Petrobras unlikely to draw buyers for refineries

Just three months ahead of presidential elections, potential investors do not believe that sale process will be concluded this year

07/14/2022

Petrobras resumed sales of three refineries in June — Foto: Divulgação Petrobras/Diego Pisante

Petrobras resumed sales of three refineries in June — Foto: Divulgação Petrobras/Diego Pisante

The sales of three Petrobras refineries may not be competitive, sources say. The oil company starts receiving non-binding proposals as of this Thursday for three units: Abreu e Lima (Rnest), in Pernambuco, Presidente Getúlio Vargas (Repar), in Paraná, and Alberto Pasqualini (Refap), in Rio Grande do Sul. The move includes logistics assets integrated into these facilities.

Just three months ahead of the presidential elections, potential investors do not believe that the sale will be concluded this year. Petrobras is being advised by Citi. Sources within the oil company said the deal is unlikely to be concluded by October.

As former president Luiz Inácio Lula da Silva leads the polls, the concern is that the sale of assets may be interrupted if he wins the presidential race. According to Mr. Lula da Silva’s government plan, he is against the privatization of Petrobras.

Even in a scenario in which incumbent Jair Bolsonaro (Liberal Party) is reelected, potential buyers don’t feel safe either, said on condition of anonymity one businessman who is still evaluating whether to bid for one of the units. “All these moves of the president concerning the change of command at Petrobras and trying to intervene in the price policy make investors feel insecure,” he said.

According to sources, Ultra, owner of the Ipiranga gas station chain, does not intend to bid for Petrobras. The group had once advanced in the process of buying the Refap unit, in Rio Grande do Sul. However, in October last year, the two parties announced that the negotiations had fell apart. The purchase of Refap would be strategic for Ultra in the oil and gas industry. Sources say that Petrobras tried to renegotiate a higher price for the refinery, higher than the group’s previous bid.

The Cosan group, a producer of bioethanol, sugar, and energy, is still evaluating whether to make an offer. Last year, it made a bid for Repar, but it fell short of the oil company’s intentions to sell. Sovereign wealth fund Mubadala, the owner of the Mataripe unit (formerly Landulpho Alves), is not interested in making an offer for one of the units in the South region either, sources say.

The sale of the refineries is part of the agreement signed in 2019 between the oil company and the antitrust regulator CADE for the sale of eight units, so to attract other companies to the industry. The assets for sale account for about half of the state-owned company’s processing capacity.

So far, only the sale of the Bahia refinery has been concluded. Petrobras has already signed contracts for units SIX, in Paraná, and Reman, in Amazonas, but the deals have not been closed yet.

The unsuccessful sale process of Rnest was terminated in August 2021, after the interested parties gave up submitting binding proposals. As a result, Petrobras opted to include in the business plan the conclusion of the project’s second refining train, with planned investments of $1 billion. According to the company, the intention is to broaden the interest of potential buyers.

According to a specialist in the oil and gas industry, Petrobras took too long to take the sale process ahead. For him, CADE should have put more pressure. “Now it has lost the timing. The price [intervention] still weighs.”

This source understands that this sale process does not favor competition, since the refineries in São Paulo and Rio de Janeiro were left out of the Petrobras divestment process. “If the idea is to foster competition, CADE should include refineries from those states. But Petrobras does not want to give up its best assets.”

In a note, Petrobras stressed its commitment to the broad transparency of its divestment projects and portfolio management and said that the subsequent stages of the project will be disclosed in due course. Cosan and Ultra declined to comment. Mubadala did not immediately reply to a request for comment.

*By Mônica Scaramuzzo, Gabriela Ruddy — São Paulo, Rio de Janeiro

Source: Valor International

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Development Bank shortlists four companies for privatization this year

Ceasaminas, CEEE-G, CBTU, and ES Gás are seen as moving forward despite elections in October; Santos Port Authority, previously a priority, is unlikely to be sold in coming months

07/14/2022

Fábio Abrahão — Foto: Leo Pinheiro/Valor

Fábio Abrahão — Foto: Leo Pinheiro/Valor

The Brazilian Development Bank foresees that it is still possible to sell at least four more state-owned companies this year. These processes are being structured by the bank: Ceasaminas (food supply center), power generation company CEEE-G, Belo Horizonte-based urban mobility company CBTU, and gas distributor ES Gás.

Brazil will hold elections in October, but they are unlikely to impact the sales processes, said Fábio Abrahão, head of concessions and privatization at BNDES. “These are projects in a more advanced stage, which have already gone through internal stages in the Executive and Legislative branches. So we see no interference,” he said.

Santos Port Authority (SPA), the company that manages the Port of Santos, was also high on the federal government’s privatization list, but the sale is unlikely to be concluded on time as well. “We want to launch the public notice this year in order to have the auction ready [for 2023]. This is a very complex process, which has to be done carefully,” Mr. Abrahão said.

The IPO of Companhia Riograndense de Saneamento (Corsan) was on the list before being canceled on Wednesday after the Rio Grande do Sul Court of Accounts (TCE-RS) determined the suspension of the process. The state government is now working on a new model to sell all shares in the company.

