Plan is to try and replicate in other countries model developed in Brazil
10/21/2022
IHS closed five acquisitions in two and a half years — Foto: Reprodução/IHS
IHS, TIM Brasil’s partner in the neutral network company I-Systems, is looking for fiber optic providers and towers to buy in Brazil, other Latin American markets and in Africa, said Fares Nassar, head of Latin American region at IHS.
“We will look at any tower and fiber business,” he said, including the assets that Telecom Italia’s TIM, América Móvil’s Claro and Telefónica’s Vivo will have to sell as a condition imposed by regulators for the purchase of rival Oi’s mobile business. Among the deals in progress is Alloha Fibra, a broadband provider owned by private-equity firm EB Capital.
Mr. Nassar said the company has no interest in a nationwide or international backbone (transport network), only in access network. Alloha has 110,000 km of backbone. In this case, if there is an agreement to buy Alloha, “it would be interesting to slice” the asset, said the executive, who participated in a debate about neutral networks at Futurecom, a telecoms event, on Thursday.
The search for assets includes other Latin American countries. IHS already operates in Colombia and Peru. In Africa, it has a presence in Nigeria – “an interesting market because it has the same population as Brazil and only 3% of houses passed by fiber.” Mr. Nassar’s plan is to try and replicate in these countries the model developed in Brazil. He said there is no interest in investing in data centers, except for small data centers at the ends of the networks.
As for an eventual consolidation of the large neutral network providers, the executive said: “The market demands a much greater speed than any of us can supply. We will cover Brazil, then we will start fighting.”
IHS closed five acquisitions in two and a half years – CSS, Centennial Torres, Skysites (a small website company), 51% of TIM’s fiber network, and GTS, also of towers. The investment in access networks totaled $1.3 billion.
In the purchase of TIM’s network, it received half of the infrastructure in fiber and half in fiber to a central office, being complemented by copper. Nassar said that everything will be converted to fiber to the home (FTTH). Currently, I-Systems has in Brazil 7,000 towers and 7 million homes with fiber passed in front, in 40 locations. Of the total, about 2.8 million have a copper network and 4 million have fiber.
Government opened public consultation on most effective ways to limit or remove commodities linked to deforestation from supply chains
10/21/2022
Soybean plantation in Pará: crop may be affected in case of restriction in the U.S. — Foto: Claudio Belli/Valor
The United States government has taken a new step to define trade restrictions aimed at prohibiting commodities coming from deforested areas as of December 2020, following the example of what the European Union is preparing. The measure may impact 10% of Brazilian exports to the American market.
The State Department, in conjunction with Customs and Border Protection, the Office of the United States Trade Representative (USTR), and other government agencies, opened this week public consultation to receive input on the most effective ways to limit or remove commodities linked to deforestation from supply chains, and to encourage the procurement of sustainably produced agricultural commodities.
One question submitted by the U.S. government in the public consultation is whether all “soft commodities” should be covered by trade restrictions, or just some, citing beef, soybeans, coffee, palm oil, cocoa, pulp, and rubber, which would account for three-fifths of deforestation globally.
The value of trade referring to these products in the public consultation exceeds $3 billion in Brazilian exports to the U.S. (data for 2021), equivalent to about 10% of Brazilian exports to the U.S. market, according to a preliminary impact analysis made by lawyer Rodrigo Pupo, with MPA Trade Law.
Currently there is already a bill going through the U.S. Senate to establish due diligence on legal and illegal deforestation in supply chains for certain commodities.
“The difference with this legislative proposal is that it does not include coffee, which is now in the public consultation, but includes coffee products, which increases uncertainty about the measure and certainly the trade impact,” said Mr. Pupo.
Washington will receive opinions from different interested parts by December 2. Then government agencies will prepare a report for President Joe Biden outlining options for trade restrictions. The USTR must identify foreign countries without adequate and effective protection against deforestation caused by the production of commodities that are likely to enter the United States, and point out the potential risk of each country identified.
There are several other bills introduced in Congress involving environmental policies globally that may affect bilateral relations. One of them directs the Secretary of State to engage with Brazil on environmental enforcement, sustainable development, and emission reduction efforts.
In a recent report on national security strategy, the Biden administration included the goal of mobilizing funding and other forms of support to promote conservation of the Amazon rainforest.
