Shopping malls postpone new cycle of launches as sales speed up

Fewer greenfield projects were launched since recession of 2015

09/06/2022

Glauco Humai — Foto: Divulgação

Glauco Humai — Foto: Divulgação

Brazil is on its way to completing a decade since the last great cycle of investment in shopping malls with no sign of a new wave on the radar. Yet, those already in operation have left the pandemic crisis behind, are back to the levels seen before 2019, and expect to grow above the forecast this year.

Fewer greenfield projects were launched since the recession of 2015, which ended the strongest period ever for new projects. In 2013 alone, almost 40 projects were launched, compared with nine this year. Large groups rule out returning to a similar situation in the short term, partly due to the uncertain scenario for consumer spending, low occupancy rates in some cities and higher cost of capital, which makes investments more expensive.

Owners are now focused on expanding old malls, searching for the few good assets still up for sale and seeking new sources of revenues. “After the last big investment cycle, the new malls saw a slower maturation. Foot traffic is still lower than in 2019. In addition, there is still room to expand old developments. Thinking about greenfield projects now doesn’t make much sense,” said Bruno Gargiolli, head of real estate at XP’s investment banking business, in an event held by the bank.

“The model based on megaprojects no longer exists,” said Glauco Humai, head of the sector’s trade group Abrasce. “What do exist are opportunities, projects linked to mixed-use towers. We will even see retrofit efforts and renovations, opening of free spaces, boulevards. And companies will also try to better explore this field, integrate it with e-commerce, and look for other brands [of stores] to stand out.” Future projects are likely to follow this path, large companies in the sector say.

New expansions are still an unexplored road, said Guido Oliveira, Iguatemi’s chief financial officer. “The expansion gained steam in the [2015] crisis, but it hasn’t stopped yet,” he said, at the 10-year anniversary event of JK Iguatemi, in São Paulo, a development of the golden times. Mr. Oliveira recalled that JK cost about R$320 million. Such a project would cost now at least R$500 million, considering the inflation faced by the sector, he said.

Despite the more positive estimates with the expansion of areas, they are still discrete and are picking up steam after the crisis that postponed plans in the retail and real estate markets. The five largest public companies in the industry – Multiplan, Iguatemi, BR Malls, Aliansce Sonae and JHSF – now total 11 expansions, compared with 10 projects in the middle of 2019, before the pandemic. But JHSF and Aliansce concentrate 70% of those, and some are small expansions – the largest one, of 38,000 square meters, of Catarina Fashion Outlet (JHSF), is equivalent to less than 10% of Pátio Paulista, in São Paulo.

“There is still an effect of the crisis on expansion projects, which were frozen between 2020 and 2021 because nobody knew exactly when the recovery would come,” said Luiz Marinho, managing partner at the consulting firm Gouvêa Malls. “But in addition to this growth option, we still have projects with occupancy rates of 80% or 90%, so there is room to improve this and to change store portfolios as well.”

The companies’ results show some clues. Eleven of Aliansce Sonae’s 26 shopping malls had occupancy rates lower than the company’s average in the second quarter. The same happened with 10 of BR Malls’s 29 projects and with six of Multiplan’s 20 malls. JHSF and Iguatemi do not break down figures per mall.

In the list of shopping malls, some have 20% to 25% of idle spaces. “But these are rare cases among public companies. You see more situations like this among private companies, with less resilient portfolios. The occupancy rate has already normalized this year,” Mr. Marinho said. “You see exceptional malls on Paulista Avenue and in office areas, such as Vila Olímpia, still struggling because of the hybrid work model,” he said, referring to the city of São Paulo. In his view, companies should “put more money on the table in the agreements with brands to draw new stores and foot traffic.” The search of new shopkeepers is “somewhat stuck in recent years and must be resumed.”

Aliansce and BR Malls have been approaching digital brands in the fashion and decoration segments to bring them to the malls.

Looking to the short term, part of the groups’ agenda in the coming quarters is to accelerate measures to consolidate the current recovery in sales. Figures are now being revised upwards. Abrasce is raising to 27.4% from 17.3% the projection of expansion of tenants’ sales this year. It is the second revision this year – in May, the rate had already risen to 17.3% from 13.8%.

According to Mr. Humai, the strong performance in the first half of the year – despite the low basis of comparison – and the possibility of a stronger fourth quarter led to the revision. From January to June, sales advanced about 36%. The rate may end the year at 27% because of the expectation of a weaker third quarter – August was a lower month than expected, according to Abrasce’s initial analyses.

Ygor Altero, XP’s shopping malls analyst, said there is an expectation of growth in sales of dominant malls (of public companies) of nearly 20% in the third quarter of this year, compared to the same period of 2019, in nominal terms. Considering figures adjusted by inflation, some malls still face a real drop in sales.

Companies say that the results already show nominal sales above 2019 in some quarters, while default rates are at normal levels and the discounts granted to tenants during the pandemic are being reduced. In the short term, the companies are focused on regaining foot traffic, which is still below normal.