Corsan CEO Roberto Barbuti said it is still feasible to hold the auction in 2022, at least from a technical standpoint. The idea would be to launch the call for bids soon after the second round of elections, in October, and hold the competition in December.

The executive evaluates that the studies required for the new modeling are not that complex. The idea is to repackage the work done so far, he says. Some steps will not have to be redone, such as the negotiation with the municipalities. However, the new model must include public hearings and new rounds of talks with the market, since the profile of the interested parties tends to change.

In the sector, however, the prevailing assessment is that it will be very difficult to conclude the process in 2022, mainly due to the elections.

In addition to political turbulence, each specific project faces its own particular challenges of attractiveness and pricing.

The next privatization auction is expected to be that of Rio Grande do Sul-based CEEE-G (Companhia Estadual de Geração de Energia Elétrica). This is the second attempt to sell the company. The first one, in March, was canceled due to the lack of interested buyers. Since then, the public notice was reformulated, and the minimum value for the purchase of shares was reduced to R$837 million from R$1.25 billion. The delivery of bids is scheduled for July 26 and the public session for July 29.

Rio Grande do Sul holds a 66.23% stake in the company. In addition to acquiring control of the company, the new operator will have to shoulder a fixed concession payment of at least R$1.66 billion to take over the concession of the generation plants. CEEE-G’s assets total 1,270 MW of authorized power, or 13.3% of the state’s generation.

Another project expected to be launched in the coming months is the privatization of Belo Horizonte-based Companhia Brasileira de Trens Urbanos (CBTU), which foresees service concession for 30 years. The competition is expected to take place on September 15. However, the contract still lacks the approval of the Federal Court of Accounts (TCU), a public spending watchdog not related to Brazil’s Judiciary system.

The project is ambitious. In addition to changes in the current structure, it provides for the construction of Line 2 of the subway in the capital city of Minas Gerais. The contract includes investments of R$3.7 billion. Federal and state contributions are foreseen to make the project feasible. The federal government will inject with R$2.8 billion, while the Minas Gerais state will disburse R$428 million.

Interest in the contract has been high, Mr. Abrahão said. “In addition to local groups, there are new international players in the market and European companies.”

BNDES also plans to privatize ES Gás later this year – the auction is scheduled for December 21. The amounts involved in the operation were not disclosed. The gas distributor is controlled by the Espírito Santo state, with a 51% stake, and has Vibra Energia (former BR Distribuidora) as a partner, with 49%. Vibra has signaled its intention to sell its stake as well.

“It is a lean company, which operates a relatively small network. The advantage is the potential for expansion. Espírito Santo boasts a strong industrial base and domestic consumption capable of providing stability to the operation,” Mr. Abrahão said.

On the privatization list, there is also the sale of Contagem-based Ceasaminas (Centrais de Abastecimento de Minas Gerais), which operates six warehouses.

The BNDES head sees this as a smaller deal, but an important one. “There is a potential impact of transformation and huge efficiency gains.” He says there are several interested buyers, mainly logistics operators.

Besides the state-owned companies, the development bank plans to sell some properties, which are likely to be sold in lots – assets of Furnas, Eletrobras, and Cais Mauá, among others. These auctions could total R$1 billion by the end of the year, Mr. Abrahão estimates.

*By Taís Hirata — São Paulo

Source: Valor International

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Congress passes budget guidelines law for 2023

Rapporteur removed article that made payment of amendments compulsory

07/13/2022

Rodrigo Pacheco — Foto: Geraldo Magela/Agência Senado

Rodrigo Pacheco — Foto: Geraldo Magela/Agência Senado

The plenary of the National Congress concluded the analysis and passed Tuesday the Budget Guidelines Law (LDO) for 2023.

The vote took place even after a reaction from the so-called “Centrão,” a cluster of center-to-right parties that supports the Bolsonaro administration, which showed dissatisfaction with the decision of the rapporteur, Senator Marcos Do Val (Podemos of Espírito Santo), to remove an article that made the payment of the rapporteur’s amendments (also called PS-9) compulsory.

Currently, only individual amendments and those from state legislatures are compulsory. In the case of the rapporteur’s amendments, this requirement is foreseen in the Constitution, but was not included in the version of the LDO sent by the federal government.

The president of the National Congress, Rodrigo Pacheco (Social Democratic Party, PSD, of Minas Gerais), denied that he has come to advocate the end of mandatory rapporteur amendments after he was accused of using this mechanism to ensure his election to office.

The accusation was made by Senator Do Val. He told newspaper O Estado de S.Paulo that he received compensation in rapporteur amendments for having helped elect Mr. Pacheco to the post.

“There has been my position against this for quite some time. This precedes any kind of discussion that took place in this episode of Senator Marcos do Val,” Mr. Pacheco said.

The PS-9 issue is not the only innovation in the bill presented by Marcos Do Val. His bill also suggests dividing the power of the budget rapporteur with the head of the Joint Budget Committee of Congress, federal deputy Celso Sabino (Brazil Union of Pará), on the order and priority of the release of the rapporteur’s amendments.

The “secret budget,” as the opposition calls it, has become the main instrument of Congress to allocate resources to its electoral bases and has caused the Bolsonaro administration to expand its governing coalition in the Legislature, but it is attacked by former president Luiz Inácio Lula da Silva (Workers’ Party, PT), who promises to end the mechanism if elected.

