Fortune One fund seeks construction retailers

Group intends to buy minority stakes in regional businesses and form a holding company

19/09/2022

The asset management group Fortune One, especially focused on private equity, has been analyzing the purchase of minority stakes in retail construction businesses to create a holding company in the segment. The goal is to close partnerships with regional retailers, keeping the controlling shareholders in management, and become a consolidator business in that sector, the company says.

The plans began to gain strength last year, after the strong acceleration in sales in the first year of the pandemic, in 2020, in an environment of high dispersion of those businesses across the country, which favors consolidation projects.

Studies carried out by the fund (led by Waldir Abreu, current head and former superintendent of Anamaco, the sector’s national association) show that 66% of the stores in Brazil have up to four employees. Only 14% have more than 100 employees and two thirds are in the first generation, that is, the management is not young.

Valor has learned that there were two initial contacts with chains, and at least seven businesses were identified internally by investors with a profile to be approached to seek an agreement. This group includes the networks Cassol (Santa Catarina), Todimo (Mato Grosso), Amoedo (Rio de Janeiro), Chatuba (Rio de Janeiro), Balaroti (Paraná), ABC da Construção (Minas Gerais) and Carajás (Alagoas). The last two have already been probed by the fund, Valor found out. ABC has not manifested itself and Carajás denies the contact.

Fortune One does not comment on possible agreements but confirms that the initial phase of mapping and market studies has already been completed.

“There has been an advance in the operating model of the networks in this sector in recent years. There is an understanding that, to achieve consistent growth, it is necessary to join forces and create a national scale. There is also maturity and openness to negotiate”, says CEO Marcos Costa.

According to him, there is currently R$300 million available in an investment fund registered at B3 for business capitalization. Those resources are expected to reach R$1 billion by the end of 2022, and R$5 billion by the end of 2023. “The intention is not to seek business in isolation, closing one or another deal separately, but a larger partnership with regional businesses.”

Mr. Costa affirms that, in case this project moves forward, the fund would exit the investment by means of an IPO of the business created or would negotiate with a buyer group.

According to an investment advisor who has been in contact in the past with regional store chains, there may be an interest in selling minority stakes because the chains felt an increase in leverage with the recent rise in interest rates. He points out, however, that there is still some resistance among controlling shareholders, and it is not a simple model to be implemented. However, a cash offer, which generates liquidity for partners who want to leave the business, weighs favorably.

“The problem is that it is difficult to set up this holding model with different companies because, even if they keep their regional management, there are disagreements about national strategies, and not always a merger that maintains the autonomy of the chains generates such strong synergies,” he says, recalling unsuccessful attempts to create holding companies in pharmacy and electronic retail.

In Brazil, the movements of the last decade involve the entry of Chilean Sodimac in the country, with the purchase of Dicico in 2013, and the acquisition of Tumeler by Telhanorte in 2017. This year, until July, the sector’s sales fell 8.3%, after a high of 4.4% in 2021, according to the statistics agency IBGE.

In the evaluation of Mr. Abreu — head of the fund and one of the executives in charge of this project — there were advances in the chains in terms of systems and management from ten years ago, which facilitates integrations, and there are stores that have already reached their ceiling of regional expansion, which ends up leading to the search for new agreements. In parallel, Mr. Abreu observes that another possible path is the formation of real estate funds with assets from the chains that associate. The stores would be sold to them. who would rent them to the retailers.

At this moment, Anamaco Bank — a digital bank created in partnership with Anamaco and opened this year — is in operation. The bank started to offer credit through investment funds (FIDCs) to the networks associated with the entity, which licensed the use of the brand to the institution. It was a first step towards approaching this market.

Fortune One, the Brazilian manager of partners Sadao Isuyama and Mr. Costa, bought Ícone Investimentos in 2020 to accelerate the structuring of local funds. The company also has a branch in the United Kingdom for international business.

*By Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Investors believe monetary tightening has come to an end

Survey carried out by Valor shows that only one out of four market participants expect a 25-basis-point hike in key interest rate Selic on Wednesday

09/19/2022

Despite Central Bank directors’ hawkish tone in recent weeks and the evidence that monetary tightening in developed economies will gain steam, most investors believe that the monetary tightening cycle in Brazil has come to an end. Even so, the recent de-anchoring of inflation projections for 2024 and the high levels of inflation cores still make one out of four market participants expect a 25-basis-point hike in the Selic, Brazil’s key interest rate, on Wednesday.

According to a survey conducted by Valor with 109 financial firms, 82 of them expect the Central Bank to keep interest rates unchanged at 13.75% in this week’s policy meeting. The other 27 still expect a residual 25-basis-point hike, to 14% per year, at the end of the cycle.