“We have a flow of about 100 million people in Brazilian malls, below our average of 500 million visitors per month. We think it is still the effect of working-from-home policies. Maybe it will not return to 500 million this year. But those who return to the malls are more assertive in their purchases. If it weren’t for the pandemic, we would probably be between 550 and 600 million visitors per month,” Mr. Humai said.

Mr. Gargiolli, with XP, said that asset acquisitions can also be a way to gain scale and increase sales. At the beginning of the year, Brookfield studied to sell part of its assets, but gave up because of bids below expectations. And Sonae Sierra even offered in the market its slice of Parque Dom Pedro Shopping, in Campinas (São Paulo), before canceling the deal. “We still see potential negotiations. Acquisitions of mature assets improve business returns. And we believe this should grow before the return of the greenfield projects, together with the return of individual investors to shopping malls on the stock exchange,” he said.

*By Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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M & A deals increased 26% in first half

Internet and information technology companies accounted for more than half of deals

09/05/2022

Mergers and acquisitions in Brazil increased 26.1% in the first half of this year, to 1,104 deals, compared to the first six months of 2021. Internet and information technology companies totaled 590 deals, research by KMPG shows.

The long-time consolidation drive in the technology market remains in place. Totvs announced on Thursday the acquisition of a 60% stake in Feedz, which develops human resources management software, for R$66 million. It is the seventh acquisition in the year and Totvs invested, in total, R$233.1 million this year. The recent agreement includes a clause for the purchase of the remaining 40% stake by 2025.

Semantix, a Brazilian technology company traded on Nasdaq in New York, also announced an acquisition on Thursday, when it bought the startup Zetta Health Analytics. The value of the deal was not revealed. The company offers data consulting services for the healthcare industry and complements the big data platform that Semantix offers its clients.

According to the company, Zetta has processed more than R$42.1 billion in claims and cross-referenced data from 764 databases, and now has 640 clients. Semantix says the acquisition strengthens its big data portfolio, adding services to serve the pharmaceutical industry, insurers, hospitals and other companies in the sector.

According to the KPMG survey, during the first three months of the year, 553 mergers and acquisitions took place, up 47.4% year-over-year. In the second quarter, KPMG found that 461 deals happened, up 7.45%.

Between the first and second quarter, there was a 16.6% drop. “Despite the good perspective for this year, if this deceleration trend [in the third quarter] is maintained, we will be a little further away from surpassing the figure seen in 2021,” said Luís Motta, a partner at KPMG and head of the survey. Last year, there were 1,963 M&A deals, surpassing the previous record in 2019.

Despite the favorable exchange rate for foreign companies, about two-thirds of the 646 deals took place between Brazilian companies in the first half of the year. Foreign capital, either on the buying or selling end, accounted for 36% of the mergers and acquisitions in the first half.

The internet and information technology sectors had the most mergers and acquisitions during the first half of this year, with 410 and 180 deals, respectively. Mr. Motta said that these companies remain active in the market even in situations of macroeconomic uncertainty since attracting investments is part of their growth cycle.

He recalled that the internet and technology industry experienced robust growth in the pandemic, increasing the number of companies in the market.

Technology companies end up being especially affected by rising interest rates as a result of their business models. The many investments to gain scale and expand businesses make them leveraged companies with revenues allocated to the future, which reduces cash flow and makes acquisition by larger groups an alternative.

*By Felipe Laurence — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Sengi invests R$440m in 2 solar panel factories

Company expects to triple its revenue to R$1.2bn by 2023 with new facilities

09/05/2022

Everton Fardin — Foto: Divulgação

Everton Fardin — Foto: Divulgação

The shortage of photovoltaic equipment on the Brazilian market is opening up opportunities for Sengi Solar. The company is investing R$440 million to build new factories in Paraná and Pernambuco with the capacity to make 1 gigawatt a year in equipment.

These are Sengi’s first factories in Brazil. The Cascavel unit, in Paraná, is ready and will start operating in September. The Ipojuca unit, in Pernambuco, is scheduled to start operating in July 2023. The company, a subsidiary of Tangipar, will have a capacity of more than 3,000 modules per day.

The investment was made with the company’s own capital, and revenues are expected to reach R$1.2 billion next year, up from R$400 million this year, Sergin’s managing director Everton Fardin told Valor.

“The market is red-hot and lacks options of local, state-of-the-art photovoltaic modules. Sengi intends to bridge this gap and grab a large portion of the market, tripling sales by 2023,” he said.

The company bets on offering the equipment to more than 80 distributors of photovoltaic equipment operating in Brazil. It stands out with short delivery times and local post-sales service, since more than 95% of the equipment in the market comes from centralized factories in China.

As ultra-efficient global supply chains face imbalances due to abrupt factory closures because of Covid-19 and logistical hurdles because of the war in Ukraine, the company’s strategy is focused on local production and regional value chains.

Brazil had been facing a decline in manufacturing in the photovoltaic semiconductor sector since 2019, even during a breakneck growth of the distributed generation and centralized generation markets, the executive said. The focus has gradually shifted to the distribution of products imported from China from local manufacturing.