Today, the control of the release of these funds falls only to the budget rapporteur, which for 2023 is Senator Marcelo Castro (Brazilian Democratic Movement, MDB, of Piauí), an ally of Mr. Lula da Silva. With the division of power, Mr. Sabino will also have to be consulted about the distribution of this money. Mr. Do Val included that, in case the congressman is not elected, the power will remain with a congressman of the same party as Mr. Sabino (Brazil Union), and not with the future head of the commission next year.

In his opinion, Mr. Do Val also made room for more spending next year by saying that the projections used by the federal government for inflation are constantly lower than what is officially verified. For this reason, said the senator, the Congress itself can take the initiative to decide which indicator to use when voting on the Annual Budget Law (LOA) in December, whether the index most updated by the market or the percentage indicated by the federal government.

“The projection of the [Brazil’s benchmark inflation index] IPCA variation from January to December 2022 will be used, both by the federal government and the Legislature, to correct the cap of federal government spending applicable to 2023. For this reason, the clean bill provides that the National Congress may use a more updated projection for the index, without this being restricted to using the projection to be informed by the federal government on November 22,” he said.

This decision, explained the rapporteur in his opinion, will also imply a revision of the fiscal target for 2023, adjusted proportionally to the revision of the spending cap rule, which limits the growth of federal government’s primary expenses above inflation.

The rapporteur also prohibited cost cutting in 19 sectors, which will make it difficult for the government to reallocate money. Among the activities that cannot have their funds cut by unilateral act of the federal government are education, science and technology, digital inclusion, sports, defense of children and the elderly, demarcation of indigenous lands, public security, investments in the Armed Forces, rural insurance, animal health, infrastructure, basic sanitation, climate change monitoring and the fight against the Covid-19 pandemic.

Egress from the police, Mr. do Val previously authorized that the federal police careers have restructuring and salary increases next year. The measure is a nod to the electoral base of the rapporteur before the protests of these workers against the Bolsonaro administration for not honoring the promise of granting these benefits. Despite this, the increase will still depend on prior authorization in the 2023 LOA, just like all other civil servants.

The opinion also removes the prohibition for cities with up to 50,000 inhabitants to receive federal voluntary funds if they are in default on previously signed agreements, and authorizes federal funds to be used to install solar power in public health units and even in private entities that provide services to SUS, Brazil’s public healthcare system.

Finally, the text innovates by forcing the federal government to transfer by June 30 the amendments of direct transfers, transferred from the federal government to states and municipalities without the need for agreements or breakdown of spending to be executed. Currently, there is no deadline for sending these funds. Additionally, the city government will have to present to the Legislature a plan within 30 days to explain how it will spend the money received from the federal government.

*By Renan Truffi, Vandson Lima — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Brazilian power companies stand out for returns

Roland Berger highlighted Alupar, Engie, Equatorial and Enel Brasil in Brazil in survey with 201 listed firms around the world

07/13/2022

Eletrobras’s power transmission towers — Foto: Custódio Coimbra/Agência O Globo

Eletrobras’s power transmission towers — Foto: Custódio Coimbra/Agência O Globo

Alupar, Engie, Equatorial and Enel Brasil are among the 23 electrical companies with the world’s best performance, a study by Roland Berger shows.

The consultancy surveyed 201 power companies listed in the U.S., Canada, Europe, Asia and Latin America, with revenues exceeding $1 billion, and for which there is public performance data over the past 10 years.

Between 2016 and 2020, the segment saw shareholder value added rise, with a return on invested capital (ROIC) higher than the weighted average cost of capital (WACC) in all years except 2017. In the five-year period, value creation reached $210 billion.

Companies in Europe and the United States accounted for 96% of the value created, while Asia and Latin America changed their positions since the previous study.

“Asia destroyed $11 billion of value while Latin America built $20 billion of shareholder value,” says Jorge Pereira da Costa, Roland Berger’s managing partner, stressing that the perception of risk in Latin America is still very high.

In the same period, the Brazilian power industry created value in every year despite the pandemic, with over $12 billion in shareholder value added. This is the first time Brazilian power companies are among the global 23 Top Performers – the ones that proportionally grew the most in sales and offered better remuneration to shareholders and investors, the executive says. Alupar stands out in transmission, Engie in generation, Equatorial in distribution, and Enel for its efficiency in asset management.

“Despite the challenges in Brazil, these companies are capable of being among the best performers in the world using very specific levers. Alupar took advantage of a regulatory window to invest heavily in transmission and good execution capabilities. Equatorial has a regulatory strategy, knew how to take advantage of its asset base, operational efficiency and diversification. Engie is leaving the thermoelectric power plant market, and has invested in services and power commercialization as a growth lever. Enel, on the other hand, is a highlight due to growth, the purchase of Eletropaulo and the capacity to extract value from this asset,” he said.

Enel is not a listed company, but parent company Enel Americas is, Mr. Costa says. The study considered the contribution of Enel Brasil to Enel Americas. “There are 22 companies plus one,” he said. The use of these listed levers, he says, will shape the future of the power industry by better addressing the structural problems. These are included in Bill 4,141, which deals with the modernization of the industry.