The data reinforced the hypothesis that after Wednesday’s meeting, interest rates will remain unchanged by the end of the year. The Central Bank’s Monetary Policy Committee (Copom) will meet two more times in this period. Only two of the 108 firms see new adjustments in the October and December.

The view that the tightening cycle in the country could be very close to the end was quite consolidated after the Copom’s last decision, when the policymakers said that they would evaluate “the need for a residual adjustment, of lower magnitude, in its next meeting.” However, some people in the market believe that recent remarks by Central Bank President Roberto Campos Neto and monetary policy director Bruno Serra brought back the possibility of an extension of the cycle on Wednesday.

“My impression was, initially, that the tough tone was designed to only ease early pricing of cuts. But then came Bruno Serra’s speech, saying that it was necessary to be cautious with the eventual end of the cycle. These were clear signs that there is a 25 bp hike on the table, and the probability is not irrelevant. Before that, in my view, the end of the cycle was given. But the 0.001% chance became 20% or 25% chance of happening,” said Juliano Ferreira, the chief economist of BGC Liquidez.

Yet, he said that the Central Bank will only deliver the last 25 bp hike if it believes this would be the clearest message to the market that it will take longer to start its easing cycle. “I don’t think it would be the right instrument. It is possible to stop in a hawkish way,” he said.

Leonardo Costa, an economist at ASA Investments, recalled that it will be important to monitor Central Bank’s new inflation projections, which are likely to show a slowdown in 2022 and 2023 after the government eased the tax burden on regulated prices and a higher projection for 2024. In the last Copom meeting, the monetary authority projected the IPCA (Brazil’s official inflation index) in 2024 at 2.7%, below the 3% target for that year. This projection is expected to be revised to around the target, the economist said.

“Our perception, since the last Copom meeting, is that there was a deflationary movement, and there is a perception of a little lower inflation. On the other hand, expectations for 2024 are still concerning. This should give subsidies for the Central Bank to interrupt the cycle at 13.75%, even if it maintains a hawkish tone of vigilance and indicates the maintenance of interest rates for a long period of time,” Mr. Costa said.

The view is similar to that of Júlia Gottlieb, an economist with Itaú Unibanco. According to her, since the last Copom meeting, the inflation dynamics have been benign, and the Central Bank’s inflation projections for 2022 are likely to slow down to 6.1% from 6.8%, reducing the risk of inertial inflation in the following year.

“With this, it does not need to make a residual hike along the lines of what was addressed in the last statement. In relation to signaling, it may indicate that it will make a stop, but that the broad economic situation prescribes a still substantially contractionary policy, and that the Copom should remain vigilant,” she said.

According to the survey carried out by Valor, the median of the 106 projections for the IPCA in 2022 was 6.1%, while the average point of the estimates (105) for the IPCA in 2023 reached 5.1%. As for 2024, the median of the 91 projections collected was 3.5%, the same level as that seen in the survey conducted before the last Copom meeting, in August.

Eduardo Yuki — Foto: Ana Paula Paiva/Valor

Eduardo Yuki — Foto: Ana Paula Paiva/Valor

Safra’s senior economist Eduardo Yuki also expects the Central Bank to keep rates unchanged at Wednesday’s meeting, but sees the need for a tough tone from the authority.

“The statement may reiterate the Central Bank’s vigilance of inflation expectations, signaling a very firm stance. It may also indicate the need to maintain the Selic rate at a contractionary level for a sufficiently prolonged period, aiming to anchor inflation expectations for 2024. Thus, we expect an austere statement,” he said.

Even the part of the market that evaluates that the continuity of the monetary tightening cycle is the best strategy for the Central Bank acknowledges that an eventual increase of 25 bp in the Selic rate would not make a big difference from the economic standpoint, but that it would send an important message.

Gustavo Arruda, head of Latam research at BNP Paribas, believes that it is still early to declare victory over inflation and, in a scenario of mounting uncertainties, both here and abroad, a conservative tone from the Central Bank would be the most appropriate.

“If it stops [raising interest rates], will it be a mistake? I have the impression that it would not. Most of the cycle has already gone, and we are discussing the details. But I like to look more at the balance of risks and I think that if it stops, it will take more risks. If there is a possibility of the Central Bank needing to raise interest rates again after announcing the pause, it is better to continue with small hikes, since the cost would be lower,” he said. Mr. Arruda expects a 25 bp hike in the September meeting, and that the Selic rate will end the year at 14.25% — a projection that may be revised depending on the Copom’s statement on Wednesday.

José Pena, the chief economist of Porto Investimentos, said that recent remarks by Central Bank President Roberto Campos Neto and monetary policy director Bruno Serra were more directed at combating market expectations of early cuts in interest rates, rather than signaling an intention to extend the monetary tightening cycle.

