The market scenario for diesel is worrisome. On the external front, the price continues to rise as a result of the post-pandemic recovery and supply cuts resulting from the war in Ukraine. Russia accounts for about 25% of global diesel exports. The past few weeks have seen record diesel price increases in the United States.

The refining margins on diesel are twice as high as on gasoline. The increase in the price of the product in the Northern Hemisphere has effects for imports in Brazil. The diesel that will arrive in the country in July is being purchased now. But the extent to which Petrobras holds back the rise inhibits imports, since the price of the imported product arrives in Brazil at a higher price than that sold at the Petrobras refineries.

In the domestic market, the demand for diesel is still on the rise and there are concerns that the growth in consumption, driven by agribusiness, may lead to shortages in the second half of the year in some regions. The government and Petrobras have denied there is a risk of shortage of the product, which is fundamental to the farming and livestock sector and is essential in cargo transportation.

In an interview to Valor, Décio Oddone, former director of the National Petroleum Agency (ANP), also said he doesn’t believe in a shortage as long as the country follows the external price “fluctuations”.

On Friday, commenting on Petrobras’s results in the first quarter, Chief Trading & Logistics Officer Claudio Mastella ruled out the risk of shortage in the country. He said that the market is supplied by the national refining park and imports. Petrobras monitors the international markets and evaluates fuel prices daily, said Mr. Mastella.

Jose Mauro Coelho — Foto: Bruno Spada/MME
Jose Mauro Coelho — Foto: Bruno Spada/MME

Still on Friday, the CEO of Petrobras, José Mauro Coelho, said that the state-owned company is one of the companies that most collects taxes and government participation for the different spheres of government, with more than R$70 billion collected between January and March. Mr. Coelho said that the company is not insensitive to society, and cited the company’s program to help low-income families to have access to liquefied petroleum gas (LPG).

(Nelson Niero, in São Paulo, contributed to this story)

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Brazil proposes emergency corridors for food, input flows at WTO

The idea Brazil is discussing is that emergency corridors should be established to ensure flow of food and raw materials — Foto: FecoAgro/RS
The idea Brazil is discussing is that emergency corridors should be established to ensure flow of food and raw materials — Foto: FecoAgro/RS

Brazil has launched the idea of a major worldwide commitment for countries to let agricultural products flow in global markets, despite international sanctions against Russia and problems caused by lockdown measures in China, in discussions at the World Trade Organization (WTO).

The situation has become much more complicated, blocking the free flow of food, and could result in a new crisis. Many companies fear their ships will suffer from explosions in the Black Sea, insurance is more expensive, the lack of containers has increased with the situation in China as well and inflation is still rising in different parts of the world.

The idea Brazil is discussing with several other countries is that, just as humanitarian corridors exist, emergency corridors should be established to ensure the continuous flow of food and essential raw materials and inputs for cross-border food and agriculture production, including fertilizers.

With these corridors, it would then be possible to move certain commodities from Ukraine and Russia, for example. And countries like Brazil, which need fertilizers, will have the input to produce surpluses and help feed the world, as one source notes.

Ukraine and Russia account for less than 3% of world merchandise trade, but are important in certain sectors, such as food. About 30% of the world’s wheat and 73% of sunflower oil comes from the two countries, along with a lot of barley, corn and other grains.

Several regions of the world are heavily dependent on the Black Sea region. In Africa, 35 countries import food from Russia and Ukraine. The United Nations Conference on Trade and Development (UNCTAD) has warned that the new price spike is collateral damage from the war in Ukraine, which could undermine political stability and food security anywhere in the world.

The idea of emergency food corridors was mentioned today by Alexandre Parola, the Brazilian ambassador and permanent representative to the WTO, during the General Council of the organization.

For the Brazilian representative, food security will be the most important issue during the conference of trade ministers of the 164 member countries, scheduled for June in Geneva.

In Brazil’s view, this will be an opportunity to address the issue of agricultural reform in the near future, recognizing that the availability of and access to food necessarily requires international trade of agricultural products. The discussion also involves poorer countries, particularly affected by the rising bill for food imports.

For Brazil, in the face of the current emergency, it will also be necessary for countries in the WTO to reach an agreement to avoid the banning or restriction of food exports normally purchased for humanitarian reasons. One problem is the resistance of India, which is more focused on ensuring more flexibility on how to release its food stocks to the international market.

After the June ministerial conference, Brazil advocates that the WTO Committee on Agriculture discuss texts to structurally strengthen food security and sustainable development. In Brasília’s view, the effects of the recent crises and the current context have made it more urgent to negotiate disciplines that can help improve food security, in accordance with the obligation of Article 20 of the WTO Agriculture Agreement to agree on “substantial progressive reductions in support and protection.”

