Brazilian stock market remains attractive amid global volatility

For UBS, local market may outperform other emerging markets in coming months

09/26/2022

The Brazilian stock market will not remain immune to the instability that the rise in interest rates in the United States causes in global markets, but it is expected to continue to show a better performance than its peers in the coming months.

In UBS Wealth Management’s view, the securities prices – below the historical average and incompatible with the fundamentals –, the less vulnerability to the global liquidity reduction, and the high dividend yields are likely to help that, compared to other emerging markets, Brazil remains more attractive in the next 12 to 18 months.

For Ronaldo Patah, investment strategist with UBS Wealth Management in Brazil, the uncertainties coming from the monetary tightening cycle conducted by the Federal Reserve prevent a clear trend to be pointed out for the stock market. The scenario suggests a lot of instability since the interest rate hike is not over and asset prices have not been fully adjusted. “I don’t see an unequivocal upward trend in the stock market, but even on bad days, Brazil tends to perform better,” he says. “Brazil has advantages in terms of fundamentals at the moment, such as GDP performance and the level of interest rates.”

Mr. Patah recalls that after years at the bottom of the league, the Brazilian stock market has recovered, and this year has the best performance among the emerging economies. The MSCI Brazil index rose 5.72%, compared to a 26% drop in the MSCI for emerging markets. But, despite that, the reading is that the stock discount remains high: UBS estimates that the Brazilian stock market today trades at a 43% discount compared to the group of emerging markets. When looking at the price-to-earnings ratio (which takes into account the projection for companies’ profits over the next 12 months), the multiple is at 6 times, 2.5 standard deviations below the average of the last ten years.

The Brazilian stock market could also benefit from commodity prices, which are expected to remain high. This scenario helps because more than 38% of its market value comes from companies linked to the segment. High-interest rates help stocks in the financial sector. “Brazilian stocks are being traded at an average dividend yield of 10% to 12%, much better than what other exchanges offer,” he says.

This scenario of tighter local monetary policy and high commodity prices also benefits the exchange rate dynamics. According to Mr. Patah, with UBS, if the world goes through a “soft landing” (soft deceleration of the economy), the fair exchange rate in Brazil is R$5 to the dollar, despite the end of the monetary tightening cycle – which puts the perspective of a reduction of the Selic key rate at some point in the medium. “The resilience of Brazil’s foreign accounts can help the country navigate through a long period of a liquidity shortage,” says UBS.

According to Mr. Patah, there may be a flow of external resources to the stock market after the election. “It is difficult to predict, but the fact is that the global market is still very liquid,” he says.

He says that today, the market has “priced in” the victory of former President Luiz Inácio Lula da Silva (Workers’ Party, PT), and no major change is expected in terms of economic policy. “But it’s still an uncertainty, which means it’s possible that after the two rounds of votes, there will be a change in the prices of the stock market and the exchange rate.”

For Anand Kishore, equity manager with Daycoval Asset, despite the strong volatility expected at least until the end of the year, local assets are ahead of their peers in terms of attractiveness. With this, there are two risks to be monitored in the face of the Fed’s monetary tightening cycle: revisions in the earnings of listed companies with the expected slowdown in global activity and the growth of discount rates in all asset classes.

“If the world’s largest economy slows down, there are global consequences in terms of growth and Ibovespa suffers indirectly from this. There will be earnings revision all over the world and here too, on a smaller scale. Moreover, with the Fed Funds going up, the discount rate gets higher for all assets. But when the U.S. interest rate starts to impact inflation, the domestic monetary tightening will be done. So, even if all markets fall, the local one tends to fall less,” he says.

Mr. Kishore sees more room for assets linked to the domestic economy and banks to advance next year, given the discounted multiples, the end of the interest rate hike, and the resilience of activity. Regarding commodities, and despite seeing support at current levels, the uncertainties in China may weigh on Vale, while Petrobras may have difficulties advancing in case of Mr. Lula da Silva’s victory. The bank projects Ibovespa will reach 150,000 points by the end of 2023.

Santander, in turn, projects Ibovespa at 140,000 points. According to the report signed by analyst Aline Cardoso, the market may price cuts in interest rates earlier than expected, reflecting the drop in inflation. The bank also affirms that there is a 70% probability of a soft landing for Brazil, against 30% of a hard landing (deceleration with a greater chance of recession). Globally, the chances of a hard landing are 40%, against 30% of a soft landing and 30% of stagflation.

Even with the largely positive relative vision among market agents, Fernando Bresciani, investment analyst at Andbank Brazil, gives a warning. “The stock market is a reflection of the external markets. Nothing guarantees, and it seems unlikely, that foreign investors will buy Brazil while the other markets melt down. Besides this, as of the second half of next year, the measures of the new government will take effect. It depends a lot on what is going to be done,” he says.