The economist, whose baseline scenario includes cuts only in the middle of the second half of next year, said that the activity data released by the statistics agency IBGE last week unveiled positive signs that the Central Bank may find conditions to cut interest rates a little sooner than expected.

“Retailers faced a widespread drop, but credit-sensitive sectors, such as durable goods, suffered more. These are signs that the monetary tightening is starting to show its effects,” he said. According to Mr. Pena, the services sector, which, unlike retail, surprised positively, is less dependent on credit and more dependent on income, which was recently boosted by government handouts and the labor market.

“We may have, at the turn of the year, a scenario of lower domestic activity, with clearer effects of monetary policy on the activity and with the added benefit of the Central Banks abroad tightening more and reducing imported inflation,” the economist of Porto Investimentos said, estimating that, if the described scenario is confirmed, the cycle of cuts may begin at the turn of the first to the second half of the year.

According to the survey carried out by Valor, the median of the participants’ projections for the Selic rate at the end of 2023 is 11%, the same level as the previous survey.

Regarding the more intense monetary tightening cycle in developed markets, the economists consulted by Valor do not believe that, for now, an additional interest rate hike in the United States, in relation to what is currently priced in the market, has the potential to change the Brazilian Central Bank’s flight plans.

“Today, the market is pricing a final rate between 4.25% and 4.5% [in the U.S.]. Even if it is a little higher, I don’t believe that this would derail the real and force the [Brazilian] Central Bank to raise interest rates again”, the economist from Porto Investimentos said.

*By Gabriel Roca — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Lawsuits become R$2.6tri threat to federal government

Fiscal risk from legal disputes grows 66% since March, led by pensions case

09/19/2022

The Federal Supreme Court hold important, costly cases — Foto: Dorivan Marinho/SCO/STF

The Federal Supreme Court hold important, costly cases — Foto: Dorivan Marinho/SCO/STF

The fiscal risk calculated by the federal government for lawsuits filed against it has reached its most critical point in the last two years: R$2.6 trillion of impact to the taxpayer, according to the report to which Valor had access, updated in August. In comparison to the previous estimate, closed in March, there’s a 66% increase.

This figure refers to lawsuits whose chances of defeat in court have worsened in the last few months or have entered the government’s radar of concerns. Three cases are responsible for the increase. The main one is the so-called “lifetime review” — a revision of the social security retirement pensions to include years worked before 1994, which can increase the monthly amount received. The Federal Supreme Court (STF) has already formed a majority in favor of the pensioners and retirees but has not yet made the result of the judgment official.

Between March and August, the National Institute of Social Security (INSS) increased the estimated fiscal impact of the decision by more than 934%, to R$480 billion from R$46.4 billion, making this lawsuit the biggest focus of alert for the technicians who closely monitor the litigations.

According to these sources, the INSS started to consider the risk of the STF proclaiming a more generic thesis, that mentions not only retired people, but all the other insured people, such as those who receive death pension or sickness benefits. In respect for the accounting principle of prudence, the federal government always projects the worst-case scenario.

The other two cases were not alarming until then, but are now, adding to the total fiscal risk. One involves the incidence of social taxes PIS and Cofins on imports, with an impact of R$325 billion. The other discusses whether the granting of tax incentives interferes with the sales tax ICMS quota passed on to the municipalities. Defeat could cost the federal government around R$279 billion.

The STF has already recognized the general repercussion of both cases, which may go for trial by a panel of justices at any time. The rapporteurs, Justices Nunes Marques and Gilmar Mendes, respectively, may even do so directly in the virtual plenary session, whose agenda is not managed exclusively by the Court’s new chief justice Rosa Weber.

Even with a lower impact (R$151 billion), the government’s attention is also drawn to the appeal against the decision of the Superior Court of Justice (STJ) which admitted the special retirement of security guards who work with or without firearms, as long as they can prove the harmfulness of their activity. The case is also advanced in the Supreme Court.

Most of the R$ 2.6 trillion involves cases classified as “possible” risk of judicial defeat. There are also those of “probable” risk, whose unfavorable outcome to the federal government is even closer to happening, according to technical estimates. This portion is calculated at R$278.2 billion.

The number will be sent to Congress by October 10, for a fine-tuning of the 2023 budget before the congressional vote. Among the cases of “probable” risk is the discussion about the supplementation of the Fund for Maintenance and Development of Elementary Education (Fundeb), with a R$29.4 billion impact.

Another lawsuit to be included in the update of the so-called “Fiscal Risks Annex” of the budget is the one that discusses whether or not charities in the health, education, and social assistance segments have immunity from social security contributions. The federal government’s defeat could cost R$22.5 billion to the taxpayer.