“Therefore, Sengi Solar’s decision to build two new factories fights back strongly against this scenario and brings more autonomy to the supply chain of such a strategic product for the power industry and the planet’s decarbonization plans.”

The solar power industry is indeed the fastest growing in Brazil. In all, there are 16.4 GW of installed capacity of solar power in large plants and small self-generation projects, according to data by the Brazilian Electricity Regulatory Agency (ANEEL).

The investments are expected to generate 500 direct jobs in the two regions where the manufacturing units will be installed. The company invests in the domestic market according to the Brazilian Development Bank (BNDES) rules, which determine that at least 60% of the products are made in Brazil.

“The manufacturing units were dimensioned within the Industry 4.0 concept. We will produce much faster than the local industry,” he said. “Each process will take less than 25 seconds, including assembly, transformation, and inspection.”

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Budget cut leaves housing program on brink of extinction

A bet by President Jair Bolsonaro to try and reach voters of the Northeast region, program will be reduced in 2023 to 5% of what was planned

09/05/2022

The government has virtually eliminated any housing policy forecast for 2023 in the budget bill submitted to Congress. The total amount to be allocated to the National Housing Secretariat (SNH) will be R$82.3 million for all actions, being only R$34.1 million to carry out the Green Yellow House, a federal housing program.

A bet by President Jair Bolsonaro (Liberal Party, PL) to try and reach voters of the Northeast region, the program will be reduced in 2023 to 5% of what was planned this year.

In practice, officials with Congress and the SNH linked to the public budget foresee the announcement, in the coming weeks, of the cancellation of plans to resume unfinished works, the halting of works already started and the cancellation of the start of others contracted.

The economic team forwarded a document to the Ministry of Regional Development in June saying that funds available totaled R$788 million, including R$650 million for the Green Yellow House program. The National Housing Secretariat is part of this ministry. In the budget bill, however, the total amount for the secretariat fell to R$82.3 million (10.4%), while the program will receive only R$34.1 million (5.2%).

Contracts are long-term, so they go beyond four-year terms in office – the Bolsonaro administration is paying for contracts signed during the Rousseff administration (2011-2016), for example. With no prospect of funds to continue running the program after the end of the year, the construction works will stop.

With the bill as it is, the hope for maintaining a housing policy in 2023 would fall on a change in the allocation of budgetary funds by Congress. In other words, the construction of houses for the poorest population may be at the mercy of the Centrão – a cluster of center and center-right parties that props up Mr. Bolsonaro – and the benefits of the multi-billion “secret budget,” a system for distribution of public funds used to maintain political support for the government.

In his government plan registered in the Superior Electoral Court (TSE), President Bolsonaro, which is running for reelection, cites the Green Yellow House program once, stating that the program “promotes the right to citizenship, in order to universalize access to housing acquisition in urban areas.” It also says that the program offered “the lowest interest rate ever for financing residential properties, starting at 4.5% per year.” In addition, it briefly mentions the importance of popular housing, stating that this is one of the factors that promote “well-being,” along with basic sanitation, education, leisure, culture, and security.

Asked about the funds foreseen for the Green Yellow House program next year, the Regional Development Ministry said that “fund needs for the 2023 budget have been formally forwarded” to the Economy Ministry. The Economy Ministry, on the other hand, acknowledged that “the funds foreseen fell short of the need and will of the federal administration,” but stressed that the budget bill will still be debated in Congress.

José Carlos Rodrigues Martins — Foto: Ana Paula Paiva/Valor

José Carlos Rodrigues Martins — Foto: Ana Paula Paiva/Valor

In an online event on Thursday, the head of the Brazilian Chamber of the Construction Industry (CBIC), José Carlos Martins, said that the budget reduction meant “a disaster.” He cited the possibility that construction works will have to be paralyzed again due to a lack of funds.

Mr. Martins told Valor that some construction works within the program will be paralyzed by lack of funds. In this bracket, the funds are aimed at households with incomes of up to R$1,800, and the value of the property is subsidized by up to 90%. The bracket was eliminated when the program name changed from My Home My Life (created by the Workers’ Party administrations) to Green Yellow House.

Ronaldo Cury, vice-president of housing at the São Paulo Civil Construction Union (Sinduscon-SP), said that the Green Yellow House program “will not change at all” with the budget cut because the program only uses funds from the Workers’ Severance Fund (FGTS).

Even so, Mr. Cury said that construction companies have been asking the government to inject funds from the federal budget into the program because it would help to strengthen the housing policy.

(Ana Luiza Tieghi contributed to this story from São Paulo.)

*By Vandson Lima, Estevão Taiar — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Banks see IPOs resuming in 2023, but at slower pace

Real economy businesses are expected to come back more strongly than technology companies

09/05/2022

After a sluggish year period for IPOs, investment banks project that capital markets will accelerate again as of November. After the elections, regardless of who wins the presidential race, companies will start to resume plans to raise money in the Brazilian stock market, executives told Valor.