“But the local activity and environment are better at the moment, the earnings season is expected to be good and with positive guidance, companies are more deleveraged. The moment is positive.”

*By Lucinda Pinto, Matheus Prado — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Retailers go all-in on Black Friday, World Cup after sluggish sales in Q3

Companies likely to bring forward promotions; networks focused on home appliances and food will be helped by events

09/26/2022

Retailers reported sluggish sales in the third quarter as segments like food, fashion and home construction failed to improve their results compared with the April-June period. As a result, the companies face mounting pressure to perform better in the fourth quarter.

Commercial actions have been defined, and projections of orders sent to manufacturers suggest an increase of 5% to 25% in sales (in volume) over 2021, depending on the segment. Orders placed can still be revised until November. Figures include, however, the effect of a weak basis of comparison in certain segments, which favors stronger year-over-year growth.

Full-year results are now more dependent on the sales linked to the World Cup, Black Friday and year-end holidays. The companies will focus on this 45-day period to try and end the year on a high note. “This is a still complex backdrop. The third quarter remained complicated, which generates a higher expectation from companies for the next quarter, especially because the pandemic is not helping some sectors” like in previous years, said Marcelo Osanai, head of e-commerce at NielsenIQ|Ebit. Items for home and technology, office, and electronic products, which benefited from the higher demand during the health crisis, face a slowdown this year.

“The World Cup and Black Friday together will help a lot brown goods and food and beverages, but will not help white goods [refrigerators, washing machines], a segment that never does well during World Cup years. In our view, products with high turnover and lower values will gain ground in the coming months,” Mr. Osanai said.

This is an election year in Brazil, but they will be defined by late October at most, which may reduce political tension and improve consumer confidence, executives say. Deflation measured in recent months in some categories and lower unemployment weigh favorably on projections as well. Other positive factors are the expanded cash-transfer program Auxílio Brasil since August and the effect of the low basis of comparison – sales of durable goods, for instance, were very weak in November in the last years.

“Sales have increased somewhat in the third quarter compared with the previous one, depending on the region. But a better scenario is projected in the fourth quarter, no matter who wins the election, in an environment of greater confidence and more money circulating,” said Carlos Corrêa, managing director of Apas, the São Paulo supermarket trade group. The sector is directly benefited by higher cash transfers of R$600 a month.

Last week, Apas raised to 2% from 1.7% the projection of sales growth in São Paulo this year. In retail in general, considering all segments, IDV, the main commerce association, projects increases of 6.7% in September, 6.2% in October, and 6.9% in November over 2021.

Executives and specialists cite the expensive credit as a negative factor that still generates a fear of placing larger orders. In addition, they say, despite recent deflation and higher cash handouts, prices have stalled at high levels.

In this scenario, retailers will seek breathing room by bringing forward Black Friday actions to try and spread the positive effect of this shopping day as much as possible.

For the first time, commercial strategies closed with the manufacturers of technology and electronic items for Black Friday (November 25) will be launched gradually starting in October. For consumers to understand that these are Black Friday promotions, consultants who advised the companies say that the idea is to ensure that these will not be repeated.

The idea of limited-time promotions was used last year in campaigns of large retailers in November 2021. “In conversations with customers in retail, we see a strategy along these lines, to launch actions for Black Friday from October on, following a pre-defined schedule of target products. And they will avoid launching an avalanche of promotions in November,” said Fernando Baialuna, head of retail at GfK in Brazil, a consultancy specializing in durable goods.

According to GfK, there was a 1.1% drop in the volume sold of TVs from January to June over 2021, while smartphones fell 11% and portable devices rose 3%. “I don’t see a risk of World Cup and Black Friday hindering each other. I see one thing helping the other, in a more stable exchange rate scenario, which helps the commercial team to make plans,” he said. “We are likely to see cross-selling, with food and beverage sales, for example, to celebrate the games, linked with strategies to sell TVs or 5G cell phones [with faster video connection].”

Jose Guimaraes — Foto: Divulgação

Jose Guimaraes — Foto: Divulgação

José Guimarães, CEO of the electronics chain Novo Mundo, said that orders have been placed for the industry in talks aimed at the October-January period. The company expects a growth of 35% to 40% in sales value of brown goods in the fourth quarter – excluding the 12-month inflation, it means an increase by 20% to 25% in volume. The projection for white goods is lower – growth of 3% to 5% in value.

“There is a slightly stronger negotiation to meet Black Friday in October, especially in brown goods, to start taking advantage of sales linked to the World Cup before that. Then we will extend the actions until January,” said the CEO of the chain, with 147 stores.