Prior to last month, the highest total fiscal risk in two years had been recorded in August 2020 — R$2.3 trillion. In the meantime, the estimate has never fallen below R$1.8 trillion.

Sources in the economic team say that, although worrisome, the amount referring to the judicial demands will not necessarily be converted into court-ordered debts for next year. First, it is necessary to wait if the conviction will actually take place. In some cases, a change in the vote of just one Supreme Court justice would be enough to reverse the situation.

Moreover, even if the federal government is defeated, the execution of the sentence is not carried out exclusively by means of court-ordered payments — it can happen, for example, through an agreement for the compensation of debts. In other cases, an unfavorable judicial decision may only mean less revenue than expected.

A survey by the Economy Ministry shows that spending on judicial claims has been rising gradually. From 2014 to 2021, the share of sentences in total primary expenditure will jump to 3.4% from 1.8%. Sources points as reason the increases in litigation and the greater speed of Justice, with tools such as the virtual plenary.

The budget law foresees a total of R$73.99 billion in court-ordered debts for next year, of which R$22.31 billion in debts from previous years. If we consider the small value requests (RPV), which total R$26 billion, the expenses with judicial demands would exceed R$100 billion.

For public accounts specialist Leonardo Ribeiro, economic advisor to the Senate, the government needs to promote mechanisms to meet accounts to prevent these fiscal risks from becoming budget expenses. “One solution is the securitization of public sector assets and liabilities using market instruments. This offsetting of debts would be an element to restructure the federal government’s debts, mitigating fiscal risks arising from judicial decisions,” he explained.

Daniel Couri, head of the Independent Fiscal Institution (IFI), said that the judicial disputes certainly increase the fiscal risk of the federal government. “It is important to have clarity about these numbers and it seems to me that the federal government is moving in that direction. But dealing with such a risk is a problem when you have a high and expensive debt for the standards of emerging countries,” he said.

The Federal Attorney General’s Office (AGU) said that its role is to “evaluate and classify the fiscal risks of lawsuits filed against the federal government, independent agencies, or public foundations based on legal criteria.” It also stated that “the risk classification is subject to change as each case evolves within the Judiciary”. The AGU also said that in 2021 the court decisions favorable to the federal government avoided the disbursement of R$418 billion, “allowing these amounts to be directed to sectors such as health, security, and education.”

*By Luísa Martins, Edna Simão — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Government’s upbeat projection includes GDP growth, falling inflation

Economy Ministry’s projections foresee 2.5% GDP expansion and drop in inflation next year

19/09/2022

Economy Ministry’s building in Brasília — Foto: Marcelo Casal Jr/ABr

Economy Ministry’s building in Brasília — Foto: Marcelo Casal Jr/ABr

Macroeconomic projections unveiled on Thursday by the Economy Ministry maintained an apparently optimistic tone, foreseeing relatively strong GDP growth and falling inflation at the same time.

The scenario outlined by the Secretariat of Economic Policy (SPE) includes GDP growth of 2.5% in 2023 and a slowdown in inflation to 4.5%, compared with 6.3% this year. In addition, it expects the downward trend to continue thereafter, to get “close” to the target in the following years.

In the document, the ministry does not detail what could lead to this drop in inflation. Financial market analysts also predict a decline in inflation, but without convergence to the target before 2025. To have disinflation, however, they count on a 0.5% GDP drop in 2023.

In the interview that presented the projections, SPE’s team defended the thesis that Brazil’s potential GDP is higher. In other words, they say it is possible for the economy to grow faster without pressuring inflation.

This would be the result of several factors: higher capital expenditure and imports of capital goods; more formal jobs, which are more productive; and stronger growth in technological services.

The bulletin does not say directly what the potential GDP estimated by the SPE is, nor does it present more elaborate calculations about how it might have grown due to these factors. But everything indicates that it would be a number close to 2.5%, because this is the expected long-term growth, until 2026.

It is a slightly more optimistic percentage than the market consensus; the Focus bulletin projects a 2% rise in the long term. But it is high if compared to growth rates seen in the last decades.

A point that draws attention to the Treasury’s projection is the expected growth of 2.5% next year, close to the potential GDP, while inflation is seen as slowing down.

Inflation can lose steam for a number of reasons – such as a positive external shock or an improvement in economic agents’ expectations about price indices – but the only secure way for the Central Bank to tame inflation is by slowing down activity to create economic slack.

The document does not detail whether, in the ministry’s view, there is an economic slack now – a hypothesis that the market considers increasingly unlikely given the high core inflation more closely linked to the economic cycle.

The Economy Ministry’s projections do not have much importance for the policy of fighting inflation, since the Central Bank is a great specialist on the subject and operates according to its own models. But it is an important input for outlining the fiscal scenario. If one of the two – inflation or real GDP growth – is overestimated, it means that the nominal GDP used in the calculation of revenues may also be inflated.