Despite the many uncertainties including monetary tightening abroad, with high interest rates to combat inflation, the risk of recession, and the Russia-Ukraine war, investment banks see room for up to 35 share offerings in Brazil next year.

Banks see real economy businesses, especially those in infrastructure and commodities, as candidates for financing through the stock exchange. On the other hand, technology companies will take a little longer to resume the levels seen before the tech crisis.

Basic sanitation companies BRK Ambiental and Aegea are among the candidates to follow this path, sources in the financial market say. BRK, which has expanded through acquisitions and tried to go public earlier this year, may resume its IPO plans next year. CBO, an offshore vessel operator controlled by Vinci and Pátria, is expected to follow the same course. The market sees the exit of the funds as a natural path.

Vitor Saraiva — Foto: Silvia Costanti/Valor

Vitor Saraiva — Foto: Silvia Costanti/Valor

Vitor Saraiva, head of equity capital markets at XP, is among the most optimistic executives in relation to the resumption of deals as of 2023. “I see a constructive scenario in the local market, with macro data indicating falling inflation and GDP growth of up to 2% this year. Brazil is in a good position, among emerging countries, to draw some foreign capital. And second-quarter earnings reports indicated improved results for more than 70% of companies,” he said.

Some companies that filed for IPOs but failed to move forward with the offerings may resume their plans soon, Mr. Saraiva said. “We saw 109 companies giving up in 2020 and 2021.” He foresees 10 to 20 share offerings, one-third of which could be IPOs, in the first half.

UBS has found at least 30 companies eligible to tap the market in the following months, including 10 to 15 that could potentially do so next year, CEO Daniel Bassan said. Four of these companies may make their market debut.

A preliminary estimate by Itaú BBA suggests an even greater potential: 25 to 35 IPOs and follow-ons could materialize next year, raising R$60 billion to R$80 billion, said Roderick Greenlees, head of investment bank.

Future share offerings are expected to bring larger checks – above R$1 billion, unlike the last two years, when the stock exchange saw smaller deals. Most newcomers to the stock market face strong devaluation.

Citi and Morgan Stanley declined to make any projection. Marcello Lo Re, head of Brazil equities capital markets at Morgan Stanley, recalled that IPOs and follow-ons were weak all over the world, including in the United States. “The trajectory of high interest rates has inhibited investors, who are averse to risk,” he said.

The resumption of share offerings in the U.S. market will set the tone for market recovery in other countries, the Morgan Stanley executive said. “You also have to know the appetite of companies seeking to tap the market.”

The resumption of the capital market in 2023 depends on a number of variables, said Eduardo Miras, head of Brazil investment bank at Citi. Among them, clearer movement of falling inflation and the end of monetary tightening in Brazil and abroad. The commitments of the future federal administration to fiscal austerity may also stimulate deals in the market.

It is almost a consensus in the financial market that this year will end without an IPO, due to the uncertainties caused by the elections. The year will be marked by follow-ons – the most emblematic of which was that of Eletrobras. Brazil’s main power utility raised R$33.7 billion in June in one of the largest deals in the capital markets around the world this year.

Secondary offerings are expected to raise R$60 billion to R$65 billion this year if new offerings materialize by December.

“Companies halted offerings in the third quarter because of the elections and will have a short period of time between the publication of third-quarter results and the filing of documents that must be sent to the Securities and Exchange Commission of Brazil [CVM],” Mr. Greenlees said.

Last year, considering IPOs and follow-ons, 76 deals raised nearly R$130 billion. In 2020, companies raised R$117 billion through 51 share offerings.

Aegea Saneamento said it is constantly studying the possibility of going public and that such a move depends on some factors, like market conditions, use of funds, and a decision by shareholders. “It is a relevant part of our strategy the management of the capital structure, and tapping the stock market is one alternative studied. Currently, Aegea is registered as a public company at CVM [authorized] to issue bonds and debentures.”

In a recent interview with Valor, CBO said that it is studying an IPO. BRK declined to comment.

*By Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Analysis: Inflation expectations for 2024 rise as market expects smaller rate cut

Economists are anticipating a more challenging scenario for the Central Bank to meet inflation targets

09/05/2022

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

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

Fuel tax cuts will remain in place next year, which lowered financial market inflation expectations for 2023 but did not prevent them to rise in 2024 – a year that is already entering the monetary policy radar.

And the market has begun to factor in fewer interest rate cuts next year, anticipating a more challenging scenario for the Central Bank to meet inflation targets.

The Central Bank’s Focus survey with analysts, released Monday morning, shows that the market’s median projection for inflation in 2023 has dropped to 5.27% from 5.3%. It is the third consecutive week of decline in market projections for inflation.

This drop may be linked to the fact that fuel tax cuts will remain in place next year, per the budget bill. The measure, which some market analysts had already priced in, has the potential to lower inflation by 0.6 percentage points next year.

But the measure could also have a negative effect in the longer term because it increases the fiscal risk. In fact, the market’s median inflation forecast for 2024 increased again this week, to 3.43% from 3.41%.