Another finding of the survey is that the Brazilian power industry is impacted by the performance of state-owned companies, which have wiped out $1.8 billion in shareholder value. Eletrobras accounts for more than 80%, or $1.5 billion.

Alupar CEO Paulo Godoy says that the study proves the efficiency in the company’s capital allocation, the experience to identify and execute new projects, technical competence and the financial discipline, ensuring the profitability of the business.

Engie Brasil CEO Eduardo Sattamini says that 95.8% of the generation comes from renewable sources and that the performance in diverse and complementary segments creates synergy, increasing resilience to risks and driving opportunities that emerge from trends and challenges.

Equatorial CEO Augusto Miranda highlighted the financial discipline and capacity to allocate capital efficiently, with a focus on the long term, and the delivery of growth and results, which translates into shareholder return.

Enel’s country manager in Brazil, Nicola Cotugno, said that the result comes from the company’s commitment to energy transition in the country, which brings opportunities for competitors that operate in an integrated manner in the power industry.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Embraer to have key 3Q for deliveries

Shortage of electronic components and lack of skilled labor in the U.S. are obstacles

07/13/2022

Francisco Gomes Neto — Foto: Carol Carquejeiro/Valor

Francisco Gomes Neto — Foto: Carol Carquejeiro/Valor

Embraer, the leader in the regional jet market, is on course to fulfill its forecast of aircraft deliveries for 2022, despite persistent challenges in the global supply chain. But the current quarter will determine whether, in fact, it will be possible to achieve these goals, according to the company’s CEO, Francisco Gomes Neto.

“The scenario is still challenging. The third quarter will be key for us to have a final vision,” he told Valor. The shortage of electronic components, manufactured mainly in Asia, and the lack of skilled labor in the United States, which compromises the production programs in one of the most important suppliers of parts for the aircraft industry, are the main obstacles on the way to deliveries of 60 to 70 commercial airplanes and 100 to 110 executive jets this year. These estimates include growth compared to 2021.

To circumvent the challenges in the supply chain, Embraer has placed more than 20 of its professionals inside plants of suppliers and sub-suppliers to assist them in the production programs. So far, the measure has ensured the arrival of the necessary components, although with delays. But it has not been able to prevent delays in aircraft deliveries.

At the same time, with the resumption of demand in commercial aviation and the various campaigns underway, the company is expected to have good news in sales ahead, confirming the new business expansion cycle. The Farnborough Airshow, which takes place next week in England, is the main event in the world’s civil aviation calendar, and the traditional stage for announcing new orders. Embraer will be at the show.

“We will take the message that we are ready to grow,” said Mr. Gomes Neto. For some time now, the executive has been indicating that, after putting its house in order, Embraer will experience a period of growth between 2023 and 2026. For 2022, the expectation is a return to net profit, after four years of consecutive losses.

The dramatic drop in the production of commercial jets, due to the Covid-19 pandemic, and the end of the agreement that would result in the sale of commercial aviation to Boeing led the company to promote important structural adjustments. Now, the time is to gain muscle, with more efficiency.

Among other initiatives, Embraer recently signed an agreement with Toyota to apply the concepts of the Toyota Production System in the industrial operation, in search of greater operational efficiency. By the end of 2023, the goal is to reduce the time spent in the production of aircraft by 40%. At the end of last year, the reduction was at 17%.

The backlog also grew again, reaching $17.3 billion in March, the highest since the second quarter of 2018. “The pandemic brought the biggest crisis in aviation history. But it also brought changes, such as the strengthening of domestic aviation and the greater demand for smaller jets,” said Rodrigo Silva e Souza, Embraer’s chief marketing officer for commercial aviation.

In this new market moment, the plan is for Embraer’s E2 jets to repeat the success of the E1s. The E195-E2 has already proven to be the most efficient of the single-aisle jets, and competition with the A220 does not seem to be a concern. Besides the economic and technical advantages demonstrated over its rival, the Brazilian company’s focus is on the market below 130 seats, while Airbus targets larger segments.

For the Brazilian company, the global demand for commercial aircraft up to 150 seats will be 10,900 units by 2040, including 8,640 jets and 2,260 turboprops, in a market estimated at $650 billion.

Embraer is developing its new high-tech turboprop (TP), whose project may result in partnerships with suppliers or investors, just like Eve did a short time ago. According to Mr. Silva e Souza, the TP suppliers are likely to be chosen this year and the project is expected to be submitted to the board of directors for approval by mid-2023. Several customers from North America and Asia have already shown interest in the 70-90 seat aircraft.

Eve’s project is more advanced. Listed on the New York Stock Exchange (NYSE) two months ago, the subsidiary of the urban air mobility market plans to certify its eVTOL — the flying car — by 2025.

In Defense, the business perspectives are also optimistic, despite the new reduction in orders for the KC-390 Millennium by the Brazilian Air Force (FAB). The invasion of Ukraine by Russia and the increase in defense spending by the world’s great powers, particularly in Europe, are opening up important markets for its military aircraft. Embraer is also evaluating potential partnerships in this area.

Less than a month ago, the Dutch Ministry of Defense indicated that it had chosen the KC-390 to replace its C-130 Hercules, in a communication marked by praise for the Brazilian military aircraft. “Defense is coming from a more difficult period. The war in Ukraine brought interest for the C-390 and the Super Tucano,” Mr. Gomes Neto said.