*By Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil questions India’s decision to curb rice exports

Government of Narenda Modi said country had to mitigate rising prices of grain in domestic market

16/09/2022

Brazil and other countries questioned Thursday India’s decision to restrict or ban exports of the product. Several partners showed concern about food security after the announcement. India is the world’s largest rice exporter.

New Delhi announced last week a ban on exports of broken rice, a second-rate product used for animal feed. As it is a cheaper alternative, several countries, especially from Africa, buy it for human consumption. India also restricted exports of several types of the product, including white and brown rice, but excluded basmati rice from the measure.

India says it was forced to restrict exports to mitigate domestic price hikes driven by falling production – which reached the lowest level in recent times. India sells rice to more than 150 countries. Last year, the nation exported 21.5 million tonnes of grain, a volume that is greater than the sum of shipments of the other four largest exporters – Thailand, Vietnam, Pakistan, and the United States.

At a regular meeting of the World Trade Organization Committee on Agriculture, several countries responded to India’s move. The U.S. and the European Union asked for an explanation and questioned why, so far, the Indian government has not even informed the WTO about the measure.

Brazil also mentioned the Indian restrictions and called on countries to go in the other direction by adopting measures that ease trade and give up trade-distorting policies. “This is essential to ensure growth, development, environmental protection, and food security around the world,” said a Brazilian representative.

Senegal, a major rice importer, made the toughest intervention. According to the country’s government, India’s decision threatens Senegal’s food security and also that of other countries, which have relied on trade with the Indians. It seems clear that several importers of broken rice will have no way to cover the 20% rise in costs.

The Indian representative said he didn’t understand why some countries complain when India gives subsidies for production and also complain when the country doesn’t export. The argument irritated some delegations.

The problem, as certain negotiators note, is that India distorts trade with huge subsidies, creates expectations in the market, then distorts it again by not delivering to several countries. China, the largest buyer of Indian broken rice, has kept quiet in the WTO discussion.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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Apollo commits $1.5bn to Embraer’s customers

Funds will be used to finance acquisition of regional jets made by the Brazilian company

09/15/2022

Embraer’s production line in São José dos Campos — Foto: Carol Carquejeiro/Valor

Embraer’s production line in São José dos Campos — Foto: Carol Carquejeiro/Valor

Apollo Global Management, one of the world’s largest asset managers, has set aside up to $1.5 billion to finance clients interested in buying Embraer regional jets. The move is likely to strengthen the Brazilian airline’s backlog.

Under the new program, a first definitive sale and leaseback agreement has already been signed for six E195-E2 jets for Porter Airlines, with deliveries scheduled for 2023 and financing under a pre-delivery payment (PDP) program.

Investors received well the news and Embraer shares ended Thursday’s session up 3.6%, at R$13.61, on Exchange B3. In the year, however, the securities are down 45%, erasing part of the nearly 200% rise seen in 2021, the highest of Brazil’s benchmark stock index Ibovespa.

According to Embraer, through the agreement with Apollo funds, tailored financing alternatives will be offered in addition to leasing options. The program also includes options to explore financing for customer projects focused on sustainability.

“Working closely with Embraer, Apollo has created a range of efficient and cost-effective financing options that offer our customers the individual flexible arrangements they need,” said Antônio Carlos Garcia, the Brazilian company’s chief financial officer, in a statement.

The program will be available primarily through Apollo’s aviation business unit, with dedicated investment funds, the PK AirFinance platform and its leasing and services affiliate Merx Aviation.

Gary Rothschild, CEO of Merx and head of aviation of Apollo, said in a statement the timing is “key” for the manager’s plans in the aerospace segment. “Apollo can make a difference at every point in the customer financing journey, from PDPs and bridge facilities to long-term leasing and debt products across the widest range of asset types and ages,” he said.

The Brazilian planemaker has innovated in its customer financing programs, which during the Covid-19 pandemic gained an important reinforcement from the Brazilian Development Bank (BNDES).

In June, the company’s firm order backlog totaled $17.8 billion, the highest since the second quarter of 2018. In the first half of the year, 17 airliners (E175 and E195-E2) and 29 business jets (Phenom 100 and 300, and Praetor 500 and 600) were delivered.

On Thursday, the company also reported that the C-390 Millennium multi-mission aircraft will debut this weekend at NATO Days, Europe’s most important security show. The event takes place in the Czech Republic.

*By Stella Fontes, Felipe Laurence — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Ecorodovias wins toll road concession in São Paulo

Group beat CCR and Pátria with R$1.2bn bid

09/16/2022

Ecorodovias won the auction of toll roads included in the Noroeste Paulista lot, held on Thursday. The company made a bid of R$1.24 billion in fixed concession to be paid to the government of São Paulo. The minimum price was almost symbolic, at R$7.6 million.