Mr. Guimarães recalled that large chains such as Casas Bahia and Magazine Luiza strongly reduced stocks in 2022 after having started the year well stocked, and sales this year end up forcing them to buy more in the second half, despite sales are not expected to be strong at the end of the year. “There will be a search for more sales, but with rationality, to prepare for a stronger recovery in 2023,” he said.

Cybelar, a strong retailer in the São Paulo state, may be boosted in the fourth quarter by a recovery in store demand this year. “The third quarter was flat, and it changed little from the pace of the second quarter. For the period after October, there is some better expectation, in part because stores will be 100% ready for a normal foot traffic, which did not happen in 2021,” CEO Ubirajara Pasquotto said.

A third electronics chain heard, with a strong presence in Rio de Janeiro and Minas Gerais, placed orders 5% higher in white goods, by volume, and 20% higher in brown goods for October and November, compared to the previous year. “This has more to do with the fact that we were not as stocked in 2021, and not because we expected strong sales. [Sales in] Rio is likely to grow slower at the end of the year than in the North and Northeast regions,” the chain’s director said.

In the fashion and home retail segment, Grupo Avenida, with operations focused on lower-income classes in the North and Central-West regions, says that any comparison of third or fourth quarters with 2021 is unfair considering that the sector lost sales because of the pandemic. “But if we compare with 2019, we are growing twice as much as the IPCA [Brazil’s official inflation index], because even serving the lower income, we feel a migration of the middle-class to our stores,” said Martijn Winkel, the group’s chief operating and sales officer.

“We plan to hold this pace in the rest of the year, as we have attractive prices for different social classes. This can be affected, of course, by a lack of money, a smaller leftover of funds from mandatory consumer spending, and the chance that this deflation is only a one-off thing. Lack of money prevented us from posting a strong third quarter,” he said.

Tenda Atacado expects a less tense political backdrop, and believes that many companies will bring forward Black Friday sales to generate a positive environment. “What still favors performance – many people forget it – is that this segment posted weak same store sales at the end of 2021, and this [low] basis of comparison will help now,” CEO Marcos Samaha said. The chain increased by 20% to 25% year-over-year the volume of beverages acquired, including beer, in the fourth quarter.

*By Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Biomethane can avoid up to $137bn in diesel imports in a decade

There is a possibility to replace fossil fuels for renewable ones in Brazil, preventing the emission of methane, study shows

09/26/2022

Biomethane production in Brazil — Foto: Barbosa Neto

Biomethane production in Brazil — Foto: Barbosa Neto

Brazil could avoid spending $137 billion in diesel imports in a decade if all heavy-duty vehicles running on the fossil fuel used locally-produced biomethane instead.

The calculation was made by the Brazilian Center of Infrastructure (CBIE) at Valor’s request and shows that there is a possibility to replace fossil fuels for renewable ones in Brazil, preventing the emission of methane, which is short-lived but the more harmful gas, and still resulting in benefits to the trade balance.

The consulting company put together three scenarios for the evolution of diesel consumption in Brazil by 2031, based on projections of different economic growth rates. In a more optimistic scenario of GDP growth, demand for diesel exceeds the country’s expected refining capacity, so Brazil would require imports of 35 billion liters in 2031 alone, or 45% of the consumption expected for that year.

In order to completely replace these imports, Brazil would need to expand the production capacity of its biomethane industry to 40 billion liters per year by 2031, or 112.89 million cubic meters of biogas per day. This volume would avoid spending $137 billion on imports from 2021 to 2031.

In the base-case scenario, in which economic growth would be less accelerated, Brazil would have to import 30 billion liters of diesel in 2031. With this, the replacement of fossil fuel by biogas would be $124 billion

This demand is within what the organizations that represent biogas investors project for Brazil’s capacity to produce the renewable fuel. According to calculations by the Brazilian Biogas Association (Abiogás), a complete utilization of the residues from farming and urban sanitation existing today in Brazil would allow the production of up to 120.8 million cubic meters of biogas per day. This is more, therefore, than the demand needed to replace the imports of fossil diesel projected by CBIE for the next decade in the most optimistic scenario for consumption.

The total use of residues, however, is still far from reality. The most likely scenario is that in 2030 Brazil will have the industrial capacity to produce 30 million cubic meters of biomethane per day, according to Abiogás, considering investments already announced for the coming years, those in the pipeline, and the expected ones.

Even considering this more conservative perspective for biomethane production, the volume would already be able to stop the increase in diesel imports by the end of the next decade. According to CBIE, in a scenario of average growth in the next decade, the country would have problems to meet diesel demand starting in 2028, considering that there will not be new investments in refining until then or increases in the import capacity of fossil fuel.