The deterioration in inflation expectations for 2024 is of particular concern because the Central Bank has lengthened the time frame in which it intends to bring inflation to the target. Today, the Central Bank manipulates interest rates with a view to bringing inflation to the target in the first quarter of 2024.

The Central Bank has signaled that it is reaching the end of the monetary tightening cycle. But some analysts believe, according to the Focus survey, that the Central Bank will have to tighten the key interest rate Selic more, or at least postpone interest rate cuts.

The distribution of expectations about interest rates, released Monday by the Central Bank, shows that 80% of analysts think that the monetary authority will leave interest rates stable at 13.75% in the next meeting, in two weeks, keeping them at this level thereafter. But 20% predict a further increase, to 14% per year.

The market is calculating that there will be less room for interest rate cuts in 2023. Before, the median of the analysts’ projections indicated an interest rate of 11% per year at the end of 2023; now, they see the rate at 11.25% per year.

Besides the worsening of fiscal risk after the budget bill was sent to Congress, inflation expectations for 2024 may have been influenced by the second-quarter GDP data, which show that the economy is growing above expectations – a development that may hinder the Central Bank’s efforts to slow down inflation.

The map of the distribution of inflation expectations shows that only a little more than a quarter of economic analysts believe that inflation will stay within the target in 2024, set at 3%.

More than 30% of analysts think it will stay well above the target, in the range between 3.68% and 4.28%. The mapping also shows an upward bias in expectations for 2025, with about 40% of analysts projecting inflation above the target of 3%.

*By Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Gerdau, Randon join forces to lease heavy-duty vehicles

Initial investment is R$250m, but new company still depends on approval by CADE

09/02/2022

Gustavo Werneck — Foto: Divulgação

Gustavo Werneck — Foto: Divulgação

Two large and internationally renowned groups from the state of Rio Grande do Sul — Gerdau and Randon — announced this Thursday a joint venture in a segment that is quite different from their areas of activity: the rental of heavy-duty vehicles.

The initial investment will total R$ 250 million, but the goal is to grow and take the lead in a market that the partners consider little explored in Brazil. Without a name yet, the new company will be equally split between the groups. The merger, however, still depends on the approval by the antitrust regulator CADE to become active.

The company will be based in São Paulo, have its own management team, and will be open to receiving future contributions from investment and financial funds, as well as from companies with expertise in the logistics field. The goal is to expand the product portfolio — from trucks and semi-trailers to machines both for construction and agribusiness.

Initially, the focus is on transportation companies as well as independent truck drivers who, in general, have less capital for direct purchases. According to Gerdau’s figures, Brazil has a fleet of 2.6 million trucks and more than 1.2 million are over 15 years old. In other words, they are ready for renewal. “There is a market with a huge potential for the company in the rental market,” Gerdau CEO Gustavo Werneck told Valor.

Sérgio Carvalho, CEO of Randon Companies, said that in the United States, 95% of semi-trailers for containers are acquired through leasing. In general cargo, it’s 30%. “Brazil is starting to come out, but with a small percentage. Therefore, we see a relevant space in this segment,” he said, recalling that Randon had been studying to join this field for years.

For Gerdau, the formation of the joint venture is another step forward in the expansion of Gerdau Next, a new business division that seeks new sources of revenue for the group. It was created in 2021 and has been investing in other businesses, from logistics via a digital platform to the production of graphene. The leasing of heavy vehicles, and in the future also of heavy machinery, is another piece in the portfolio.

“Our relationship dates back to more than 50 years ago, and our business cultures are very similar,” says Mr. Werneck. Mr. Carvalho highlights the long history of the business partnership of the two groups and the tradition of Randon’s business partnerships: 36 years in the U.S. with a local company and 27 years in Germany. “I am very confident in the success of this joint venture,” he told Valor.

The negotiations between Gerdau and Randon began in September 2021 with the evaluation of synergies. The design of the partnership gained speed in the last five months, after studies in 28 cities in seven states and interviews with transporters and self-employed truck drivers.

According to the analysis, Randon is the largest manufacturer of semi-trailers in the country and has more than 80 points of sales in its distribution network of trailers/semi-trailers. Gerdau, through G2L (logistics company by digital platform), has relationships with thousands of trucking companies.

The vehicle rental business, according to both companies, is attractive in terms of profitability. According to market information, EBITDA varies from 70% to 85% over revenue. “In addition, with Randon we can quickly execute the business to raise this value,” Gerdau’s chief executive said.

Currently, this market has been attracting new groups. Vamos, a company of Simpar (Júlio Simões Group), is one of those that have been operating for a few years, in addition to Ouro Verde (Brookfield Fund). Volkswagen Caminhões e Ônibus (the German automaker’s truck and bus business) and Volkswagen Financial Services launched last week a subscription program for truck rental, the first to be offered by one car industry in the country. “We intend to be the leader in this market,” Mr. Werneck said.