Source: Valor International

https://valorinternational.globo.com

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Petrobras exceeds expectations with profit of R$44bn

CEO José Mauro Coelho said results between January and March reflect a “healthy company” — Foto: Leo Pinheiro/Valor
CEO José Mauro Coelho said results between January and March reflect a “healthy company” — Foto: Leo Pinheiro/Valor

Oil prices, higher export volumes, lower costs in liquefied natural gas (LNG) imports and higher margins in diesel oil sales made Petrobras’s profit grow 38 times – or 3,718% – in the first quarter, to R$44.56 billion, compared with R$1.17 billion in the same period of 2021.

In a message delivered with the results, CEO José Mauro Coelho said the results between January and March reflect a “healthy company.” He also recalled that the company paid taxes to the federal government, states and municipalities equivalent to one and a half times the value of its net profit.

The company also highlighted, in a statement about the quarter’s results, that it disbursed almost R$70 billion in taxes, royalties and other payments to the federal government, states and municipalities in the first three months of the year.

The board of Petrobras approved, in a meeting held Thursday, the distribution of dividends in the amount of R$3.7155 per preferred and common share in circulation. According to the company, the total value is around R$48.5 billion.

Of the total, R$3.1387 are interim dividends referring to the remuneration paid in advance to the shareholders relative to the fiscal year 2022.

In addition, R$0.5767 per share will be paid as retained earnings included in the 2021 earnings report.

The dividends will be paid in two installments of R$1.8577, on June 20 and July 20. Shareholders who were listed on May 23 at B3 will be entitled to the dividend.

In the case of holders of depositary receipts (ADRs) on the New York Stock Exchange, the installments will be paid on June 27 and July 27. As of May 24, the shares in both markets will be negotiated without the right to the dividend.

Petrobras says that the dividend is in line with its remuneration policy, which establishes that the company can distribute 60% of the difference between operating cash flow and investments if gross debt is less than $65 billion.

Source: Valor International

https://valorinternational.globo.com

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Taxpayers negotiate debts worth R$263bn

The number of agreements reached by companies and individuals with the federal government for payment of tax debts reached 1.1 million in April — totaling R$263 billion in negotiated amounts. Taxpayers have been taking advantage of the so-called “tax transaction,” which allows the Attorney General’s Office of the National Treasury (PGFN) to grant discounts and installment plans.

This modality has existed for a little over two years. It was instituted in February 2020, through Law 13,988. Since then, the tax authorities are allowed to meet and negotiate — including very high debts.

The Candido Mendes University, for example, closed a deal a few days ago to settle a R$1.25 billion liability. It was the highest amount negotiated by the PGFN in the region that covers the states of Rio de Janeiro and Espírito Santo.

In São Paulo, multi-billion cases have been filed since last year. The Grupo Ruas, which operates in urban transportation, closed an agreement to pay R$3.12 billion in July. Inepar, which operates in the infrastructure industry, formalized the renegotiation of R$2.6 billion in tax debts in December.

It works differently from what was seen in the installment programs for tax debts Refis, which provided a single model for discounts and installment plans. In other words, a single calculation for all taxpayers in the country who wanted to join the program.

In the tax transactions, the agreements are customized for a specific group of taxpayers or individually. The discount and the value of the down payment and installments, in these cases, vary according to cash flow and payment capacity.

“The transaction considers the taxpayer’s actual economic situation. It is the only public policy capable of allowing regularization while respecting the principles of equality, justice, and free competition,” says attorney João Grognet, general coordinator of PGFN’s credit recovery strategies.

There are more than 10 modalities. In one, named individual transaction, the tax authorities and the taxpayer sit down to negotiate. It is designed for those who have debts of more than R$15 million. This was the model used by Candido Mendes, Grupo Ruas and Inepar.

The discounts, as a general rule, are up to 50% and the debt can be paid in installments over a maximum period of 84 months. Companies under judicial reorganization – the case of Inepar and Candido Mendes – have more advantages. Discounts can reach 70% and the payment term goes up to 120 months.

Individuals, micro and small companies, non-profit institutions, and educational institutions are even more favored. They fit into the highest percentage, 70%, and can pay their debts in up to 145 months.

The Candido Mendes University, besides being under protection from creditors, meets the requirements to take advantage of the best payment conditions. The original debt, of R$ 1.25 billion, was reduced to about R$400 million. The debt will be paid in 145 months.

The other modalities of transaction available to taxpayers have conditions established beforehand in a public notice or ordinance. In this case, the taxpayer decides to join. This week, for example, the PGFN opened discussions on goodwill amortization in the administrative or judicial sphere.

This litigation, according to the Secretariat of Federal Revenue, involves around R$150 billion. Whoever opts for the agreement must give up the lawsuit. There are discounts of up to 50% and the joining period ends on July 29.