In this hypothesis, there would be a demand for 15.2 million to 29.8 million cubic meters of biomethane per day until 2031. A volume, therefore, that the expected capacity until the end of the decade would be able to meet, considering Abiogás’s projection. In this case, the consumption of biomethane would avoid imports of $7.8 billion of diesel.

The projections took into consideration that diesel today is a blend that includes 10% of biodiesel and should remain that way until 2023 and a progressive increase until 2026.

The potential estimated by CBIE is still distant when compared to the industries that are active in Brazil today. According to Abiogás, the country has today less than 10 units with capacity to deliver 400,000 cubic meters per day. Most are recent investments, such as Adecoagro and Cocal, which use residues from ethanol production to generate biogas.

Besides sugar cane, there is also potential within agribusiness for production in farms, feedlots, and agricultural crops that supply residues for biodigesters, besides urban landfills, where there is greater potential of growth. But new investments have yet to materialize.

Bruno Pascon, a partner at CBIE, believes that new legal frameworks recently approved can favor this leap. This year alone, the solid waste law was regulated, which can unlock investments in landfills, and the decree for the biomethane incentive was published, which granted tax benefits for investments. In his view, the federal fertilizer plan and the Eletrobras Law, which forced the contracting of natural gas thermoelectric plants, can also contribute to promote biomethane (which is chemically equal to natural gas).

“Due to the power of agribusiness, Brazil has everything to also be a world reference in biogas,” he said. According to Mr. Pascon, the fact that Brazil is a “leader” in the production and export of food makes the country a potential leader also in biomethane.

Currently, Germany has the largest installed capacity of biogas in the world, followed by the United States, United Kingdom, Italy and China. From this group, Mr. Pascon said, the ones with more potential to continue growing are the Americans and the Chinese, precisely because of their agricultural production, which leaves residues. “Brazil has just started,” he said.

By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Independent Central Bank likely to see growing dissidence

Monetary authority has said divergence does not mean signaling of monetary policy by committee as a whole

09/22/2022

Central Bank President Roberto Campos Neto — Foto: Billy Boss/Câmara dos Deputados

Central Bank President Roberto Campos Neto — Foto: Billy Boss/Câmara dos Deputados

Dissenting votes in the Central Bank’s Monetary Policy Committee (Copom), such as the ones seen in Wednesday’s meeting, are bound to become more frequent from now on with the independence of the monetary authority, and should no longer be such a rare event.

Since 2016, under Alexandre Tombini, the Central Bank has not recorded dissenting votes. On Wednesday, directors Fernanda Guardado (International Affairs) and Renato Gomes (Organization) wanted to raise interest rates by 25 basis points, while the majority decided to maintain Brazil’s key interest rate Selic at 13.75% per year.

But this does not mean that, previously, there were no divergences among its members. They occurred especially in the most critical periods, as the beginning and the end of the monetary tightening cycle. But they were not expressed in the votes.

An important point: the Central Bank has said that divergence of views and votes does not mean signaling of monetary policy by the committee as a whole. They simply show that policymakers have different opinions. It is important to know these views in order to analyze if one argument or another gains strength in the committee.

In January 2021, for example, at least three members of the Copom defended, in the discussions that took place in that meeting, that the committee should immediately start a cycle of interest rate hikes – the key rate was then at 2% per year. The majority won, but in the following meeting, the interest rates went up, even more than expected by the market.

There was also divergence in the mid-2020s when the Copom discussed how far it could take the key rate down in response to the Coronavirus pandemic. Most directors argued that the room for interest rate cuts was more limited because an emerging economy could not live with interest rates as low as developed countries without increasing risks to financial stability. At least three Copom members thought that interest rates could be lowered further.

There may have been other critical moments of divergence in meetings that were not made explicit in the Copom statements. There were strong rumors in the market, for example, that policymakers diverged in late 2021, when the committee maintained the pace of monetary tightening at 150 basis points.

There are several possible explanations for the lack of divergence in the committee votes. It may be just that its composition has been more homogeneous. It could also be the style of the last presidents – Ilan Goldfajn and the current one, Roberto Campos Neto – in the search for consensus in the decision, despite divergences in the debates.

But it may also be a governance defect of our Central Bank, in which the president had more powers than the other members. Until the independence of the Central Bank, the president of the monetary authority was the one who indicated the other members of the collegiate board to the president of the Republic. So there was a certain hierarchy, with a president of the Central Bank who, at any time, could fire the directors.

The independence of the Central Bank changes this situation, because policymakers have fixed terms of office, regardless of the president of the Republic and the president of the monetary authority.