Gerdau Next, officially formed in 2021, is made up of several businesses, some of which had already been created within the group since 2018: G2L (digital logistics), G2Base (construction foundations), Juntos Somos + (with 27.5% of shares and operating in construction retail), Gerdau Graphene (production of graphene-based materials), Brasil ao Cubo (33%, modular industrialized construction) and a joint venture with Shell in Brazil for solar power generation in a farm in the northern region of Minas to be built in 2023. The division also includes Gerdau Next Ventures, which focuses on investing and accelerating startups in Brazil and abroad.

Leader in the sectors of semi-trailers, rail wagons, auto parts, and services, Randon has 29 industrial units and is present in 120 countries. In the first half of this year, its consolidated revenue reached R$5.25 billion. Gerdau, the largest Brazilian steel manufacturer and one of the largest long steel producers in the Americas and specialty steel producer in the world, is present in nine countries. From January to June, the company reported net revenues of R$43.3 billion.

*By Ivo Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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J&F said to mull buying 100% of Braskem

Creditor banks asked Apollo, BTG and J&F to improve their bids; Unipar and Ultra still interested

09/02/2022

J&F, the investment holding company of the Batista family, is studying a proposal to buy 100% of Braskem, sources say. This week, J&F executives with the syndicate of creditor banks of Novonor (ex-Odebrecht), whose shares are used as a collateral, met with executives from U.S. asset manager Apollo, BTG Pactual and J&F to let them know their bids had been rejected.

BTG and J&F were willing to buy the debt of the creditor banks, which today totals R$15 billion, but asked for a large discount. Apollo placed an offer of R$45 per share and would be willing to buy 100% of the company, but said that the exit of Petrobras is a condition for completing the deal. The banks are not willing to grant large discounts on the total value of the debts. As for Apollo, they understand that the value of R$45 per share and the conditions imposed by the asset manager also present risks.

Unipar and Ultra, in partnership with Lumina, Daniel Goldberg’s asset management company, have made a proposal to Novonor in a different format. While Unipar offered R$10 billion for Braskem’s assets in São Paulo, the consortium between Ultra and Lumina proposed three months ago to invest R$1.3 billion in the company, joining the controlling group formed by Novonor and Petrobras. According to the proposal, the consortium would reach a 51% stake in about three years.

Sources linked to the creditors see Unipar and Ultra’s proposal as “complex” and say that they have no interest in taking them forward at this moment. Valor found out that in August Messrs. Goldberg and Lutz went to the Brazilian Development Bank (BNDES) to better explain the offer they made three months ago, and that they had a strategic plan for the group, but that the bid had been rejected. For now, Ultra and Lumina are not willing to review the proposal.

The creditor banks (Banco do Brasil, BNDES, Bradesco, Itaú and Santander) are in no hurry to close the deal — and are not ruling out giving a new waiver to Novonor to discuss the best way to close the sale of Braskem, a source familiar with the matter said. The expectation is that after the elections the market will improve again, and the shares of the petrochemical company will recover.

Sources linked to J&F told Valor that they may review the proposal and are willing to buy 100% of the company. Aguinaldo Filho and Joesley Batista met personally with those involved in the discussions with the banks and are committed to presenting “a more aggressive offer.”

Sources familiar with the matter say that Novonor is still resisting selling its entire stake in the business and has shown interest in remaining a minority shareholder in the petrochemical company.

At this moment, there are no advanced negotiations with interested buyers, although some of them, including Apollo and J&F, have requested exclusivity in the talks. Both requests were rejected.

Valor found out that BNDES and Itaú were interested in Apollo’s proposal since the company would not need to finance itself to bank the offer. However, the other banks argue that they would be tied for up to 18 months until the agreement, which involves minority shareholders, is concluded, and run the risk of the deal not being carried out.

In the specific case of J&F, the state-owned banks are resistant to doing business with the Batista family, according to sources, because of the crisis generated in Brazil after the Joesley Day – the scandal triggered when the tycoon turned state’s evidence, in 2017. In the financial market, sources believe that the group is able to put together a better proposal. The litigation of the holding in Eldorado, with the partner Paper Excellence, is also considered a sensitive point.

BTG, on the other hand, besides asking for a large discount, wants to pay for the purchase over the next seven years.

Although the price offered by Unipar includes a considerable premium in relation to Braskem’s market capitalization, the sliced sale is the least interesting option at this moment.

The petrochemical company closed at R$30,43 on Thursday, a slight drop of 0.07%. In the year, however, the devaluation is 45%. The group’s market capitalization is R$26.4 billion, according to Valor Data.

Bradesco, BB, BTG, Santander, Unipar, Ultra, J&F and Petrobras declined to comment. Apollo and BNDES did not immediately reply to requests for an interview.

*By Stella Fontes, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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GDP grows 1.2% quarter-over-quarter, above estimates

Industry grew 2.2%, while service sector expanded 1.3%

09/02/2022

Result was above the median of Valor’s estimates — Foto: Edilson Dantas/Agência O Globo

Result was above the median of Valor’s estimates — Foto: Edilson Dantas/Agência O Globo

The June quarter was one of expansion for the Brazilian economy. GDP grew 1.2% compared to the first quarter, seasonally adjusted, data unveiled Thursday by the Brazilian statistics agency IBGE show.