Embraer is expected to announce this month the deliveries of the first semester, usually weaker than the second half of the year. From January to March, there were six commercial aircraft and eight executive jets, totaling 14 units.

*By Stella Fontes — São José dos Campos, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Itaú Unibanco’s private bank plans to surpass R$1tn in assets

With a 28% share, bank is leader in Brazilian market

07/13/2022

Percy Moreira, Fernando Beyruti and Felipe Nabuco — Foto: Silvia Zamboni/Valor

Percy Moreira, Fernando Beyruti and Felipe Nabuco — Foto: Silvia Zamboni/Valor

The new structure of Itaú Unibanco’s private bank, put in place at the beginning of the year, seeks to consolidate a global vision for the whole business with the unification of the domestic and international segments of the group. In an exclusive interview with Valor, the three executives who took over the wealth-management branch of Brazil’s largest private-sector bank, which serves people with at least R$10 million in investments, say that one of the strengths of this integration and total customer service comes from the migration of systems to cloud computing.

“With the change, there will be a single system for all the bank’s units, including Brazil, Switzerland, the United States, and Portugal,” says Fernando Beyruti, who took over Itaú Private Bank as global head in January. “The technological transformation will allow the bank to have much more customer data, provide a reduction of the inefficiency of the legacy systems and integrate solutions and products from all businesses of Itaú, from investment banking to asset management,” adds Felipe Nabuco, the private bank’s head of investments and client relations.

The third member of Itaú’s new structure is Percy Moreira, CEO of Itaú USA and head of international private bank, assuming a position that belonged to Mr. Beyruti in the old structure: “In this model, we end up playing more closely together,” Mr. Moreira points out.

The trio now runs a business that gathers R$700 billion in assets under management and a 9,500 client base. With a 28% share, Itaú is the leader in this market in Brazil. Itaú Private Bank’s global head explains that the goal is to exceed R$1 trillion in assets and reach a 35% market share.

Mr. Beyruti considers that there is no specific deadline to reach those goals. “This growth will be a consequence of our mission of providing 360-degree service to clients,” he says. “It is to meet the demands of the client’s life, both local and international investments, as well as succession planning, tax, and other needs.”

According to the executive, “we do not doubt that personal contact in private banking is something that will not be lost,” he says. “As we go down the generations, the client wants to have self-service, he wants to have the digital part.” For this reason, the integration of all systems into just one will allow, in Mr. Beyruti’s view, great flexibility, agility, and efficiency to implement new products and platforms. “We have a slogan of having ‘a bank for each client’, and this requires a just as good as technology infrastructure.”

The private bank’s global head added that before the migration to the cloud, changes to systems could take months. “In the old system, anything new that came along, whether it was a regulation, or a new product could take about six months to develop. Now with APIs [sets of protocols that allow rapid integration between systems] and systems in the cloud, it’s much easier to develop any solution in a few days.”

Data analysis also becomes much more effective and faster, which allows the bank to foresee some demands and offer conveniences, Mr. Beyruti says. “For example, if we know that a customer travels a lot, why don’t we automatically unblock his card [for use abroad]? Or if a customer often goes to a certain restaurant, we can create a specific promotion for the specific place to offer an experience, obviously respecting privacy.”

According to Mr. Nabuco, “a major advance in this new structure is that, besides the banker, who usually considers the commercial aspect, the investment team now also has global thinking.” According to the executive, “we used to have an investment team focused on the Brazilian market and another one focused on the international market, but it is no longer possible to have one person thinking about Brazil and another one thinking abroad. You have to be always thinking in a much more comprehensive way.”

In Mr. Nabuco’s evaluation, “when you look at the platform, it is not only about investment.” According to the executive, “investment is a stretch of the journey, which is made up of services and conveniences.” Mr. Moreira adds that “we really aspire to use [the experience] out there as a great gateway to the private banking world for new experiences for the Brazilian client.” Besides, considers Mr. Beyruti, “one of the advantages of Itaú is that it is a universal bank: I can offer the private banking client investment banking services, credit, insurance, I can offer everything, right?”

Another expansion strategy for Itaú’s private-banking business is a more intense regionalization process. According to Mr. Nabuco, “outside the largest local markets, there are places where private banking has no physical presence and, in these places, our market share drops to 15%.” According to the global head, “in this regionalization project, the idea is, with the broad bases we have today, that the íon investment offices will be our investment agents in places where we do not yet have a physical presence of the private banking.”

The íon (Itaú’s investments platform) offices started to open in March 2021 and already have R$400 billion in assets under management. The network already has 110 offices open and the goal is to have 129 locations, with 2,500 specialists, by the end of the year throughout Brazil. In the coming months, units will be opened in Recife (Pernambuco), Rio de Janeiro, São Paulo and Petrópolis (Rio de Janeiro state). According to Mr. Nabuco, “with this network, we will be able to identify potential private clients.”

In Mr. Beyruti’s view, in this arrangement “we can detect the affluent [client], that is, the one that is going to be a client of the private bank at some point and we already have him on the radar.” This way, “much earlier we have someone there helping this client in his growth.”