Today, the Central Bank’s board has greater cohesion because all members were chosen by the current president, Mr. Campos Neto. But in February 2023, the terms of two Copom members, including the monetary policy director, Bruno Serra, will end. In December 2023, two more terms will expire.

The new members will be nominated by the president of the Republic to be elected in October, and in theory may have a less homogeneous vision, when compared to the current team. This increases the chances not only of dissident votes but also of public remarks from members with different views.

This is an additional argument for not seeing dissenting votes as monetary policy hints. They are, in fact, an indication of the committee members’ leaning to one side or the other in the execution of monetary policy, as is the case in other central banks, such as the U.S. Federal Reserve.

*By Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil wants priority for reactivation of WTO dispute body

U.S. has been blocking appointment of arbitrators of Appellate Body

09/22/2022

Sarquis J. B. Sarquis — Foto: Divulgação/Gustavo Magalhães/MRE

Sarquis J. B. Sarquis — Foto: Divulgação/Gustavo Magalhães/MRE

Brazil signaled this week that one of its priorities in the trade area is to make the World Trade Organization (WTO) Dispute Settlement Body operational again by 2024. The country has pending disputes involving exports worth more than $4 billion.

This WTO mechanism has been paralyzed since the middle of the Trump administration. The U.S. has been blocking the appointment of the seven arbitrators of the Appellate Body, a kind of supreme court of international trade. It claims that the judges have made decisions instead of the countries and that a change in the mechanism is needed.

However, the U.S. says it is now open to resolving the issue by the WTO ministerial conference in two years. The fact is that in an environment of the growing rivalry between the U.S. and China and persistent tensions among developed and emerging nations, reactivating the dispute settlement system at the WTO is one of the strong challenges.

This week in Bali, Indonesia, the chief U.S. trade representative, Katherine Tai, set up a meeting with representatives from Brazil, Argentina, India, Indonesia, South Africa, and Cambodia to accelerate negotiations on the issue. In Washington’s view, the system at the WTO has become a venue for litigation rather than a forum for resolving disputes. And now it says it wants a system that “better helps members resolve a dispute efficiently and cost-effectively.”

Brazil’s representative at the Bali meeting, Ambassador Sarquis J. B. Sarquis, who is also secretary for Foreign Trade and Economic Affairs, said the country has been working with the U.S. and other WTO members “in a spirit of cooperation and flexibility” and “with a sense of priority” to reactivate the dispute settlement body.

“The dispute settlement system is a central pillar of the WTO,” he added. “It can be reformed based on lessons learned and new challenges.”

For Mr. Sarquis, there is a growing consensus that a reform tends, on the one hand, to make the system more streamlined, more inclusive, and less costly. On the other hand, the overhaul tends to maintain the legal nature of the decisions, their binding effect, and their consistency over time in different cases, so that they reflect fundamental principles, including economic reform, to which all members have committed themselves in WTO agreements.

“For a large majority of members, this reform would continue to include the current structure, based on two levels — as a panel and as an appellate body,” said the Brazilian representative.

In an example of the priority for Brazil, a study by the National Confederation of Industry (CNI) calculated that the country has pending disputes in the WTO involving sectors such as sugar, beef, and steel products that impact at least $4.4 billion in exports.

Brazil has two pending cases at the WTO against Indonesia (chicken) and India (sugar). In both, the country won in the panel (investigation committee), which is the first instance. But those countries have put the disputes in limbo by formally appealing the decisions at a stalled Appellate Body.

In the cases of tariff barriers on beef against Indonesia and steel products against the U.S., Brazil did not request a panel. But it is a fact that, if Brasília decided to trigger the WTO dispute mechanism, the two cases would have little chance of having an effective outcome, since Indonesia and the U.S. would probably appeal in case Brazil wins.

A Provisional Measure signed by President Jair Bolsonaro gave the country an arsenal to apply unilateral retaliation against countries that have been found guilty of illegal measures on Brazilian exports but use tricks to maintain restrictions. But he has not yet used this retaliation, which could begin precisely against India and Indonesia.

There are other complaints from Brazil in the WTO, or “potential” panels on the radar. One, against Thailand, involves barriers to sugar. For the moment, negotiators say the case is being well handled without the need for a panel. The other dispute, against the European Union, involves barriers to chicken.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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Brookfield eyes energy transition opportunities in Brazil

Country is entitled to access part of the company’s $15bn fund

09/22/2022

André Flores — Foto: Silvia Zamboni/Valor

André Flores — Foto: Silvia Zamboni/Valor

Brookfield is willing to invest in projects related to energy transition and low carbon economy. Within that plan, Brazil is one of the main countries in the world with chances to receive multimillion investments in the coming years.

Brookfield’s Global Transition Fund (BGTF) recently raised $15 billion — the largest amount of private capital ever raised to support the transition to a low-carbon economy — and executives are looking to do business in Brazil.