The result was above the median of Valor’s estimates — from 75 consultants and banks — which pointed to a growth of 0.9% in the second quarter compared with the first one. The projections ranged between 0.3% and 1.8%. A group of 34 respondents bet on rates equal to or higher than 1%.

In a year-over-year comparison, GDP expanded by 3.2% in the period, while analysts surveyed by Valor foresaw a 2.8% growth.

IBGE also revised the GDP for the first quarter of 2022, which grew 1.1% compared to the fourth quarter of last year. The institute had previously reported a 1% growth in the period.

On the supply side, the industry grew 2.2% in the second quarter, compared to the first, a result above the expected expansion of 0.9% calculated by Valor. Compared to the first quarter of 2021, the industry increased 1.9%. The median projection, according to Valor, was 0.4%.

The service sector expanded 1.3% in the second quarter, compared to the previous one. The average estimate calculated by Valor was a high of 0.6%. Compared to the second quarter of 2021, there was an increase of 4.5%. In Valor’s survey, a growth of 3.7% was expected.

Agriculture grew 0.5%, below the average projection of a 2.7% increase calculated by Valor. The industry was down 2.5% year-over-year. The median expectation of the market, according to Valor, was an increase of 1.1%.

On the demand side, household consumption increased by 2.6% on the second quarter of 2022, compared to the first quarter of the year, seasonally adjusted. Valor’s expectation was a 1.1% growth. Compared to the second quarter of 2021, the indicator had an increase of 5.3%. In this case, financial firms estimated an increase of 3.6%.

Government demand fell 0.9% and the gross fixed capital formation (GFCF, a measure of investment in machines, construction and innovation) rose 4.8% in the second quarter compared to the first quarter.

Economists consulted by Valor estimated an increase of 0.3% for government consumption and an increase of 2.5% for GFCF within the GDP.

Compared to the second quarter of 2021, there was an increase of 0.7% in government consumption and an increase of 1.5% in GFCF. The expected projections were 2.1% and -1.2%, respectively, according to Valor’s survey for the year-over-year growth.

The investment rate reached 18.7% of GDP in the second quarter of 2022.

According to IBGE, exports fell 2.5%, while imports rose 7.6% in the second quarter of 2022, compared to the first quarter.

Consultants and financial institutions heard by Valor expected, on average, that exports would drop 1.1% and imports would rise 6.7%.

*By Lucianne Carneiro, Alessandra Saraiva, Anaïs Fernandes — Rio de Janeiro, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazilian risk assets resist adverse global scenario

Ibovespa had best month of the year in August; fixed-rate and inflation-linked bonds appreciated

09/01/2022

Jerome Powell almost spoiled the fun, but the Brazilian risk assets resisted the hawkish tone used by U.S. Federal Reserve chair at the end of the Jackson Hole meeting. While question marks remain as to where monetary tightening will go over there, there is already an end-of-cycle mood over here. Despite the uncertainties ahead, including about the general election in October and what the fiscal situation will look like from 2023 on, some people already see potential gains in classes traded at a discount.

In August, the Ibovespa rose 6.16%, to 109,523 points, after peaking at 113,813 points before the Jackson Hole event. IMA-B 5+, an index that reflects a basket of inflation-linked government bonds with terms over five years, gained 2.49%, rewarding those who lengthened their investment horizon. IRF-M, an index that represents fixed-rate bonds, appreciated by 2.05%.

In the stock market, foreign investors, who had slowed down their bets, put new money back into the spot market – almost R$18 billion in August, the highest in three months. The flow was still negative in the futures segment, at R$3.3 billion, but there was a net inflow of R$74.5 billion in the year, according to data provided by the exchange B3 and compiled by Leonardo Morales, the chief investment officer at SVN Gestão. “Despite the looming election, we saw a relevant capital flow from abroad, which propped up the Brazilian stock market and even detached it from the U.S. markets,” he said.

Fueled by foreign capital, August was the best month of the year for Brazil’s benchmark stock index Ibovespa, said Rodrigo Lopes, an equity strategist at Itaú Unibanco. “The Brazilian stock exchange has been trading for some time at a large discount to the historical average and to other emerging markets. Investors look at some multiples and see an attractive price.”

Although the indexes of international stock exchanges like Nasdaq and S&P500 are in the red this year, emerging markets like Brazil have underperformed them since 2019, Mr. Lopes said. In dollar terms, the MSCI Brazil benchmark is still far behind. As the earnings of companies listed in Brazil have increased in 2020 and 2021, he said the Ibovespa companies are trading at a discount of 40%, with the price-to-earnings ratio at 6.8 times, compared with a historical average of 10.8 times. This measure offers a glimpse of how long it takes to see a return on invested capital.