The European Union is well ahead in its plan to ban imports of agricultural commodities linked to deforestation. The goal in Brussels is for the final text of the future regulation to be agreed upon by the European Commission (the EU’s executive arm), the European Council (of European leaders), and the European Parliament before the COP27, which will take place in November in Egypt.
The European regulation will ban the use of several “high forest risk commodities.” The European Parliament’s specific proposal corresponds to 80% of Brazilian agribusiness exports or 40% of total exports to the EU, adding up to $14.5 billion in sales to the bloc in 2021.
Sengi Solar wants to be more than just an alternative to China
10/21/2022
Everton Fardin — Foto: Divulgação
With the inauguration of the first 100% Brazilian photovoltaic module factory, Sengi Solar wants to be more than an alternative to China — the source of most of the solar panels supplied to the world — and hopes to open the door for new manufacturers of solar power components to establish in the country, at a time when Brazil is witnessing the power source increase its installed capacity at a fast rate. Sengi — a company belonging to the Tangipar group, in Paraná state — which operates in the distribution of photovoltaic equipment, has invested R$440 million in the construction of two module factories.
The first one, in Cascavel, also in Paraná, will be officially inaugurated this Friday with operations in one shift, and the company expects to open the other two shifts early next year. The second plant, in Ipojuca (Pernambuco), is scheduled to start operations in mid-2023. The two plants combined will be able to produce 1 gigawatt per year, said Everton Fardin, the company’s CEO. He says that between the first conversation and the production of the first photovoltaic module, there was an interval of only nine months.
To meet production, Sengi still depends on importing raw materials, all of which, according to Mr. Fardin, come from first-line suppliers. However, the company has already started conversations to obtain local supply. Sengi has signed negotiations, for example, with a multinational glass manufacturer with Brazilian production to supply the raw material to the company, whose name was not disclosed for strategic reasons — the glass is one of the main raw materials for the manufacturing of the panels, and is currently imported from China.
“The company saw an opportunity and said that if we guaranteed a demand of 1 GW, it would provide the glass needed for production,” said Mr. Fardin. Recently, solar power has surpassed the 20 GW threshold, 14 GW of which are small generation plants, and has become the third most used source of electricity in the country, behind wind power (24 GW) and hydro (109 GW). The growth in the country would have been even greater, but the evolution may be affected by the disorganization of production chains, caused by the resumption of activities in the world and the war in Ukraine.
For the executive, the current scenario allowed the decision on the plant in Brazil. “We understand that China was starting a deindustrialization process, and this is a very strategic product for Brazil and that it is the right time to develop this product in the country,” said Mr. Fardin.
Sengi’s initiative, according to Mr. Fardin, can stimulate other entrepreneurs in the segment to bet on the country as a competitive productive hub.
Unlike wind power generation, which counts on Brazilian suppliers of components such as wind blades and towers, solar generation did not manage to form a local chain.
The executive says that the company saw the level of technology evolution decelerate in comparison to what happened in the past, which facilitated the decision to bet on Brazilian production — the company adopted the most up-to-date technology for manufacturing, whose updating cycles have intervals between six and seven years. Each of the assembly processes takes 25 seconds on average.
“The module technology has reached such a level that the changes are small [between cycles]. We have already sized the plant so that in the next six or seven years it will still be competitive in the market.”
Mr. Fardin also said that the company is in talks with research institutes, universities, and consulting companies to develop research and development (R&D) projects related to the development of national solar technologies. Part of the funds for the implementation of the plants came from the Program in Support of Technological Development of the Semiconductor Industry (Padis), which aims at the formation of a national semiconductor industry. The program establishes as a counterpart the application of 5% of gross revenue in R&D projects.
One of the goals in this case, says Mr. Fardin, is the development of a 100% Brazilian solar cell, which would make the country less dependent on China and more suitable to Brazilian climatic conditions.
The cell is the component that converts sun energy into electric power through the so-called photovoltaic effect, using semiconductor materials, especially crystallized silicon. Several cells form a solar module, and several modules make up a solar panel. “We are thinking about developing a module, especially for the Brazilian market, one that meets all the requirements of our country,” he said.
Latin America’s largest economy is expected to absorb 30% of the 2,240 additional aircraft that will be needed to serve the region, a study by Boeingshows
10/20/2022
David Franson — Foto: Silvia Zamboni/Valor
Brazil will drive the demand for new airplanes in Latin America in the next 20 years and airlines will look mainly for single-aisle jets, which are typically used for domestic flights, a market outlook study conducted by Boeing shows. According to the U.S.-based company, the country is expected to absorb 30% of the 2,240 additional aircraft that will be needed to serve the region, including the Caribbean, in this period.
