Shareholders seek banks’ financing with public offerings

To avoid dilution in capital increases, shareholders have raised funds in the market

11/08/2022

Controlling and primary shareholders of companies are being financed by banks through follow-on offerings to avoid great dilution of their stakes. “There is a perception on the part of these shareholders that shares are cheap on the stock market. They want to grow, especially through acquisitions, but they need to raise funds. On the other hand, they are sensitive in relation to dilution at current price levels,” said Gustavo Miranda, head of investment banking at Santander.

In the last few months, investment banks have started to set up operations for companies that raise funds in the market via follow-on offerings or capital increase, but do not have enough cash to move forward.

In September, Iguatemi, owned by the Jereissati family, raised R$720 million on the stock exchange to buy the remaining 36% stake in the shopping mall JK Iguatemi for R$667 million. Sources say that the controlling shareholders got a financing deal to move forward with the offering so that they would not be diluted. The controlling shareholders of Vamos, a rental business focused on heavy-duty vehicles, also agreed on the terms to get a financing deal, but then they did not need to use it to raise R$640 million in September, sources in the financial market say.

The controlling shareholders of Fras-le, Randon’s auto parts business, increased their stake through an offering launched in April. The company raised R$629 million in the follow-on offering, less than expected, and had to rely on disbursements of its primary shareholders to raise funds in the market.

Ricardo Tardelli Catelli, Bradesco BBI’s head of structured finance, said that the bank has seen a greater participation of major shareholders in companies’ offerings. “Some stocks are at discounted prices. The bank discusses the best funding opportunity strategy for the client.”

Besides typical financing, Santander has offered tools, such as derivatives, for companies to finance themselves, said Mariana Lima, the bank’s head of stock derivatives.

Pedro Juliano — Foto: Divulgação

Pedro Juliano — Foto: Divulgação

J.P. Morgan has also been offering options linked to the capital market, said Pedro Juliano, the New York-based bank’s head of investment bank in Brazil. According to him, derivatives have been a solution for this type of structure. “They have two major purposes: protection or leverage. In this case, it is leverage. You can offer a cheaper financing and the stock can be used as guarantee,” he said.

The financial market has given the benefit of the doubt to those making acquisitions, said Mr. Juliano. “The stocks of those closing M&A deals are expected to go up. Clients who want to do strategic M&A deals, want to finance deals, and doesn’t want to be diluted look for these options. This is very common in Europe and the United States, and it’s starting in Brazil.”

So far, companies have raised R$51.9 billion, including the largest one, Eletrobras, according to data from the Brazilian Financial and Capital Markets Association (Anbima). Seventeen follow-on offerings have been launched, but not a single IPO so far.

At the end of October, Casino, the French company that owns food retailer Pão de Açúcar, told the market that it intends to sell part of its stake in the cash-and-carry chain Assaí for about $500 million. In a notice to the market, the company said it intends to raise funds through a follow-on offering.

New follow-on offerings are expected to be launched later this year, as the presidential race is now defined, said Vitor Saraiva, head of equity capital markets at XP. The executive foresees IPOs early next year, especially in the infrastructure and energy fields.

In 2021, companies raised R$128 billion through 72 follow-on offerings and IPOs, according to data from Anbima.

With the victory of Luiz Inácio Lula da Silva, the investment banks are waiting for who will make up the president-elect’s economic team to make their projections for the resumption of the capital market.

Vice-President-elect Geraldo Alckmin, a former governor of São Paulo who is well-regarded by the financial market, has been chosen for the transition team, but the investment banks are still very concerned about the next administration’s economic team.

If Mr. Lula da Silva picks a politician as economy minister, as has been rumored, the resumption of capital market offerings at the beginning of 2023 may be more modest. “If a minister from the Workers’ Party’s inner circle is chosen, we don’t believe there will be an euphoria,” said a source from an investment bank.

Grupo Iguatemi’s controlling shareholders declined to comment. As for Fras-le’s offering carried out in April, Randon said in a note that the capital markets are more complex due to the global macroeconomic context, and the company saw the opportunity to expand its participation by increasing the capital of its subsidiary. “The offering met two objectives: raise funds for the company’s non-organic growth projects and improve liquidity by bringing new investment funds and institutional investors to the shareholder base.”

Simpar, parent company of Vamos, said that the offering was small in relation to the company’s market capitalization. Therefore, the dilution was not so high.