Before that, on June 30th, there are other transactions that are expected to close. Among them, two pioneering ones were instituted during the pandemic. The one called extraordinary allows the payment of the debt with a down payment in three installments and the remainder in 81 installments, for companies — or 142 in case of individuals.

The other, called exceptional, allows the debt to be paid in 84 installments, or 145 for individuals, with a reduced down payment spread over 12 months and discounts of up to 70% on fines and interests.

The individual transaction — aimed at taxpayers who have large debts — has no deadline for agreements to be proposed. And they work in a more customized way.

Tiago Voss dos Reis — Foto: Divulgação
Tiago Voss dos Reis — Foto: Divulgação

“We are able to adjust them according to the economic condition of each debtor,” said Tiago Voss dos Reis, chief prosecutor of the region that covers Rio de Janeiro and Espírito Santo. He and attorney Andréa Borges Araújo were in charge of the negotiations with Candido Mendes.

The university will pay smaller monthly installments in the first two years, for example. It was agreed this way to reconcile the payments to the federal government with the commitments made in the judicial reorganization.

In the third year of the agreement, with a less uncomfortable cash flow, the value of the installments will increase — in a customized format: there will be 11 ordinary installments, representing 0.5% of the debt, and an extraordinary one, corresponding to 7%. This high value installment is called the “balloon installment” – it serves to strengthen the payment.

These high-value installments are related to the sale of the university’s real estate. Candido Mendes has an ongoing divestment plan, and the sales are expected to take place before the agreed maturity dates. If it doesn’t, however, it will have to pay the amount anyway.

The university has offered other properties and assets as a guarantee for payment. And, in addition, two managers are listed as guarantors of the debt. If Candido Mendes does not comply with the agreement, they will have to respond with their personal assets.

There were tax and social security debts accumulated since the 1980s. “It had been monitored for a long time by the attorney general’s office. With the settlement, besides the prospect of payment, we reduced litigation,” attorney Andréa Borges Araújo said.

Celso Viana, legal prorector at Cândido Mendes, sees the transaction as a great achievement. The university is in the process of corporate restructuring, to become a company — today it responds as a non-profit company — and the tax agreements, he says, solidifies this process. “It brings total security for potential investor partners,” he says.

Candido Mendes’ recovery process is led by retired judge Luiz Roberto Ayoub, one of the leading lawyers in bankruptcy. He is currently a partner at the law firm Galdino & Coelho.

For him, the negotiation of tax liabilities consolidates the viability of the recovery process and “proves the full capacity of the institution to pay all its debts.” The negotiations with PGFN were headed by tax attorney Gustavo Brigagão.

Only debts related to the Workers’ Severance Fund (FGTS) were left out of the agreement. This issue is being discussed in court. Candido Mendes closed a payment agreement with the workers in the judicial reorganization process. The PGFN, however, filed an appeal because the agreed discounts were above the limit allowed by the resolution of the Board of Trustees of the FGTS. Today, the decision of the court-ordered reorganization judge in favor of Candido Mendes is valid.

Source: Valor International

https://valorinternational.globo.com

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Petrobras invites Eneva, PetroRecôncavo for Bahia-Terra cluster

Negotiation phase will now begin on the terms and conditions for the potential acquisition of Petrobras’s stakes — Foto: Leo Pinheiro/Valor
Negotiation phase will now begin on the terms and conditions for the potential acquisition of Petrobras’s stakes — Foto: Leo Pinheiro/Valor

Oil operator PetroRecôncavo and power generation company Eneva announced Wednesday they have been invited by Petrobras to continue negotiations for the acquisition of the state-run company’s stake in the Bahia-Terra cluster. The consortium formed by the two companies now enters the negotiations as “selected binding offeror.”

In March, the duo had submitted a binding offer for the set of assets.

The negotiation phase will now begin on the terms and conditions for the potential acquisition of Petrobras’s stakes in a set of concessions for onshore E&P fields and associated facilities in the Recôncavo and Tucano basins, in Bahia, the consortium said in a note.

In Wednesday’s note, the companies made it clear, without revealing values, that they have submitted a joint offer — with 40% participation by Eneva and 60% by PetroRecôncavo, the latter being the operator of the assets.

The statement confirms previous report by Brazil Journal citing sources close to the negotiations. The consortium offered $1.35 billion for the asset, according to the news outlet.

The conclusion of the deal, as well as its terms and conditions and the amount involved are still subject to the acceptance of the offer by Petrobras, the negotiation and execution of the contract, the competent legal and regulatory approvals, as well as the fulfillment of certain conditions precedent, in particular the approval of the antitrust watchdog Cade and the National Petroleum Agency (ANP).

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