Most of the new aircraft, or more than 2,000, will be single-aisle jets, said David Franson, the plane maker’s regional director of market forecasting. Boeing, with its 737s, and Airbus, with the A320 and more recently the A220, are the main competitors in global commercial aviation, but China’s Comac is trying to join them with the C919. Brazil’s Embraer has gained traction in the dispute with the smaller and single-aisle aircraft from Boeing and Airbus since the launch of the E-Jets E2 family.
According to the U.S. company, the fleet of commercial aircraft in Latin America is expected to grow more than 85% by 2041. Expansion is likely to account for 60% of new aircraft, while fleet renewal will represent 40%. These jets combined are valued at $335 billion.
According to Boeing’s Commercial Market Outlook (CMO), Brazil will lead this movement, with the potential for more than 670 new aircraft in two decades. “Part of that is going to be determined by the market share of local airlines. But Brazil is the largest economy in the region,” said Mr. Franson.
In the executive’s view, Latin American airlines have recovered strongly after the Covid-19 pandemic and will need more versatile and efficient fleets in an environment of rising fuel costs and sustainability goals assumed for the coming decades.
“The pandemic brought change and versatility is a requirement today,” he said. As for costs, he believes that airlines are better able to manage higher and more stable costs, which are passed on to fares, than volatility.
When asked about the consolidation of airlines in the region, Mr. Franson said that, in Boeing’s view, what matters is healthy competition, which is possible with a larger number of airlines or a few strong competitors.
SBM, Camargo Corrêa and Nova Participações were reintegrated to oil company’s base
10/20/2022
Companies that provide services to Petrobras and that were excluded, as of 2014, from the register of suppliers for involvement in cases of corruption investigated by the anti-corruption task force Car Wash are returning to have commercial relations with the oil company, although not all of them are able to close contracts for the provision of goods and services. SBM, based in Monaco, Camargo Corrêa and Nova Participações, former Engevix, are among the companies reintegrated to the Petrobras supplier base, but they are in different situations.
SBM, for example, has a contract in place with Petrobras to deliver by 2023 a platform for the Mero field, in the Santos Basin. The contract, agreed in 2019, was SBM’s first with Petrobras after the Car-Wash allegations in which the company was accused of wrongdoings by the Federal Prosecution Service and had to sign a leniency agreement with the authorities. Leniency is a kind of plea bargaining for business entities that admit wrongdoing in government contracts.
From 2014 to 2021, Car Wash investigated irregularities committed by Petrobras’ suppliers and former employees. According to the latest available data, Petrobras had been reimbursed R$6.2 billion for the damage found in the investigations. Both the state-owned company and suppliers have undergone improvements in corporate governance policies.
SBM’s CEO, Bruno Chabas, says the episodes of corruption revealed have helped the company to reinvent itself: “It was part of our history and we have learned from it. We have become a different company, we are more transparent, and we are aware of our impact on society,” he said.
Camargo Corrêa was also reinstated, in 2020, to the list of Petrobras suppliers, but has not yet signed any contracts. Nova Participações, formerly Engevix, returned to the Petrobras supplier base, but is still considered high risk, a classification that prevents it from signing contracts with the oil company.
Part of the companies authorized for contracting by Petrobras did not close new deals as a result of the reduction of investments by the state-owned company in large infrastructure projects, say sources in the construction area. The Petrobras contracts for works involves long chains of suppliers. In 2021, the company closed R$239.85 billion in supply contracts for goods and services in Brazil and abroad with 9,751 companies, including platforms and other goods. In 2020, the state-owned company closed contracts worth R$253.3 billion with 10,335 suppliers.
Despite resuming relations with companies involved in Car-Wash, there are still 76 companies on Petrobras’ list that are suspended from bidding or on precautionary blockade.
This classification appeared in 2014 to deal with those investigated in the Car Wash task-force. Not all cases, however, are related to the corruption probe. Of the total of blockades, 62 correspond to decisions made as of 2021, the year in which the task force was closed.
Salvador Dahan — Foto: Divulgação/Vivian Fernandez
Salvador Dahan, Petrobras’ Chief Governance & Compliance Officer, told Valor that the reasons for the current suspensions are diverse and range from problems in the corporate structure to failures in the integrity programs identified by the state-owned company: “Some [companies] may not have problems [of corruption], but do not have the foundations of a compliance program,” he said.