Another new feature that is starting to be implemented is to have specialists per area to identify specific demands from clients. “We started with technology, we have a banker who will serve the tech segment, so he knows the demands and what we can offer to this client and his company.”

Itaú’s private bank has also strengthened the events business, such as those aimed at preparing the new generations that will assume responsibilities in the family businesses. “We have several in the pipeline,” says Mr. Beyruti. “For example, we are going to take some clients to attend a course on venture capital at Harvard, and we have another one in which we bring together several families to meet and learn from each other.”

*By Sérgio Tauhata — São Paulo

Source: Valor International

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Brazil’s rail industry bets on exports, services amid standstill

Train makers seek alternatives to prop up businesses after losing steam amid economic crisis, pandemic

07/12/2022

Brazil’s rail industry is at a virtual standstill. Without large orders from cargo and passenger operators, train makers in the country are sustaining their businesses thanks to exports and revenues from services like overhauls and updates of equipment already on the streets. In the segment of passengers, the idleness in train manufacturing – considering that each train is made of one locomotive and eight cars – is at 80%. In the cargo field, including locomotives and cars, it is nearly 100%.

After an exceptional year in 2015 – with 4,700 cars, 129 locomotives and 322 passenger cars manufactured – the industry started to lose steam amid the economic crisis in the following years. In addition, the expectation for a better decade was delayed for at least two years due to the effects of the pandemic in the passenger segment and the postponement of investments in rolling stock by cargo transporters.

The pandemic reduced drastically revenues of companies operating subway and commuter trains, impacting the capacity of these companies to invest. Cargo transportation, on the other hand, saw demand rise in the meanwhile, but not to the point of increasing orders.

The industry hit bottom in 2019, with only 1,000 cars and 34 locomotives made for the cargo segment. In the passenger segment, according to the Brazilian Association of the Rail Industry (Abifer), the last contract for delivery of new trains was signed in 2013. In 2020, 72 cars were made. Competition from Chinese companies is now the biggest challenge for Brazilian companies in both segments. The landscape is now compounded by the input inflation, which hits steel particularly hard.

Vicente Abate — Foto: Anna Carolina Negri/Valor

Vicente Abate — Foto: Anna Carolina Negri/Valor

Vicente Abate, head of Abifer, highlights the hurdles but is still upbeat. “We believe in growth in the next years [in cargo transportation]. Rail transportation tends to strengthen, and that will have repercussions in the industry. The aim at increasing railroad share in cargo transportation to 40% from 20% by 2035.” As for passenger trains, Mr. Abate sees room for commuter trains and interstate services, besides longer tracks for subway and light rails.

But he changes the tone when talking about competition from Chinese companies. Mr. Abate warned that the federal government’s decision to reduce the tax on imported products could increase difficulties in the sector. The 14% rate may be reduced to as down as 8.4%. “They [Chinese] do not intend to produce here. Brazil’s productive chain is in condition of meeting any need from them.” The executive argues that any tax reduction should be followed by a lower Brazil cost to level the playing field.

Foreign companies are seen as taking space from the local product but can also offer alternatives. After failing to produce for an entire year, Alstom ended 2021 with good perspectives in the foreign market as it won auctions of €2 billion in the region. Half will be made in Mexico and the other half in Brazil. The Brazilian production will supply orders in Chile, Taiwan and Bucharest, besides the São Paulo subway system.

There is no shortage of demand for passenger transportation in Brazil, said Michel Boccaccio, Alstom’s vice president for Latin America and chief executive in Brazil. In his opinion, there is shortage of funds for states to invest in commuter trains and subways. “São Paulo is doing the right thing in seeking partnerships with the private sector for its projects.”

Alstom had two plants in Brazil: one in the city of São Paulo and the other in Taubaté (São Paulo state). The company was forced to close the former due to the lack of orders and spent the recent years betting on services – the engineering team took part in global projects in the period. “Brazil excels at [making] stainless steel cars.”

The Taubaté plant has now 1,000 cars in the backlog. “The unit is going from zero production to the start of assembling later this year or in early 2023,” Mr. Boccaccio said. The company will invest €10 million to prepare the plant and hire 850 people. Alstom’s headcount is 800 now.

Marcopolo Rail, a Brazilian newcomer, was created during the crisis. The rail division of the traditional bus maker started to operate in 2017 and has bet on passenger niches. The company will supply the trains for the so-called People Mover, a system that will link the terminals of Guarulhos International Airport. Petras Amaral Santos, Marcopolo Rail’s business head, said that during the pandemic the company invested in light rail, and there is already an equipment operating in Bento Gonçalves (Rio Grande do Sul) and deals secured for 2023.

Mr. Santos believes that there is space for every type of passenger vehicle, and that each city will have to choose the best solution according with its demand. “We lack good projects,” he said. “If the study is well executed, there will be financing, and the project will be feasible.”

Being part of a large group makes it easier for the division to face the downturns in the sector and to get better prices with input suppliers. In addition, the objective is to take advantage of Marcopolo’s international structure to export, especially to neighboring countries in Latin America.

Asked about competition from Chinese companies, Mr. Santos summed up the sector’s prevailing assessment. “Which country do we want? We have to think about that. We want an industrialized country.”