*By Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Raízen to build advanced ethanol plants after agreement with Shell

Investment of R$6bn is company’s biggest step in this segment

11/08/2022

Paulo Neves — Foto: Divulgação

Paulo Neves — Foto: Divulgação

Raízen unveiled Monday a R$6 billion investment package to build five new second-generation ethanol plants over the next five years. This is the company’s biggest step in the advanced biofuels segment. The investments were made possible after an agreement with Shell to sell the product for 10 years for €3.3 billion.

The company will have nine 2G plants in operation, under construction or announced, among the 20 it promised at the time of its IPO last year. The company raised R$6.9 billion with investors, and since the offering it has announced R$9 billion in 2G ethanol investments.

The first unit is expected to start operating next year and will join the Piracicaba unit, which has been operating for eight years. The units announced Monday will start operating between 2025 and 2027.

All new plants will have the capacity to produce 82 million liters of 2G ethanol per year and will use sugarcane waste that is currently unused, such as straw and bagasse. The five units will deliver 3.3 billion liters of biofuel to Shell over 10 years and will also have the capacity to produce and sell to more customers.

The volumes delivered to Shell will go to foreign markets, a priority destination for Brazil’s cellulosic ethanol. Unlike the domestic market, the international markets pay more for 2G ethanol because of its smaller carbon footprint compared to other biofuels and because it does not use additional agricultural lands for production.

“It doesn’t compete with food, which solves the ‘food-versus-fuel’ equation,” which is valued abroad, said Paulo Neves, Raízen’s vice president of trading.

The preferred market is Europe, but other destinations are also in the sights, such as Japan and California, which offer a premium to low-carbon intensity biofuels.

Almost all the cellulosic ethanol produced today by Raízen is exported, exception for a small portion that is sold to O Boticário for a perfume line.

The contract with Shell provides security for the company to build the units because it secures the return on investment. Other companies taking the first steps in advanced biofuels have adopted the same model. One example is ECB Group, which has a green diesel project.

Once the investment is paid off, 2G ethanol will be more competitive than first-generation ethanol, made from agricultural feedstock, since its production cost is much lower because it uses residues from the field. “In first-generation ethanol, you have the land, the cost of the inputs. In 2G ethanol, after capex, there is only opex, which is lower,” he said.

The company foresees an EBITDA margin of nearly 50%, with maintenance investments of R$50 million per plant per year.

The contract foresees a minimum price for the delivery of 2G ethanol to Shell, but the effective amount will be adjusted monthly according to market prices, currently at €1,400 per cubic meter. The additional value will be “shared” between the parties.

Raízen’s product will be able to meet both the demand to supply light vehicles, replacing gasoline and the production of aviation biokerosene or other uses. “We will deliver to the industrial companies that offer the best value,” said Mr. Neves.

*By Camila Souza Ramos, Fernanda Pressinott — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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5G technology advances fast, but older networks still survive

Almost one in five mobile phone connections in the country use second or third generation technology

11/07/2022

5G wireless technology is advancing faster in Brazil than its predecessor 4G, driven not only by promises of ultrafast mobile broadband but also by future innovations in industry (Internet of Things), transportation (self-driving cars), and medicine (robotic surgery). However, basic data services – such as vehicle tracking and payment with point-of-sale terminals – give survival to the 2G and 3G networks launched decades ago.

Almost one in five mobile phone connections in the country use second- or third-generation technology, according to the most recent data released by the Brazilian Telecommunications Regulatory Agency (Anatel). In August, 51.2 million 2G and 3G terminals were in operation in the country. The number of 5G accesses totaled 3.6 million at the time – less than 2% of the total number of active mobile lines in the country.

Despite being implemented later, 3G networks tend to disappear before 2G networks, said Leonardo Capdeville, chief technology officer at Telecom Italia’s TIM. “3G devices work on 2G networks, but the opposite does not happen,” he said. The deactivation of the third-generation networks is already happening in the United States, where the telecom heavyweight AT&T “retired” the technology early this year and T-Mobile did the same in mid-2022.

In Brazil, Anatel’s figures for each mobile technology include data terminals, which means that they do not necessarily reflect the use of 2G and 3G cell phones. These are mostly mobile connections used in the provision of vehicle telemetry and payment services. The maximum data transmission speed in 2G technology is 144 kilobits per second (kbps), a little less than three times the speed of a dial-up Internet connection (56 kbps).