Among the companies still blocked by Petrobras that were involved in Car-Wash are Odebrecht Ambiental and Base Engenharia, formerly Schahin. Odebrecht Ambiental had its operational assets sold to BRK in 2017 and is now a non-operational company. Novonor, formerly Odebrecht, would not have sought to remove Odebrecht Ambiental from Petrobras’ blockade list because today the company is no longer part of the group’s operational assets. Base Engenharia was declared bankrupt in 2018.
Since 2015 Petrobras assigns an integrity risk level (GRI) to all companies with which it has a business relationship. The supplier evaluation process begins with the completion of a due diligence questionnaire, known as due diligence of integrity (IDD), with questions about the suitability and internal control programs of the companies. After this internal evaluation process, Petrobras defines the risk level of each company, which can be high, medium, or low. Low- and medium-grade companies are eligible to participate in bids to sign contracts.
“We do not want to associate our name and brand with companies that are committing violations, illegalities or that do not respect the same principles that we have. The goal is to protect Petrobras and its entire value chain,” said the state-owned company’s CEO. More than 80% of the companies in Petrobras’ supplier base, says Mr. Dahan, are considered low risk, while only 2% are still high risk. He says that 40% of the companies that at some point were identified as high risk by Petrobras were able to reverse the picture and become low or medium GRI, which allow them to participate in bids.
Nova Participações is one of the companies registered with Petrobras seeking to improve its GRI. According to the Federal Prosecution Service (MPF) in the Car-Wash task-force, the company was part of a scheme to pay bribes and form a cartel. The company closed a leniency agreement in 2019, in which it committed to pay R$516 million until 2047, for the losses generated, and also needed to undergo reorganization.
Adjair dos Santos, Nova Participações’ chief compliance officer, says the company hired an external consulting firm to map integrity risks in internal processes in 2017. Since then, a compliance area was set up, responsible for measuring actions and mitigating risks. In 2019, Nova Participações’ governance management was developed into an area that monitors the processes that occur within the company, which includes hiring, payments, and contract terminations. “All of this generated a transformation of people, of processes, of risk visualization,” he said.
Despite its efforts, Nova Participações has yet to close contracts with Petrobras. Today, the company provides services to private companies in the electrical sector, in the engineering of hydroelectric and solar generation plants and transmission lines. The company recently asked Petrobras for a reassessment of its risk rating. The expectation is that the GRI will fall to low or medium, according to Mr. Santos.
The risks identified in the anti-corruption task force led Petrobras to institute, in 2014, a public list of suppliers with whom it could not close new deals, in addition to strengthening surveillance mechanisms. In 2015, the state-owned company created a governance board. To be able to sign contracts with Petrobras again, suppliers had to implement improvements in internal controls to prevent and combat fraud and corruption.
The companies involved in the investigations were taken off the list of suppliers blocked by Petrobras as they signed leniency agreements with the MPF. This type of agreement, considered a kind of “rehabilitation” for business entities, allows companies involved in illicit practices to collaborate with investigations and take actions so that irregularities do not recur, in exchange for the easing of sanctions. Leniency agreements also involve payment of fines.
After the leniency agreements, Petrobras allowed the companies to take part in the bids, but the reinstatement was different for each supplier. Today, among the criteria for a company to be among those qualified to participate in Petrobras’ bids is the guarantee that the senior management has no executives involved in scandals, in addition to the existence of an independent board of directors. The development of more robust governance areas is one of the factors that allowed the suppliers to return to Petrobras’ suppliers base.
Emilia Malacarne, a lawyer from law firm Souto Correa’s compliance area, states that the purpose of a compliance program is the prevention and detection of frauds, illicit acts and irregularities, as well as the remediation of a problem, when detected. She points out that it is important for the company to apply these policies in day-to-day activities. “Compliance is a culture change, done through mechanisms. But it is necessary that the company shows, on a day-to-day basis, that these values have a practical effect.”
After deals were unveiled, target companies surged 21% onaverage
10/20/2022
In the last five months, 10 deals caused shares of target companies to rise 21% on average — Foto: Aloisio Mauricio/Agência O Globo
At a moment when the international outlook and Brazil’s economic growth numbers limit the recovery of the stock market, strategic investors take advantage of the discounted prices to acquire stakes in Brazilian companies. This move suggests that the stock market is cheap in comparison with its peers and past performance, asset managers and analysts say.