The asset management company has always displaced the investments in power generation. Now, by demand of the investors themselves, it directs the attention also to sectors that can also contribute to the mitigation of emissions.

In an interview to Valor, Brookfield’s head of Renewable Energy and Transition, André Flores, says that the investments are conditioned to an additionality character focused on business transformation, renewable energy and sustainable solutions.

“The funds we invested in before were infrastructure funds more broadly, but investors were looking for funds exclusively dedicated to energy transition. The initial demand for this fund was higher than we expected. Our fundraising goal was $7billion and we ended up with $15 billion,” Mr. Flores says.

The money is not earmarked for any country and is released as local managers find opportunities with good rates of return. Almost half of the amount has already been allocated in large economies such as the U.S., Canada and the UK.

The executive sees no chances of Brazil being left out of this or other funds specific to the energy transition but gives signs that a way to accelerate this would be more regulation and legal security for new technologies.

Brookfield is still looking for opportunities here, but the lack of a legal framework for some segments that are beginning to emerge, such as the carbon market, batteries, and offshore wind power, for example, still hinder more aggressive investments.

“Do I see a carbon capture market in Brazil today? No. But we see some markets out there already developed. The storage market still depends on regulation and clear incentives. Obviously, they can launch a capacity market auction, but there isn’t a remuneration system outside the auction that justifies the investment”, he says.

The executive adds that the demand is also on the part of consumers with increasingly bolder portfolio decarbonization goals with long-term contracts and costs that make clean energy viable.

“In Brazil there is not a specific rule, and nothing is mandatory, such as a carbon tax for companies. So, we note that this is a voluntary movement through consumer pressure and adoption of targets.”

Mr. Flores believes that as soon as this fund is fully invested, the company will present an even larger one, as has been the case with infrastructure funds, which have already launched five. “We bet that Brazil will be the great receiver of these resources in the future.”

Of the R$159 billion in assets under management in Brazil, R$27 billion are concentrated in renewable energies, mainly in hydroelectric and wind power plants under operation by Elera Renováveis. Last year, in buying and selling assets, the amount was R$10 billion in acquisitions and R$5.5 billion in capital recycling activities.

The solar source had a strong debut in the radar of the Brooksfield, and there are already 11 parks under construction, the most important of which the Janaúba plant, the largest solar enterprise under construction, totaling 1.2 GWp of installed capacity and investments totaling R$2.3 billion — in addition to the private equity fund that bought Aldo Solar, the largest distributor of solar equipment.

It seems that the distributed generation segment should be one of the next in line to receive resources, given the growing demand for capital to make the projects viable.

“Our idea is to be builders, owners, and operators of distributed power parks. In this gold rush there are gigawatts of projects with access applications or already underway. I see our entry much more in this,” he expects.

The bottlenecks in the electrical sector are also candidates to receive an important slice of the resources. Brookfield owns Quantum and recently sold 2,420 kilometers of mature transmission lines in the Northeast and Minas Gerais for $834 million to Argo Energia, but has almost twice as much under construction, besides being present in all the auctions of the segment.

The increase in capex in Brookfield’s business, on the other hand, squeezed investors’ margins a bit, mainly due to the rise in commodities and inputs. However, the market reaction fostered a balance, and the prices of long-term contracts followed the movement.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Amazon deforestation worsened more where cattle herd grew most

Five municipalities account for one-fifth of all deforestation carried out in Amazon last year

09/22/2022

Concentration of deforestation in municipalities where cattle-raising advanced the most was already seen in previous years — Foto: Evandro Monteiro/Valor

Concentration of deforestation in municipalities where cattle-raising advanced the most was already seen in previous years — Foto: Evandro Monteiro/Valor

The five Brazilian municipalities with the largest increase in cattle herds between 2020 and 2021, all located in the so-called Legal Amazon, accounted for almost one-fifth (17%) of all deforestation carried out in the region last year.

The cattle herds of Marabá, Altamira, São Félix do Xingu, and Novo Repartimento (Pará) and Porto Velho (Rondônia) gained 591,700 new heads last year, according to data from the Municipal Cattle Survey released Thursday by Brazil’s statistics agency IBGE. The country had a total of 224 million head of cattle last year, 6 million more than in 2020.

Those same municipalities reported deforestation of 2.2 million hectares in 2021, according to the most recent data from Prodes, of the National Space Research Institute (Inpe). This accounted for 17% of the entire deforested area in the Legal Amazon, which exceeded 13 million hectares this year.

In Marabá, where the cattle herd grew most last year, 73,600 hectares were deforested. In Altamira, the second municipality where the number of animals increased the most, deforestation extended to over 765,500 hectares.