*By Carlos Prieto — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil in talks to import diesel from Russia, Bolsonaro says

Move is aimed at reducing costs locally after federal measures failed to reduce diesel prices at pumps as much as those of other fuels

07/12/2022

Hungary’s president Katalin Novák and Brazil’s president Jair Bolsonaro met on July 11 in Brasília — Foto: José Cruz/Agência Brasil/Agência O Globo

Hungary’s president Katalin Novák and Brazil’s president Jair Bolsonaro met on July 11 in Brasília — Foto: José Cruz/Agência Brasil/Agência O Globo

President Jair Bolsonaro said Monday the Brazilian government will try to make it possible to start importing diesel from Russia within 60 days.

The move is aimed at reducing costs locally after federal measures to reduce sales tax ICMS levied on fuels failed to reduce diesel prices at the pumps as much as gasoline and ethanol prices. The rate charged by states on diesel was already lower than the 17% cap defined as of this month for services considered essential.

“It is agreed. In 60 days, it can already start arriving here. There is already this possibility,” said Mr. Bolsonaro, in an interview at the presidential palace, in Brasília. “We import almost 30% [of the diesel consumed in the country]. You have to import diesel from those who are selling it cheaper, not from those who are selling it even more expensive [than before].”

Less than three months before the elections, the president has been pressuring Petrobras not to pass on any price increases. The diesel price hike, besides the impact on inflation, directly affects truck drivers, who massively supported Mr. Bolsonaro when he was elected president, in 2018. Brazil will hold elections on October 2. Mr. Bolsonaro, who is running for reelection, is trailing former president Luiz Inácio Lula da Silva in the polls.

Referring to the new CEO of state-owned oil company Petrobras, Caio Mário Paes de Andrade, Mr. Bolsonaro also called for prices at the pump to fall if oil drops below $100 a barrel.

“If prices increase here, so does Petrobras’s profit. Petrobras now has a CEO that will respect the social purpose imposed by the state-owned companies’ law. Brent oil has fallen from $100 then it went back up a little. I believe that if it is consistent, a little below $100, there is room to reduce prices in refineries,” he said.

As for imports of diesel from Russia, the president celebrated the evolution of partnerships with the country and its decision to remain neutral after Russian leader Vladimir Putin decided to invade Ukraine, launching a five-month war.

“Russia continues to do business with the whole world. It seems that the economic sanctions didn’t work out. So much so that Germany has now had 40% of its gas cut off. Europe is largely dependent on gas imports from Russia. The ruble, which people thought would melt down, is the currency that appreciated the most this year. It is a great country, twice the size of ours. And Brazil maintained a balanced position. Of course, we would like there not to be a war,” he said.

After receiving the official visit from the president of Hungary, Katalin Novák, Mr. Bolsonaro made another statement, assuring that he will do his best for peace in the conflict. He also unveiled he will speak with Ukraine President Volodymyr Zelensky on July 18.

If confirmed, this will be the first contact between Mr. Bolsonaro and the president of the country that has been waging a war against Russia since February, when its territory was invaded.

“We exchanged some remarks about the conflict going on near Hungary, the Russia-Ukraine issue. I told her that I have a phone call with Zelensky scheduled for July 18, just as after my visit to Russia, before the conflict, I had another conversation with President Putin,” Mr. Bolsonaro told reporters. “We want, more and more, to do what is possible for peace. We know that the truth often hurts, but there is no other way.”

In the speech, the president thanked Hungary for its support of the Mercosur-European Union trade agreement and Brazil’s accession to the OECD.

During his visit to Eastern Europe in February, days before the war started, Mr. Bolsonaro met with the Prime Minister of Hungary, Viktor Órban. At the time, he referred to the far-right leader as “brother” and highlighted the political and ideological affinities between the two.

* By Matheus Schuch — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Market still bets on interest rate cuts in 2023

Analysts’ median projection for Selic at end of 2023 was stable this week at 10.5%

07/12/2022

Central Bank's building in Brasília — Foto: Divulgação/Rodrigo Oliveira/Caixa Econômica Federal

Central Bank’s building in Brasília — Foto: Divulgação/Rodrigo Oliveira/Caixa Econômica Federal

Economic analysts have once again increased their inflation projections for 2024 and continue to bet on cuts in the basic interest rate in 2023, shows the Focus survey, released on Monday morning.

Overall, this movement in expectations reveals that the financial market is questioning the strategy of the Central Bank’s Monetary Policy Committee (Copom) of raising interest rates less now, but avoiding cuts next year.

At its last meeting in June, the committee said that if it raises the key interest rate less in the next few meetings, combined with keeping interest rates higher in 2023, it could bring inflation down “around the target” as early as 2023.

On that occasion, the Copom disclosed an alternative projection for inflation that shows that if interest rates were maintained at 13.25% per year during 2023, projected inflation for 2023 itself would drop to 3.7% from 4%. At this percentage, it would still be above the target, set at 3.25%, but the committee considers that it would be close enough to the target, given the great uncertainties affecting the economic scenario.

The Focus survey shows that, at least for now, the market has not bought the thesis of higher interest rates in 2023. The median projection of analysts for the Selic policy interest rate at the end of 2023 was stable this week, at 10.5% per year.