Strategic investors are those who buy stakes in companies with an eye on growth potential. This is the case for private-equity funds or companies with a significant presence in the sector in which they operate. In general, these are players with the financial strength to hold positions for a longer period.
In the last five months, 10 deals analyzed by Valor, which include purchases of control, mergers, and acquisitions of minority stakes, caused the shares of the target companies to increase by 21% on average. The market capitalization of the sample grew by about R$25 billion until Wednesday, considering as initial date when the deal was announced.
The abundance of share buybacks by strategic investors, as well as the increase in share buybacks by companies, is a phenomenon observed in down-market times, said João Luis Braga, founding partner of Encore Asset Management. “It’s a huge signal that the stock market is extremely cheap.”
Investors with a longer-term profile such as private-equity funds, who can cope with the macroeconomic risks typical of devalued stock markets, make the most of these situations. “Strategic investors flush with cash take advantage of this and provide an exit for short-term investors,” said Mr. Braga.
Last week, U.S.-based fund Apollo Global made a new proposal for Braskem, valuing the petrochemical company at R$37 billion. The stock has risen 25% since the announcement. The purchase of a stake in Vale by Cosan was another recent big-ticket deal on the stock exchange. The group, which has operations in agribusiness, energy, and logistics, is willing to pay about R$22 billion to take a 6.5% stake in the mining company, one of the world’s largest producers of iron ore.
The higher number of deals driven by strategic investors can be seen as a phenomenon opposite to the waves of IPOs, said Leonardo Rufino, a partner and equity manager at Mantaro Capital.
While strong, red-hot markets pave the way for new listings, those periods when stock prices are seen as being below their “fair price” attract the strategists, who typically seek minority stakes in good businesses at good prices, with an eye on long-term gain.
There were no IPOs in Brazil this year, compared to 74 operations in 2020 and 2021, at a time when the stock market was driven by low interest rates. As is common in phases of euphoria in the stock market, many stocks ended up debuting with overestimated prices, which intensifies setbacks in periods of decline.
There is a cycle exactly like that unfolding right now: after the wave of IPOs in 2020 and 2021, the market correction brings down even more stocks that were launched above the appropriate price, or those that were already in the portfolios and were traded at overvalued prices.
According to a survey carried out by Valor Data, of the 74 shares of companies that went public at B3 between 2020 and 2021, 49 underperformed the Ibovespa, Brazil’s benchmark stock index. This is the case of Hidrovias do Brasil, which is down 67% since its debut, on September 24, 2020, while Ibovespa has climbed 19%. CSN Mineração fell 55% since its IPO, in February 2021, while Ibovespa is down only -3.9% in the period. And Mater Dei has lost 50% since April 2021, while Ibovespa fell 3.7%.
In this group of new companies, there is potential for new investments by strategic investors. “Companies that went public in the last two years have plummeted, but many other stocks have also dropped fast. So, this is a fertile field for acquisitions, but it will be case by case,” said Mr. Rufino.
Among the more consolidated, high-quality companies, there are also many cases where the potential payback is higher than in the past, although many of those companies are even better now. The point is that for any of those groups the current scenario is very complex and therefore there are also reasons for the discount to be higher, especially in the short term. This gives an advantage to strategic investors, who have the stomach to wait for the asset to appreciate – more than a stock fund, for example.
Ibovespa is currently traded at a multiple of 6.9 times, considering the price-to-earnings ratio, 17% cheaper than a year ago, when this multiple was 8.3 times, said Gustavo Campanhã, manager at WHG. The S&P 500 index is currently traded at 15.3 times, 26% below the multiple of a year ago. The worse performance of the U.S. stock exchange has to do with the fact that practically one-third of the index composition is of technology companies, including behemoths like Amazon and Google, which are much more sensitive to the rise in interest rates.
In Brazil, about 60% of the index is composed of banks, commodities, and energy — with Vale and Petrobras alone accounting for 25%. The appreciation of commodities, in addition to the fact that the country is already well ahead of the rest of the world in the cycle of interest rate hikes, explains the advantage of the local stock exchange compared with the U.S. one.
But when comparing the two indexes — excluding the commodities and banking sectors, which are the set of stocks that more directly reflects the performance of the domestic economy — the price-to-earnings ratio is at 14.5 times, close to the level of 15 times observed on the eve of the 2018 election, said Mr. Campanhã.