São Félix do Xingu, which was for years the leader in cattle herd, was the third municipality with the biggest increase, with a hike of 106,000 animals in 2021. Also last year, deforestation in the municipality reached 577,000 hectares.

Another highlight was Porto Velho, the capital of Rondônia, where the herd grew by 86,000 animals and 619,300 hectares were deforested. Novo Repartimento was the fifth municipality that saw its herd grow the most last year, with an increase of 82,600 heads, and where 190,500 hectares were deforested.

This concentration of deforestation rates in municipalities where cattle-raising advanced the most was already seen in previous years.

In 2020, the five municipalities where the number of animals in the country grew the most also accounted for 14% of the deforestation in the Legal Amazon in the period. In that year, the municipalities where the number of animals increased the most were Novo Repartimento, Pacajá, Marabá, and São Félix do Xingu — all in the state of Pará.

“In the [municipalities] champions of deforestation, cattle are side by side with land expansion. They need to increase the herd to establish land tenure. So, the expansion [of the herd] is not necessarily something that indicates an increase in the economic relevance of cattle ranching in Brazil. Many times, it is more linked to a process of land grabbing than meat production,” said Raoni Rajão, a professor at the Minas Gerais Federal University and a researcher at the Washington-based Wilson Center.

*By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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CSN ordered to reduce stake in Usiminas

Antitrust watchdog’s decision forces company to sell securities, but did not set deadline

09/22/2022

Usiminas: CSN started building a position in the competitor in 2011 and now holds 15% of common shares — Foto: Divulgação

Usiminas: CSN started building a position in the competitor in 2011 and now holds 15% of common shares — Foto: Divulgação

CSN needs to reduce its stake in Usiminas to up to 5%, but has no deadline to conclude the sale. This was the decision of the Administrative Council for Economic Defense (CADE) on Wednesday. There was the possibility of a 17% stake being allowed.

The solution adopted follows a 2014 decision. At the time, CADE’s court vetoed CSN’s nearly 17% stake in Usiminas, acquired in 2010. The decision required CSN to sell part of the shares it held in the competitor, which Benjamin Steinbruch’s company was unable to do in five years.

Even after three extra years, the sale was not completed either, and now CADE’s General Superintendence no longer sees a problem in the percentage that had been vetoed by the court of the antitrust agency. So the case went back to the court and an intermediate solution was adopted.

The assessment of people close to the negotiation is that the decision was positive for Usiminas compared to the possibility of a total reversal of the 2014 decision. However, it is not ruled out the possibility of litigation, according to a source, to restrict the purchase of shares by CSN.

The possibility of reversing the 2014 decision emerged last week, when CADE’s General Superintendence issued an opinion changing the regulator’s previous decision and allowing CSN to acquire more than 5% of Usiminas shares, provided it does not exercise voting rights.

If this new decision was adopted, CSN could keep nearly 15% of the common shares, which would make it CSN’s largest single stockholder outside the controlling group.

Usiminas asked the regulator on Wednesday to comply with its 2014 decision that limits CSN’s stake in the company and define an independent third party to try and carry out the sale of the shares. The superintendence’s order ended up not prevailing in the session.

CADE’s head Alexandre Cordeiro said that this is not a deal review. His vote maintains the obligation to sell the shares, but changes the fixed term of the sale to an indefinite term. Usiminas declined to comment. CSN did not reply to a request for comment.

*By Beatriz Olivon

Source: Valor International

https://valorinternational.globo.com/
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Brazil closes deal with EU on agricultural quotas

With the exit of the United Kingdom — the Brexit — the chess table of exports changes for several products

09/22/2022

Warehouse with sugar in the port of Santos — Foto: Julio Bittencourt/Valor

Warehouse with sugar in the port of Santos — Foto: Julio Bittencourt/Valor

Brazil and the European Union (EU) have concluded a bilateral agreement on quotas for several agricultural products to adjust them after the United Kingdom’s exit from the European bloc, which has shrunk to 27 members from 28.

The quotas allow exporters to sell to the EU a certain volume paying a lower tariff. Under the agreement, the bloc will reduce quotas, but, in return, the UK will open others proportionally, thus preserving export opportunities for both markets.

Brazil has several specific quotas in the EU, including for sugar, chicken, beef, and turkey. The exporter gains more by using this space for its sales, with lower tax rates.

Valor has learned that a quota specifically intended for Brazilian sugar, currently at 388,120 tonnes, will be reduced to 341,550 tonnes, with the rest to be offered in another quota by the UK.