Ismael Carlos do Nacimento — Foto: Leo Pinheiro/Valor

Ismael Carlos do Nacimento — Foto: Leo Pinheiro/Valor

For more basic telemetry services, such as fleet tracking, for example, 2G is sufficient. The same is true for the older point-of-sale terminals for card payments. “Between 80% and 90% of customers pay by card,” said Ismael Carlos do Nascimento Carvalho, 33, who works at an Ipiranga gas station in downtown Rio de Janeiro. Communication failures in POS terminals are not common, he said. If a carrier’s network fails, the gas station still has wi-fi connection. Asked about 5G, Mr. Carvalho said he is not familiar with the new technology. “I only know that it is an evolution of 4G,” he said.

The use of 2G for communication between machines partly explains the resilience of the technology in the country – in August, there were 24.9 million second-generation connections in operation. In the same month, the number of 3G accesses was 26.3 million.

In the comparison between August 2022 and the same month last year, Anatel’s numbers show a greater retreat of the 3G base (-12.2%) compared to 2G (-7.1%). “There is a trend of migration from the 3G base to 4G,” said Mr. Capdeville. “It is impossible, for example, to access video content with quality having 3G service.”

Within TIM’s mobile telephony strategy, one priority is to extend 4G coverage to all 5,568 municipalities in the country by the end of 2023. Today, there are more than 5,400 cities with fourth-generation technology. In parallel, the operator is investing in the fifth generation – more than half of the 5G antennas in operation in Brazil are TIM’s.

Even so, among the cities served by the operator, there are still 198 with only 2G service. In another 112, 3G is the most advanced technology available. In TIM’s mobile network, the estimated percentage of 2G and 3G devices is around 5%.

Sought by Valor to detail the number of cities covered only with 2G and those where 3G is the most modern technology available, Claro and Telefónica declined to disclose these data.

In a statement sent by e-mail, Telefónica only highlighted the total number of cities covered with each technology: 4,607 cities with 4G; 4,886 with 3G; and 3,757 with 2G.

“The technologies are maintained to serve B2C and B2B clients, and we do refarming [reuse frequency bands for new technologies] without loss of coverage in the places where the activation of the new frequencies is made,” said Elmo Matos, head of network planning at Telefónica’s Vivo.

A survey by consultancy Teleco shows that the adoption of 5G in Brazil – measured by the number of handsets compatible with the technology – is happening faster than what happened with 4G. In the first 12 months in which the fourth-generation service became available, the number of compatible cell phones grew almost 24 times, jumping to 2.5 million from 105,000.

In the 12 months after the debut of 5G in the country, the jump was greater – to 3.4 million from 100,000, according to the consultancy. This figure refers to the total number of devices in July 2022.

*By Rodrigo Carro — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Renewable power has potential to create 2 million jobs in 5 years

Brazil accounts for 10% of the world’s green jobs, mainly in hydropower and biofuels

11/07/2022

Ronaldo Ribeiro de Freitas Filho, 34, has always liked renewable power. A trained electrotechnician and engineer, he was 23 when he decided to “migrate” to the “green job” field. And, on his own initiative, he decided to search for qualification. The opportunity came when he joined Enel, an Italian multinational company that generates and distributes electricity and gas, in 2011. The company was signaling that it would join the renewable segment with the foundation of Enel Green Power, which manages and develops energy production activities from renewable sources, in 2008.

Over the years, the company offered him opportunities to specialize in this field, and Mr. Freitas Filho took the opportunity. “I was lining up both opportunities that Enel gave me, and those I sought out on my own,” he said. Today he is the manager of Enel Green Power’s operations center in Brazil, and is studying at the Politecnico di Milano university through a program offered by the company. “We have options in the market to seek [qualification],” he said. “But I feel that partnerships could be explored more [to raise supply in training in this field], between companies and universities.”

His feeling is shared by other experts in renewable power generation. They say Brazil has the potential to generate at least 2 million jobs in renewable projects over the next five years, nearly two times the current number of jobs: in the country, there are about 1.2 million workers in this field. And there is not enough training to qualify for such a future volume of new workers.

Brazil accounts for 10% of the world’s green jobs, mainly in hydropower and biofuels, according to the International Renewable Energy Agency (Irena). Experts say the country will strongly accelerate the pace of job generation.

The wave will be more directed to solar and wind power in the coming years, a perceptible conclusion in view of projects in these areas contracted in auctions. In practice, however, there is insufficient availability of training for new entrants to the sector’s job market, according to the ClimaInfo Institute, a non-profit organization focused on climate change studies; the Brazilian Association of Solar Power (Absolar); and the Brazilian Wind Power Association (Abeeólica).