At the beginning of 2019, a year in which expectations for the Brazilian economy were very optimistic given the promise of adopting a more pro-market economic plan, this multiple reached 19 times.
For Mr. Campanhã, given the current context and the difficulties for economic growth, it is possible to say that those stocks are trading at an adequate price level. A positive change in this dynamic depends on economic growth and the reduction of country risk.
“No foreign investor will come to the country until there is a clearer political backdrop unless the asset is extremely cheap,” he said. “So, you can’t say that there will be a systematic entry of this investor.”
The prices and market conditions of some sectors suggest that more buyout moves are coming, said Sergio Goldman, manager and head of research at Esh Capital. He cites the e-commerce segment, which would not have room for so many competitors, and digital banking, whose accelerated growth in recent years may trigger a consolidation drive. The construction sector is also attractive in cases where companies are complementary, depending on the customer profile and geographic location.
Anyway, even with the discounts seen in the stock market, Mr. Goldman considers that it is not possible to say that the market is cheap just by looking at the companies’ past valuation. This is because the level of visibility on the economic growth and, consequently, of the companies today is very low. And this is a fundamental variable to define whether a company is cheap or not. “In light of this, some companies may be at the right price, even though they are well below their historical level,” he said.
Analysts with Citi, BTG Pactual and Santander said that the potential deal may be a way to unlock value to shareholders
10/19/2022
Natura & Co unveiled Monday that it began studies for the potential spin-off and IPO of Aesop, the company’s luxury business. The company closed the trading session on Tuesday up 9.62%, at R$14.24 – the highest intraday gain of Brazil’s benchmark stock index Ibovespa.
Itaú BBA analyst Thiago Macruz points out that most of Natura &Co’s debts do not mature in the short term and that the company does not currently have a liquidity problem. A spin-off and IPO of Aesop, therefore, could be interpreted as a measure of business expansion, not to reduce the holding company’s debt.
“Natura is giving signs of decentralization in decision-making worldwide, indicating that there are not necessarily the same synergies identified in the past,” he told Valor.
This is also the view of Antonio André Neto, the coordinator of the MBA Strategic and Economic Business Management at Fundação Getulio Vargas (FGV). “It also frees up all the costs that Natura needs to have to support this company. Despite sharing many services, you can imagine that Aesop employs many people not directly linked to Natura’s operation. They are part of these shared costs.”
Analysts with Citi, BTG Pactual and Santander said that the potential deal may be a way to unlock value for shareholders. Goldman Sachs said that the generation of value with the deal depends on its format and the value that the market would give to the separate companies. XP said that the market is in “challenging” times for such a deal and highlighted Aesop’s heavy investments to enter China, which could pressure profitability in the short term.
Alexandre Pierantoni, a specialist in mergers and acquisitions and director of corporate finance at the risk consultancy Kroll, agrees that this type of deal should wait for the most favorable moment, liquidity, and the potential for appreciation. “If this spin-off or IPO materializes, the company can benefit from the value that the asset is creating on its own. The parent company can generate value, but it depends on what the asset is, where the funds will be allocated, if there is an alternative of extracting the value and putting it in another investment,” he said.
Airline “will be seen differently,” CEO John Rodgerson told Valor
10/19/2022
John Rodgerson — Foto: Divulgação
Azul will be able to increase twofold its operations in the Congonhas Airport as of March, which will make it easier for residents of the city of São Paulo, including those working in the financial industry, to start using the company’s services, CEO John Rodgerson told Valor.
The executive sees room for coexistence between business jets and airliners in Congonhas and said that the debate should focus on the need for regulatory improvements so that eventual accidents, such as the one that happened on October 9, can receive fast and efficient responses.
Currently, the company has the historical right to operate 26 slots in the airport, plus 15 it won temporarily. From March on, the number will increase to 84, according to market calculations based on the new rules of Anac, Brazil’s civil aviation agency.
“I have a thousand flights a day. Will the extra slots in Congonhas change [the environment financially]? No. But Azul will be seen differently. There are many people from São Paulo today who don’t fly with Azul. We don’t take the Faria Lima guy [São Paulo’s financial hub] who wants to go to Brasília. We have already participated in roadshows with investors who have never flown with Azul, because it is not in Congonhas. Azul was never an option. Now it will be,” he told Valor, during an event held by the Latin American and Caribbean Air Transport Association (ALTA), in Buenos Aires, Argentina.