The market reacted very negatively to the news. Shares ended the trading session down 11.97%, at R$5.37.

The auction attracted two other groups. CCR made a bid of R$753.8 million, and asset management company Pátria offered R$321.3 million. Since the difference between the two competing bids and the winner was significant, the competition ended before the open outcry stage.

In addition to a fixed amount to be paid by Ecorodovias, the concession provides for variable fees of 8.5% of gross revenue, which will be paid throughout the 30-year contract. The company also has to invest R$10.4 billion and will foot R$4 billion in operating costs.

The new concession includes 600 kilometers of roads, which connect cities such as São José do Rio Preto, Araraquara, São Carlos and Barretos. This is a new auction for two contracts that are about to end: Tebe, which is controlled by engineering companies, and Triângulo do Sol, owned by Bertin and the Italian group Atlantia.

Marcello Guidotti — Foto: Divulgação/Ricardo Reis/B3

Marcello Guidotti — Foto: Divulgação/Ricardo Reis/B3

Asked about the financial impact of the new project, Ecorodovias CEO Marcello Guidotti said the contract will reduce the group’s leverage ratio in the first years since it will generate more revenue than debt in the short term.

“We studied this project very well. It is a mature lot, with consolidated traffic, and a very simple capex in terms of engineering. There are no major works or complexities. [Input] inflation is about to peak and there are signs of improvement. All this was taken into consideration,” the executive said.

The company has been expanding strongly in recent years. Since 2019, three relevant road concessions have been signed: Ecovias do Cerrado (BR-364/365), with at least R$2.1 billion of capex; Ecovias do Araguaia (BR-153), in partnership with GLP, with R$7.8 billion in capex; and the Rio-Valadares corridor, won this year, with R$11 billion in capex.

Besides the auctions, last year the group signed an agreement with the São Paulo state government, in which it obtained an extension to its concession for the Imigrantes highway and included R$1.5 billion of new construction work, against payment of R$613 million to the state.

In June this year, the group’s net-debt-to-EBITDA ratio reached 4.1 times – compared with 2.6 times one year before. The current level is seen as relatively high in this industry.

As a result, the company had been signaling that it would be more selective in auctions, prioritizing assets that offer synergies with its network and that generate revenue from the start – as is the case of Noroeste, since the roads already have toll collection.

Mr. Guidotti said that the company has “these metrics [of indebtedness] very much in check” and that the project fits the group’s strategy.

The executive also highlighted that the group is still interested in federal road projects that could potentially be launched this year: the lots in Paraná and BR-381, in Minas Gerais.

“They are our priorities. They are very likely to come out this year. Maybe [there will be a delay because] because of the election, but these are state plans, not government plans. These are very important corridors,” he said.

With the victory in the auction, Ecorodovias, controlled by the Italian group Gavio, is also consolidated as the main road operator in the country. The company, which was already the sector leader in terms of length of highways, now operates nearly 4,700 kilometers in Brazil.

The government of São Paulo celebrated the result. “We had the three largest highway operators competing in the auction, with a fierce competition, which is a reason for great pride,” said Tarcila Reis Jordão, the state’s deputy secretary of partnerships.

The state administration had canceled two road projects: Litoral Paulista, which was questioned by the state’s court of accounts, and the public-private partnership of Rodoanel Norte, which, in a first attempt, did not draw any interested buyer. The government has published the call for bids and scheduled a new auction for Rodoanel – a new section of the beltway around São Paulo –, but the decision on the competition will be left to the next administration. The competition has been scheduled for January.

*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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As Brazil raises interest rates, credit cooperatives gain ground

They disbursed R$15.5bn in farm loans in July and August, more than private-sector banks

09/15/2022

Corn harvest in Campo Verde, Mato Grosso — Foto: Fernanda Pressinott/Valor

Corn harvest in Campo Verde, Mato Grosso — Foto: Fernanda Pressinott/Valor

Credit cooperatives extended R$15.5 billion to farmers in lines linked to the 2022/23 Crop Plan in the first two months of the season, up 11% year-over-year, and surpassed private-sector banks in terms of volume of funds lent to this public through the financial system – excluding issues of agribusiness bonds. They are second only to state-owned lenders, a group led by Banco do Brasil.

Thiago Borga, coordinator of credit at the Organization of Brazilian Cooperatives (OCB), said that credit cooperatives had already been standing out for the volume of transactions carried out, aimed especially at regular expenditures, with an important role in the spreading of farm loans across the country. In addition, the increase in the subsidy limits destined for these lenders is one reason for the higher amount released to farmers in July and August.