These associations advocate partnerships between government, companies, and universities to increase qualification in renewable power. This would prevent a possible future hurdle in the expansion of the sector’s labor market.

In the country, there are about 1.2 million workers in renewable energy, said Aurélio Souza, an adviser with the ClimaInfo Institute, citing data from Irena. The engineer, CEO of Usinazul consultancy, and a researcher at the Photovoltaic Systems Laboratory of the Institute of Energy and Environment of the University of São Paulo, also helped to prepare a study on the Northeast region. Launched this year by Centro Brasil no Clima, Fundo Casa Socioambiental, Grupo Ambientalista da Bahia and ClimaInfo Institute, the work includes projections of power generation and jobs in the Northeast region through green projects.

The study estimates 2 million jobs more in five years. The calculations take into account concessions already granted for 66 gigawatts, more than 90% of which are solar and wind power. This is because, with well-consolidated biofuels and hydropower plants, there is more room for growth in generation and employment in these two other power sources. One gigawatt is equivalent to 1,000 megawatts. “Each megawatt installed [generates] 30 job positions per year in solar power and 15 in wind power,” he said.

The employment estimates in the study include only the Northeast region, he said. Thus, the pace of job openings may be even higher considering ventures in other regions. “Today, we have a lag in qualification according to what [future] demand needs,” he said.

As for solar power, there is no exact calculation of labor shortage at the moment, said Pedro Drumond, Absolar’s coordinator and a specialist in people management in the renewable power segment. Mr. Drumond said that, in the last 10 years, the offer of undergraduate and doctorate degrees related to energy has grown, as well as courses for panel builders, in the private and public sectors. “But the labor force is not yet qualified in the way we need,” he said.

Mr. Drumond suggested greater partnerships between companies and universities to meet the need for more and better qualification. In recent years, he said, companies have trained their own personnel – which would not be enough, he noted.

José Renato Colaferro — Foto: Divulgação

José Renato Colaferro — Foto: Divulgação

Blue Sol Energia Solar, which operates in the photovoltaic sector for 13 years, was one of them. José Renato Colaferro, the company’s founding partner, said that more than 18,000 students were trained in the so-called “Blue Sul University” launched in 2017.

Mr. Colaferro emphasized that it is not an easy task to train professionals for solar. This requires training in three pillars of knowledge. The first is regulatory knowledge of the power sector; the second is to understand the market, suppliers, and production costs; and the third is the technical part, to understand how the solar panel structure works.

To qualify such a worker, especially for future demand, more investment in training is needed today, said Mr. Colaferro. A qualified professional is not formed overnight, he noted.

In the wind power segment, there are qualified workers currently on the market to meet the demand, said Elbia Gannoum, head of Abeeólica. “Today we don’t have a lack of professionals,” she said. “But it is not enough for future demand. Every real invested in the wind sector generates 1.9 jobs in the sector’s production chain,” she said.

Abeeólica is aware of this, she said, and has held meetings with market players; and talked to research institutions and training professionals to expand courses and training. There are successful cases in this field, such as the Renewable Energy Engineering course at the Federal University of Ceará, she said.

But she acknowledged that it is necessary to expand more qualification supply. “What happens today is that those who want to enter the renewable segment seek training. They take courses, they adapt,” she said. “What I am seeing is an adaptation. But there is no coordinated action to focus on this [in professional qualification].”

By October 2022, solar energy had an installed capacity of 21 GW, in centralized generation (large plants) and in distributed generation (micro and mini plants), and generated 630,000 jobs, according to Absolar. The centralized solar generation alone is expected to reach 10.3 GW in 2026, the Brazilian grid operator ONS says. Wind power has 24 GW of installed capacity, according to Abeeólica, and, with contracts already closed so far, the forecast is to reach almost 40 GW by 2026.

*By Alessandra Saraiva — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Vivo mulls over acquisition in fiber assets

Opposite to the world’s movements, Telefônica in Brazil plans to expand its fiber network business

11/07/2022

Christian Gebara — Foto: Silvia Costanti / Valor

Christian Gebara — Foto: Silvia Costanti / Valor

The Spanish group Telefónica has been intensifying a series of sales of towers and participation in its fiber optic networks through the subsidiaries it owns in countries in Europe and Latin America. In the Brazilian market, where it controls Telefônica Brasil, owner of Vivo, the fiber business tends to go in the opposite direction. Instead of selling, the operator is willing to buy fiber assets that cross its path.