The company’s operation at the airport will still be small if compared with leaders Gol and Latam, which have about 235 slots each. Azul offers free transportation from Congonhas to its main hub, Campinas, but the practicality of taking a taxi and boarding in Congonhas has won over São Paulo residents.
About 25% of trips in Brazil, or one in every four, are made by the state of São Paulo people. Of all the expenses made by Brazilian tourists on domestic trips, nearly 26% come from São Paulo, according to data from the state tourism office. By gaining more passengers in the capital, Azul is able to embrace a larger slice of this important market.
Before, the company operated flights from Congonhas to important cities like Porto Alegre, Brasília, and Curitiba. But after temporarily winning 15 slots from Avianca and expanding its operation at the airport, Azul decided to focus its efforts on the Rio-São Paulo route, Brazil’s most profitable one. Now, with more slots, the airline could be able to resume flights to those cities, which are also very important for São Paulo citizens in terms of demand.
On October 9, the tire of a small plane burst upon landing in Congonhas and caused controversy in the sector when the Brazilian Association of Airlines (ABEAR), which represents Gol and Latam, opposed the use of the airport by business jets. In total, about 230 flights were canceled. The CEO of Azul, however, argued that the case should stimulate debates to improve the sector’s regulation, not to prevent business jets from operating there.
Mr. Rodgerson recalled that in 2012 a Centrion cargo plane caused the Viracopos airport, in Campinas, to close for 46 hours after facing problems with the landing gear, jeopardizing 495 flights. “It’s the business risk. I can’t say that we can’t have more cargo transportation at the airport after an event like this,” he said. “We have to work to open the airport faster and manage events like this.”
One challenge today, according to the executive, is legal uncertainty. Airport operators end up at a legal crossroads when clearing the landing strip, since they can be held liable for any damage to aircraft during removal.
During ALTA’s event, Gol CEO Celso Ferrer even signaled his interest in Congonhas receiving international flights again – something that has not happened since 1985. In Mr. Ferrer’s view, the possibility would help to encourage tourism in the city of São Paulo during stopovers. International flights would be an important financial support to Aena, Congonhas Airport’s new concessionaire, since the taxes for domestic boarding total R$35, compared with R$120 for international flights.
Asked about the subject, Mr. Rodgerson said that an eventual international operation would not be Azul’s focus in Congonhas. “Our international focus is Campinas. It is more profitable for the concessionaire to do that … but it will not be our focus.”
* The reporter’s travel costs were covered by ALTA.
Two giants are little known by consumers, even though most have possibly already consumed some of their products used as inputs for the food, pharmaceutical and cosmetic industries
10/19/2022
Texas-based Darling Ingredients agreed to buy the Brazilian company Gelnex for $1.2 billion in cash. This is the biggest deal in Brazil’s consumer sector this year, stitched together by Santander on the selling end and Morgan Stanley on the buying end.
The two giants are little known by consumers, even though most have possibly already consumed some of their products used as inputs for the food, pharmaceutical and cosmetic industries.
Gelnex is one of the world’s largest manufacturers of gelatin and collagen peptides, with four plants in Brazil, one in Paraguay and another in the United States. It exports ingredients used in supplements, cereal bars, dairy beverage, candies, pills, and beauty products to over 60 countries. The company founded in Itá, Santa Catarina, has the capacity to make nearly 50,000 tonnes a year of collagen.
In the competitive process, Darling beat the proposals of international private equity funds and protein giants – Brazilians JBS and Marfrig studied the business, according to Pipeline, Valor’s business website. The relevance of Gelnex’s raw material, which are pork and beef by-products, justifies the interest of the protein companies, which saw high synergy in the operation.
JBS started betting on the segment this year. In August, the meatpacker unveiled an investment of R$400 million in its newly created Genu-In, with ambitions to compete in the market with Rousselot, Darling’s brand, and Germany’s Gelita. Marfrig does not make use of pig skin and bovine leather by-products, it only sells them, which led it to consider a transaction.
The deal has also drawn international funds due to its size since it is not so common in Brazil’s M&A environment checks over a billion dollars. Gelnex was until now controlled by three holding companies – Gel Holdings, Ibo Participações, and Itá Investors – represented by a group of directors but owned by a local businessman.
Darling also operates in other segments, transforming edible by-products and food waste into sustainable products and renewable power. It is a behemoth with 250 plants in 17 countries that reuses almost 15% of the world’s meat industry waste into products such as green energy, renewable diesel, collagen, fertilizers, and feed. Rousselot alone has 11 plants.