“The segment’s goal is always to serve the farmers in the most efficient way – at the speed required by agriculture for the arrival of credit and at the most adequate cost. The consolidation in the second place in this ranking will result from the efficiency of credit cooperatives,” Mr. Borga told Valor.

Currently, 519 cooperatives offer farm loans, many of them linked to cooperative systems like Sicoob, Sicredi and Cresol. Others operate independently, such as Credicoamo and Credialiança. These five entities received more than R$40 billion of subsidies from the National Treasury to offer lines aimed at regular expenditures and investments during the 2022/23 Crop Plan, which is an advantage considering the rising interest rates in Brazil. In 2020/21, when Credialiança was not yet part of the group, loans totaled R$19.3 billion.

The allocation of subsidized rates by private-sector banks stood at R$1.7 billion in 2021/22 (Bradesco, BDMG, Banrisul, BRDE, CNH Industrial) and R$2.5 billion in 2022/23 (Banrisul, BDMG and BRDE).

Sicredi is one of the main players in the segment. In this crop, it is expected to lend R$50.6 billion to farmers. In the first two months of the cycle, it disbursed R$11.6 billion through 93,000 operations, including financing through Rural Producer Bills (CPR), which exceeded R$2 billion.

Luis Henrique Veit, Sicredi’s head of agribusiness, links the good performance of cooperatives to their broad bases and close relationship with members. “We have the expertise and tailored service.” The cooperative serves 650,000 farmers across the country. In about 200 cities, it is the only lender present.

With a growing demand in the sector, the cooperative has made efforts to increase fundraising in order to offer more loans. Mr. Veit said there is room to increase the subsided amount, now at R$15 billion, by up to 40%. Sicredi has also issued more Agricultural Credit Bills (LCAs) and is the main on-lending player for funds from the Brazilian Development Bank (BNDES). By Tuesday, Sicredi had already received R$3 billion from the state-owned bank.

Several cooperatives are also accredited in BNDES, seek funds from this source, and bridge the gap between development programs and cooperative farmers. Besides Sicredi, Cresol, Bancoob, and Credicoamo also took funds from the bank to extend farm loans between July and September. Part of the strategy of the cooperatives is to increase their physical presence. In the last two years, more than 1,100 units opened in Brazil. In March, there were already 8,153.

In recent years, credit cooperatives had already been reducing the distance to private-sector banks in terms of disbursements through Crop Plan’s official lines, but they had not yet surpassed these lenders, a group led by Bradesco, Santander, and Itaú. In the 2020/21 crop, when R$246.1 billion were disbursed by all players, the difference was R$8.6 billion, the lowest to date. In 2021/22, it rose to R$9.4 billion.

The cooperatives also lagged behind private-sector banks when comparing the first two months of the last five harvests. In 2021, the private-sector group lent R$14.4 billion. In 2022, R$11.5 billion were lent in the period, down 20%. The biggest decrease was Itaú’s, to R$1.5 billion from R$2.4 billion. But Bradesco and Santander kept pace, with R$4.2 billion and R$2.3 billion, respectively.

As private-sector banks direct funds from savings accounts to investments in housing credit, state-owned banks and cooperatives received larger subsided limits for farm loans this crop, which became a huge advantage considering that Brazil’s key interest rate is 13.75% per year. Private-sector lenders also adopt different allocation speeds, so as not to miss the pace and be forced to “close the portfolio” early. “The broad scenario is of scarcity of farm loans, in which banks have placed themselves as ‘fund takers’ of each other at rates close to the ceiling rate,” said Itaú BBA.

Private-sector lenders, however, have open doors to fund Rural Producer Bills (CPRs), issue bonds, and do structured transactions, which are not accounted for in these calculations. With insufficient subsidized money to foster agriculture, private-sector banks can recover the lost ground through non-earmarked funds.

The Brazilian Federation of Banks (Febraban) said that the first month of the crop year was impacted by the reallocation of subsidized lines by the Ministry of Agriculture, but that the lenders will resume the pace. “Besides the 30.83% increase in the allocation of these funds, there was an internal reallocation of funds, directed almost entirely to the credit cooperatives. Moreover, July is the month in which banks adjust systems and processes to put in place the agricultural policy established by the Ministry of Agriculture and the Central Bank,” Febraban told Valor.

*By Rafael Walendorff — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Abiove revises upwards estimates for soy production, exports in 2022

Harvest reached 126.9m tonnes, compared with 126.6m projected in August

09/15/2022

The Brazilian Association of Vegetable Oil Industries (Abiove) has revised upwards estimates for soybean harvest, processing, and exports in 2022.