The EU has accepted to continue to comply with the reduction of the tariff to 11 euros per tonne in the first year, and to 11 euros/tonne and 54 euros/tonne in the second year for certain volumes of this Brazilian-only quota, as per commitments undertaken at the time of Croatia’s entry into the EU block.

In turn, a quota Brazil competes for with other sugar exporters will increase to 341,460 tonnes from 371,880 tonnes.

As for chicken meat (salted, processed, frozen), several specific quotas for Brazil will decline to 244,270 tonnes, down 27.9%. With this decrease in the EU, the quota in the UK will be much higher, reflecting more Brazilian sales of chicken in that market in recent years.

Also, the Brazilian quota for boneless beef, of 10,000 tonnes, will fall to 8,950 tonnes. The quota for frozen beef for all exporters, and not only Brazil, falls to 19,700 tonnes from 63,700 tonnes currently. With this sharp decrease, the EU has committed to compensate by reducing the tariff within this quota to 15% from 20%.

In turn, the quota for frozen turkey meat for Brazil falls to 2,860 tonnes from 3,110 tonnes. For prepared turkey meat, the quota also for Brazil alone, decreases slightly to 91,800 tonnes from 92,300 tonnes.

In other agricultural quotas, in which Brazil competes with other exporters, the division between the EU and the UK is also defined.

For corn, the overall EU quota goes to 276,400 tonnes from 278,000 tonnes. That is, almost the entire volume with a lower rate will remain with the community block.

In the case of plywood, the EU quota drops to 448,500 tonnes from 650,000 tonnes.

The quota for the entry of table grapes with a lower rate in the EU decreases to 885 tonnes from 1,500 tonnes.

As for the orange juice quota of 1,500 tonnes, it remains entirely for the EU. The other one, for fruit juices in general, decreases in the EU market to 6,550 tonnes from 7,040 tonnes.

In the negotiation, Brazil obtained a guarantee from the EU about the maintenance of exporters’ certificate of origin, so that the Brazilian government will be able to monitor who has access to the quotas and avoid irregularities in their use.

Having concluded the negotiations between Brazil and the EU, the Europeans now need internal authorization to sign the agreement, which can take months. In addition, its implementation should also take place with the implementation of quota agreements with the UK, so that there is no mismatch between the two and no harm to the exporter.

The negotiations between Brazil and the UK are well advanced on the volumes of agricultural quotas that London will open. It remains, however, to resolve issues such as the administration of quotas, for example. A new negotiation will take place on October 5.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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Court decrees bankruptcy of Itapemirim

The decision took even creditors by surprise amid new recovery plan

09/22/2022

Aircraft belonging to ITA Transportes Aéreos — Foto: Divulgação

Aircraft belonging to ITA Transportes Aéreos — Foto: Divulgação

After a huge quandary with creditors, the road and air passenger transport group Itapemirim had its judicial reorganization converted into bankruptcy by the judge of the 1st Court of Bankruptcy and Judicial Recovery of the São Paulo Court of Justice, João de Oliveira Rodrigues Filho. The decision was published on Wednesday. The judge also ordered that the assets of Sidnei Piva, the group’s CEO, be frozen.

The decision, however, took even creditors by surprise, according to sources. This is because a few months ago the replacement of the board was approved and the presentation of a new recovery plan by the new leaders was expected. However, bankruptcy came first.

The bankruptcy was filed by the group’s custodian, EXM Partners, in July. The administrator was fighting a battle with the former board of directors over the misuse of funds for purposes other than paying creditors — such as the creation of ITA Transportes Aéreos, which began flying in June last year but stopped in December, leaving angry customers without seats during the holidays.

According to the trustee, R$45.3 million was withdrawn from the cash flow by the former management of Itapemirim. The noncompliance with the judicial recovery plan amounts to R$99 million.

Last May, after the decision of the Itapemirim group creditors to remove the current board of directors, including chair Sidnei Piva, the consulting firm Transconsult was appointed by the creditors as the new judicial manager of the company.

Since June last year, the creditors had been trying to remove Mr. Piva. He was removed in the meeting with 99% of the votes. The new judicial manager would be responsible for making an overview of the group’s scenario and creating a new recovery plan to be exposed to the creditors.

“The disorganization of the management, added to the use of resources for objectives other than the fulfillment of the plan, caused the business operations to collapse,” wrote judge João de Oliveira Rodrigues Filho. Both Itapemirim and Kaissara (the group’s bus companies) operations were compromised by a decision of the National Agency of Land Transportation (ANTT).

By May 2022, the group had debts of R$106 million. There is also a tax liability of at least R$2.387 billion reported until October 2021.

The group would also be in default with labor duties from December 2021 to June 2022. Several workers who were laid off between March and May this year have not received their severance pay.

Itapemirim and Piva were sought but were not available for comment.

*By Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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