The domestic factor, he added, comes from the perception that the Central Bank is close to ending the monetary tightening cycle. If it hikes Brazil’s key interest rate Selic again in September, it is likely to be a residual adjustment in the rate currently at 13.75% per year. “As the stock market anticipates the cycles, it has started to price in sectors that do well in lower interest rate environments, such as consumption and construction stocks, which were very depressed at the beginning of the year.” There are risks, of course. If higher inflation data or a recession is confirmed in the United States, the Brazilian stock market is unlikely to remain unscathed.

In the balance of risks, Itaú’s investment strategy team is trying to weigh the chances of a recession in the U.S., what the Fed will do ahead, and the fiscal dilemmas in Brazil after the government change, to be defined in October. The scenario will rely on data, said Gina Bacelli, the chief economist of the team. The portfolio is more concentrated in fixed-income assets, with a neutral recommendation for the stock market.

Itaú’s tactic avoids dollar exposure but includes diversification into other currencies of 25% to 30% of the portfolio. “Until the [monetary] cycle is reversed, the real is unlikely to gain ground in a sustained manner,” said Mr. Bacelli, despite the fact that the Brazilian currency boasts one of the best performances this year. “International assets work as an anchor.”

Regardless of whether the Central Bank will raise the key interest rate again in September, the end of the cycle changes the view for fixed income, said Humberto Vingnatti Assis, Itaú’s strategist for the segment. “When the Selic remains flat, the market will begin to discuss at what moment the interest rate will be reduced again. This will be in the analyses in the coming months in the face of a very expressive [future] rate drop.”

With the movement in fixed-rate options, the decision was to reduce the exposure in these securities and put the gains in instruments linked to the interbank deposit rate (CDI). “We prefer to allocate risk where visibility is better,” Mr. Assis said. The National Treasury Notes series B (NTN-B, or Tesouro IPCA+) are also considered an attractive option.

As there is no clarity about a reversal of inflation in the United States and the Fed’s behavior, it was impossible to rely on the recovery of assets, such as the U.S. stock markets, before Jackson Hole, said Paulo Miguel, the chief investment officer at the Julius Baer Family Office.

The market bought the idea that the final rate of interest in the U.S. would be below 3.5%, he said. Mr. Powell’s speech on Friday threw cold water on this view by making it clear that there is some way to go before the economy’s rates match the target. “He emphatically signaled that inflation is the priority. Until we see convincing evidence, we can have a higher level of interest rates and the expectation of a cut next year seems premature,” Mr. Miguel said. “Fragility is there. It’s not going away any time soon.”

In this scenario, Brazil has nevertheless been a defensive position among emerging markets. One short-term trigger is the near end of monetary tightening, Mr. Miguel said. “This is the positive factor for the improvement seen in equities and the matters linked to the domestic economy.”

The second trigger driving prices of risk assets is expected to be defined in October, with the elections, and the indication of what the economic policy will be in the next administration.

Regardless of who wins the electoral race, Julius Baer believes that a pragmatic view will prevail and that none of the leading candidates will embark on a risky trajectory in the conduct of the budget. “The first year in office is typically the period of seeking to build confidence. It is what makes an expansionist posture ahead possible. We believe that this may happen again.”

After the Copom signaled the end of interest rate increases, the wealth-management firm adjusted investors’ portfolios. The portion concentrated in inflation-linked fixed-income assets was directed to equities.

Mr. Miguel sees the real still gaining ground amid the expectation of favorable commodity prices and a good agricultural harvest. Credit has been the preferred option abroad, with dollar-denominated bonds bringing returns of around 8% in up to four years.

With the upcoming electoral outcome and the possibility of some fiscal visibility starting in 2023, Credit Suisse is prepared to increase its exposure in the stock market or in fixed-income securities in Brazil, said Luciano Paiva, the bank’s chief investment officer in Brazil. “We see some volatility coming in the next weeks, but we are looking at the last two months of 2022 and the beginning of 2023 with a more upbeat view,” he said.

It will be a period in which the cycle of interest rate hikes in the United States will probably be clearer. The Swiss group believes that monetary tightening there will reach 4% or 4.5% a year, above what investors priced in future rates, but the rest of the adjustment could occur more mildly if inflation shows it has already peaked. “It would be good news for markets in general, the emerging markets, and for Brazil,” Mr. Paiva said.

In Brazil, the assessment is that the Central Bank has moved early to raise interest rates and will soon end its work. Since the second quarter, the monetary authority has shown signs that it would like to halt the increases in the Selic rate, but it was surprised by inflation, and “whether it likes it or not, monetary tightening abroad adds some pressure.”

When one looks at fixed-rate bonds in Brazil, with rates above 12%, or even for inflation-indexed bonds, close to 6%, there seems to be a premium in relation to what would be the natural rate of interest, around 4% or 4.5%, Mr. Paiva said.

Credit Suisse prefers assets linked to real interest rates, but has occasionally bet on fixed-rate securities. It has a small portion on it, of 2.5%, but the discussion is whether it is worth increasing it. The bank is neutral on the stock market in Brazil as well, because falling long interest rates benefit risk assets such as stocks. “We will discuss which is the best horse when the election is defined.”

*By Adriana Cotias — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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