The market has doubts if, in fact, the Copom will keep interest rates stable in 2023 because, if it does, the inflation projected by the Central Bank itself for 2024 would be too low. In mid-June the Central Bank projected inflation at 2.7% for 2024, already below the center of the year’s target of 3%.

Some experts noted, when the Central Bank unveiled its strategy of higher interest rates for longer, that it is inconsistent with the usual way the Copom acts. The natural thing to do would be for the Central Bank to take care of inflation for the following year, cutting interest rates so that they do not get too low.

Moreover, the Central Bank’s own policy director, Diogo Guillen, said in the Inflation Report interview that signaling higher interest rates for longer in 2023 was not forward guidance. Forward guidance could tie the hands of the Central Bank and force it to keep interest rates higher even if circumstances over time suggest it should do otherwise.

Another set of data from the Focus survey that puts the Central Bank’s strategy in doubt is the evolution of market inflation expectations.

In the case of the figures projected for 2023, they rose to 5.09% from 5.01% last week. The figures expected for 2024 rose to 3.3%, against a target of 3%, after remaining stable at 3.25% for several weeks.

In part, this is a sign of market disbelief that the Central Bank will be able to meet targets with the current monetary policy strategy. It also reflects the fiscal risks, with tax cuts and increased transfers, that are likely to make disinflationary work difficult for a long period of time.

*By Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Trading companies get compensation after farmers fail to deliver grains

Judges decide that skyrocketing prices unbalance future crop purchase contracts

07/12/2022

Fernando Bilotti Ferreira — Foto: Divulgação

Fernando Bilotti Ferreira — Foto: Divulgação

Farmers have been sentenced to pay compensation for losses and damages to trading companies that operate in the commodities market. The reason is a contractual clause called washout. With the rise in grain prices, this clause has been activated more often by the companies.

Future crop purchase contracts generally include this clause. They establish that farmers will be held responsible for losses if they fail to deliver the product on the agreed date and the buyer is forced to make a new purchase at a higher market price.

This clause is meant to prevent the producer from being seduced at harvest time by higher offers than those closed at the time of the contract and sell the grains to someone else.

Until last year, however, before the record surge in prices of agricultural commodities, this clause was hardly ever used by companies because the fines that are also provided for in the contracts used to be enough to cover the losses.

“Commodities, nevertheless, have doubled in price and the fine, even if high, no longer covers the difference between what was contracted and what is currently practiced in the market,” says attorney Fernando Bilotti Ferreira, with law firm Santos Neto.

He refers to contracts that were closed in 2020 and had delivery scheduled for 2021. According to the lawyer, the fines vary between 10% and 30% of the contracted value. The washout clause, on the other hand, covers all the losses, which can even be above the total value of the contract.

The increase in commodity prices was impacted last year by the strong international demand and the high exchange rate. It rose 45.23% in relation to 2020, according to the Brazil Commodities Index (IC-Br), released by the Central Bank.

“It started with soy, then corn, cotton and coffee. In September 2020, each coffee bag was traded for about R$600 — currently it is at almost R$1,500,” adds Mr. Ferreira.

One of the lawyer’s client — a company that won in court the right to compensation — bought 1,200 tonnes of corn grain that was not delivered on the agreed date. The agreed value was R$612,000 and the established fine in case of non-compliance was set at R$134,000.

The losses for having to acquire again the same amount of corn in the market, at the current price, however, totaled R$1.088 million. The fine, in this case, would cover a little more than 10%.

The decision that secured the payment of the fine and the reparation, together, was made by Judge Carlos Dias Mota, at the Court of Justice of São Paulo (TJSP). He considered the conditions provided for in the contract and the fact that the parties — producer and company — were aware of the risk of fluctuations in the market price of grain.

“It is reasonable to consider that the losses and damages do not correspond only to the price of the product adjusted when the contracts were signed, but also to the losses resulting from the need to purchase the undelivered volume of corn from a third party,” he says in the decision.

Most of the requests that have been made to Justice have this format: they include the fine and the payment of compensation for losses and damages — which corresponds to the difference between the contracted price and the market price at the time when the product should have been delivered.

The producers, on the other hand, have been alleging contractual imbalance. They consider the accumulation of fines and compensation to be abusive and say that the contracts, in this format, benefit only the creditors.

They also argue that the washout clause could not be used automatically. The companies, in the farmers’ view, should demonstrate, through documentation, that the broken contract was linked to a subsequent deal also agreed based on the old price.

But they have not been able to convince judges and appeals court judges. The jurisprudence has been consolidating in favor of the companies. There are even decisions from the TJSP validating these charges.

Lawyers say that these decisions of the TJSP give security to future purchase contracts — which are important for the entire chain. The trading company is not the final recipient of the product. It buys and sells, usually to the foreign market.

“The trading is important for financing the producer and for exports,” says José Afonso Leirião Filho, a partner at law firm VBSO Advogados.

He says that the producer has the obligation to deliver the product and that when this does not happen, the trading company resorts to a court, first, to search for the grains. “Only when they don’t find them, the washout takes place and changes the course of the case to collect the values. It makes sense for the courts to validate this clause. The idea is precisely to rebalance the chain,” he says.

*By Joice Bacelo — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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