“The natural trend is to reduce network overlap, and we will see how it will be done,” Christian Gebara, CEO of Telefônica Brasil, told Valor. The CEO agrees with the sector expert’s forecast that the expansion of optical fiber infrastructure will reach a depletion among the largest operators. But for the executive, this is likely to happen in the short term. This means that the mergers and acquisitions that have been stirring up the more than 10,000 small internet access providers are already starting to “knock on the door” of the big players. And Telefonica is not on the selling end, warns the executive.

“Our strategy is well defined. The consolidation opportunity for us has to be very positive and cannot overlap with my network,” said Mr. Gebara about possible acquisition targets. “I can’t speak for other players, but I believe that some of them may be interested [in selling], because competing with Vivo, with a network of this size, with a channel and a brand with the strength that we have, with the possibility of convergence, with the whole portfolio of digital services, may not be easy.”

In the global market, dominant operators first separated services from infrastructure, creating independent or neutral networks – totally isonomic – to operate wholesale. Then they attracted investors.

“Each group company has a fiber strategy, the one in Brazil is different,” explains Mr. Gebara. “If you look today at the ‘picture’ of 2024, a network of ours reaching 29 million homes, 22 million will be Vivo’s own network and the rest through a neutral network. So, much of our network will continue. Right now, the plan is for it to be 100% Vivo-owned.”

By separating its infrastructure, and creating FiBrasil, Telefônica guaranteed its presence in the fiber market on different fronts. It invests through FiBrasil, a partnership between Telefônica Brasil and Telefonica Infra, from Spain, with 25% each; and the Canadian fund CDPQ, with 50%. In addition, it invests directly with Vivo. Finally, it has a partnership with American Tower in Minas Gerais.

From the total number of homes where Telefônica has already made fiber available to be hired by providers and sell the FTTH service (fiber to the home) to consumers, 6.4 million are operations through FiBrasil and the rest through Vivo, while the agreement with American Tower includes 1 million homes.

A leader in its partnerships, Vivo determines the expansion strategy and still has an exclusivity period before the network capacity is sold to competitors. “It’s hard to see an operator like ours that has control as we do,” says Mr. Gebara, comparing its strategy not only with local rivals but also with peers in the group.

Local competition also accelerates. IHS is TIM Brasil’s partner in the neutral network company I-Systems. Oi sold control of its fiber asset, V.tal, to funds from BTG Pactual and GlobeNet Cabos Submarinos. Compared to the other incumbents Grupo Claro Brasil is the one that is the furthest behind in fiber deployment, besides not having admitted partners so far.

Selling a slice of the network was a way for the companies to raise the necessary funds for the heavy investments in the expansion of the fiber and 5G networks, as well as to reduce the high debts. In the earnings report for January to September 2022, released on Thursday, Telefónica group reported net debt of 28.9billion euros. In Brazil, the net debt was at R$13.5 billion, including the leasing effect.

When presenting Vivo’s group earnings reports in a teleconference for investors on Friday, the head of operations, Ángel Vilá, highlighted an “excellent set of results, growing two digits in accesses and main financial indicators.” He added: “In Brazil, our unmatched operational and financial performance has helped us strengthen our leadership position in the market.”

*By Ivone Santana — São Paulo

https://valorinternational.globo.com/
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Investors expect a pro-market name to run economy

If a politician is named for Treasury, even a pragmatic one, there may be an adjustment in assets, CIO at WHG says

11/07/2022 9:37PM  Updated 16 hours ago

Andrew Reider — Foto: Leonardo Rodrigues/Divulgação

Andrew Reider — Foto: Leonardo Rodrigues/Divulgação

The nomination of a pro-market Finance Minister in the next Luiz Inácio Lula da Silva’s administration, such as Arminio Fraga, Pérsio Arida, or, especially, Henrique Meirelles, is becoming a growing expectation in the market, and anything different from that may be enough to put pressure on Brazilian assets. The statement is from Andrew Reider, chief investment officer at Wealth High Governance (WHG).

In an interview with Valor, he said that investors have worked with three different scenarios about the profile of those who may occupy the ministry. The first is that of ideological politicians, and the second is of more pragmatic politicians, such as senator-elect Wellington Dias (Workers’ Party, PT, of Piauí), governor of Bahia Rui Costa (PT, of Bahia), and former minister Alexandre Padilha; and the third of names closer to the market.