The company’s origin can be traced back to a family business in Chicago, but its current headquarters are in Irving, Texas. This is Darling’s second acquisition in Brazil this year alone. South America’s largest country is considered a strategic market by CEO and chairman Randall C. Stuewe. In May, the company unveiled the purchase of the Fasa group for $542.6 million in cash.
“Brazil will play a big role in feeding a growing world population, which makes it a premier location to grow our specialty ingredients business,” he said earlier this year. This time, Mr. Stuewe reinforced the bet on the specific demand for collagen. “Driven by strong growth in demand for collagen products in the global health and nutrition market, we anticipate the collagen peptides market to double in the next five years,” he said in a statement.
With shares traded in the U.S., Darling is valued at $12 billion. The proclaimed sustainability in the company’s business has been reflected in the market: the stock jumped 340% in five years. The size of the acquisition put pressure on the stock on Tuesday, and the company fell by 4%. Even so, they are up 6% this year, compared with S&P500’s 23% drop and Dow Jones’s 17% decline.
Gelnex communicated the operation to employees on Tuesday, Pipeline has learned. The company did not return requests for comment
The deal is expected to be closed early next year, after regulatory approvals
Central Bank’s instant-payment system is the main form of receiving payment for 40% of firms, shows survey
10/19/2022
Pix, the Central Bank’s instant-payment system, has become the main mean of payment accepted by small businesses and has helped small entrepreneurs, according to an unprecedented survey conducted by Sebrae (small-business support service) and the Brazilian Institute of Geography and Statistics (IBGE).
The digital system is the main form of receiving payment for 42% of small entrepreneurs. The survey heard, between the end of August and the first two weeks of September, more than 6,000 thousand entrepreneurs from all Brazilian states and the Federal District. The survey is divided into individual microentrepreneurs (MEI), micro and small companies (MPE) and small businesses.
Pix has its best performance among those who are MEI: 51% of them state that this is the main payment method used in their sales. Among micro and small businesses, Pix is the main method of payment for 28% of respondents – in this segment, the use of credit cards is still higher, with 30%. For small businesses in general, the system is the main type of payment in 42% of the transactions.
Like individuals, MEIs do not pay a fee to use Pix to make a transfer or a purchase, nor to receive a transfer.
Pix was already widely accepted by large retailers and in e-commerce, where it is second only to credit cards. Now, the data also shows advancement among small companies.
Sebrae’s president Carlos Mello points out that this growth of Pix as a payment method was already noticed in previous surveys. “Now we see that the digital system is increasingly occupying a prominent place among the payment methods used by entrepreneurs.”
For him, the main advantage of the system for the small entrepreneur is that it allows instant payment, “which helps maintain the company’s cash flow and have better financial control. “The immediate availability of the funds for the entrepreneur can also help to reduce the need for credit and help with the factoring of receivables,” he said.
Data from the Central Bank shows growth of Pix in Brazil in virtually all categories since November 2020, when it was made available by the monetary authority. In September, there were already 22.9 million keys registered by business entities.
Carol Mello — Foto: Silvia Zamboni/Valor
Carol Mello, 46, is an individual microentrepreneur. Since 2015, she makes cookies, cakes and sweets under the label Caramello Doceria. She said that, until recently, using TED or DOC protocols for payment was the customer’s first choice. “Now almost everyone just pays by Pix,” she said, estimating that 80% of her sales are made via Pix.
“The first facility is that the payment comes in on the spot. And allied to that, there’s the fact that it’s free, which has attracted people,” Ms. Mello explained.
In her day-to-day business, she also uses the system to buy inputs from suppliers. “I don’t like to work with credit cards. Before I had to go after a payment slip, it was more confusing,” she said.
Each month, the entrepreneur sells, on average, 60 decorated cakes. In addition, she produces sweets daily on demand. After a lot of time producing at home, as of May 2022 she started to share a studio in São Paulo with another entrepreneur.
In the assessment of Boanerges Ramos Freire, head of Boanerges & Cia Consultoria, specialized in financial services, the fact that Pix is accessible and less complex when compared to other alternatives is a way to unlock sales. “Cards are more expensive, given the fees charged. Thus, adopting Pix is interesting and some sellers even give a discount at a payment using it,” he said.
He ponders, however, that there is still room for improvement, especially in bank apps. “The use of QR Code makes it much easier, but it is still not being used as widely as it could be,” said Mr. Freire.
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