According to new figures released on Wednesday, the harvest reached 126.9 million tonnes, compared with 126.6 million calculated in August. Even so, the result is lower compared to last year (138.9 million tonnes) due to a harvest loss in the South region and part of Mato Grosso do Sul.

For the processing of the raw material, Abiove’s forecast for this year increased to 48.9 million tonnes from 48.6 million – compared with 47.8 million tonnes in 2021. The projection for soybean exports was adjusted to 77 million tonnes from 76.8 million. Despite the revision, the figure is still down 10.6% from last year.

With the increase in the estimate for processing, Abiove started to project soy meal production of 37.4 million tonnes in 2022, 200,000 tonnes more than last month’s estimate, and up 1.6% from 2021. Projections for exports of soy meal were increased by 100,000 tonnes, to 18.7 million – up 8.7% from last year.

As for oil, the production estimate continues at 9.9 million tonnes, up from 9.6 million tonnes in 2021, while exports are projected at 2.2 million tonnes, up from 1.7 million tonnes last year.

In total, Abiove estimates revenues from soy exports in 2022 at $57.8 billion, nearly $10 billion more than last year. Soybeans are expected to generate $45 billion; soy meal is seen as bringing $9.4 billion, and oil will raise $3.4 billion.

*By Fernando Lopes — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Analysis: Forex reserve target may intensify exchange rate fluctuations

Economy Ministry is studying band for volume of reserves

09/14/2022

Rule adds instability to the market because the Central Bank would also become a buyer of foreign currency in a moment of scarcity — Foto: Scott Eells/Bloomberg

Rule adds instability to the market because the Central Bank would also become a buyer of foreign currency in a moment of scarcity — Foto: Scott Eells/Bloomberg

The eventual adoption of a target for foreign exchange reserves could usher in a procyclical exchange rate policy, intensifying exchange rate fluctuations rather than smoothing them out.

The proposal studied by the Economy Ministry, unveiled Tuesday by the newspaper O Globo, is to establish a kind of band for the volume of forex reserves. When the reserves exceed the ceiling, the Central Bank would be obliged to sell reserves. When they are close to the floor, it would have to buy.

The idea goes against the whole philosophy of the exchange rate policy adopted by the Central Bank, which seeks precisely to contain the volatility of the foreign exchange rate and act when the foreign exchange market is dysfunctional.

The volume of foreign reserves usually grows, reaching values close to an eventual ceiling, precisely when more dollars are entering the country. On these occasions, the Central Bank typically buys more currency to counteract an excessive appreciation of the exchange rate disconnected from the long-term fundamentals. If it is forced to sell reserves instead of buying, it will intensify the tendency for the real to appreciate.

The situation would be more dramatic if the Central Bank, under the new rule, was forced to buy dollars when reserves fall below some sort of floor. Reserves usually fall exactly at times of great stress in the market, when the monetary authority usually injects liquidity to avoid an exchange rate overshooting.

The rule designed by the Economy Ministry adds instability to the market because the Central Bank would also become a buyer of foreign currency in a moment of scarcity of hard currency in the market.

The rule also limits the Central Bank’s ability to influence the market without necessarily selling dollars. Brazil’s high volume of reserves helps calm the market, which knows that there is a big player capable of stabilizing it.

If it has to obey a floor, this means that the effective volume of reserves is smaller. It is a situation similar to that experienced when Brazil borrowed from the International Monetary Fund (IMF), but could not use it, because one clause of these programs was precisely a minimum volume of international reserves.

The move to limit the use of foreign reserves by the Central Bank is surprising because, in the law that granted independence to the bank, the Economy Ministry gave up the right to dictate the direction of exchange rate policy. Until then, Law No. 4.595, of 1964, determined that the Central Bank was the executor of exchange policy, which was determined by the National Monetary Council (CMN).

Apparently, the economic team’s concern in limiting the use of foreign reserves is a fiscal issue. The proposal is being developed together with the limit on public debt, within the new rule being studied by the economic team to replace the spending cap rule, which limits growth in public spending to the previous year’s inflation.

In fact, the fiscal cost of foreign reserves is a relevant topic. In the past, the Central Bank offered currency hedges to the entire economy, and the costs ended up being borne by the National Treasury. This usually occurs when the Central Bank seeks to defend an exchange rate completely disconnected from economic fundamentals.

Before taking over as Central Bank president, economist Ilan Goldfajn even suggested the creation of an Exchange Rate Policy Committee, with the Central Bank and the Treasury, precisely to take into account the fiscal costs in the execution of the exchange rate policy. After taking over, however, Mr. Goldfajn never mentioned the idea again.

But at least that proposal had the advantage of giving flexibility in managing the fiscal costs of exchange rate policy, without creating an automatic rule that adds volatility and works as a straitjacket for the Central Bank’s actions.

*By Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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