“It seems that the chance of being an ideological politician is migrating to zero. The pragmatic politician was the consensus until a few weeks ago, but the view that it could be someone from the pro-market group is growing,” he says. “During the [past] week this has increased with Henrique Meirelles appearing a lot since he participated in an event with Lula.”

Given this expectation, Mr. Reider says, if a minister from the group of pragmatic politicians is ultimately announced, Brazilian assets tend to fall. This fall tends to be moderate, but, for the executive, the intensity may vary according to the team that will be in charge of the Treasury. “If they are several technicians, reproducing the first Lula government, it would be ok, but still a little worse than the dream the market embarked on in the last few days,” he says.

The executive recalls, however, that the global scenario also influences the performance of assets.

In case Mr. Meirelles — former Finance Minister and former president of the Central Bank — is chosen, the manager sees “the market will be a little more bullish, but not much.” In the case of an unlikely name, such as Fraga, former president of the Central Bank, Mr. Reider sees a chance for investors to get excited. “But you would have to see what the minister would say at the beginning, what would be the priorities,” he says.

According to the WHG executive, the choice of the Treasury is important for signaling what can be expected from the next government in the fiscal field. “There is talk of an increase in spending of R$100 billion to R$200 billion. A number above R$200 billion would be very frowned upon.”

While local investors are focused on the fiscal issue, foreign investors monitor inflation and when the Central Bank will have room to cut interest rates. “The two converge because if the fiscal is moderate and inflation falls, there is room to cut interest rates,” he says.

Investors abroad have already received a positive signal after the election. “The fear was that there would be something more disruptive,” he says. “In practice, I think what happened showed the strength of our institutions, with [Vice President Hamilton] Mourão and Tarcísio [de Freitas, governor-elect of São Paulo] recognizing the result immediately.”

According to the executive, foreigners see that there is a turn to the left in Latin America, with a risk of institutional rupture in some countries, but they saw that Brazil is different. “For them, this has value, although it was already expected by local investors,” he says.

Mr. Reider says Brazil was already an option for foreigners because of the several crises around the world, such as inflation and rising interest rates in the United States, lower growth in China, and the war in Ukraine. “Latin America ends up being good for a global allocator. And most countries in the region have had very anti-market elections and anti-market policies,” he says. “That leaves Brazil and maybe Mexico, which could benefit.”

*By Augusto Decker — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Not even elections affected corporate debt market

Expansion has resisted the uncertainties linked to politics and the country’s fiscal policy

11/06/2022

Vivian Lee — Foto: Carol Carquejeiro/Valor

Vivian Lee — Foto: Carol Carquejeiro/Valor

It seems that Brazil’s corporate debt market ignored the general elections. The moment of expansion has resisted the uncertainties linked to politics and the country’s fiscal policy. Both supply and demand for corporate debt securities showed a strong pace even in the months previous to the vote – elections typically put issuers and investors in a “wait-and-see” mode.

“We expected higher volatility before the elections, with investors apprehensive about buying new assets,” said Artur Nehmi, partner and fixed-income manager at Sparta. “But August and September were two of the best months of the year in terms of volume of bond offerings in the primary market.”

Figures from Anbima, the association of securities firms, show that issues increased 3.81% year-over-year in September, to R$40.7 billion, considering bonds, commercial notes, promissory notes, real estate receivables certificates (CRI), agribusiness receivables certificate (CRA) and credit rights investment fund (FIDC). In August, the amount climbed 1.7% year-over-year, to R$33.76 billion.

In spite of the single-digit growth, the expansion is substantial because the basis of comparison was high. According to Anbima, the fixed-income segment raised R$467.9 billion, up from last year’s record. Bonds were the main instrument used by companies last year, with a volume of R$253.4 billion, more than double that of 2020.

In the nine months of 2022, issues reached R$329.22 billion, up 24.85% year-over-year, considering the same instruments. A survey by Ibiuna based on funds with at least 20% of their capital allocated in corporate debt and more than R$100 million in net worth indicates net inflow over 18 months in a row in these portfolios. They raised R$370 billion in the period.

“October is not yet consolidated, but according to the preliminary figure, the pace remains very strong,” said Vivian Lee, partner, credit strategy manager and co-chief investment officer at Ibiuna. “The funds still need to allocate capital, and a good part of this flow is directed to high-grade securities. As long as strong funding continues in the industry, demand will follow suit,” she said.

“The volume of corporate issues increased a lot [between 2021 and 2022] and matched demand,” said Ana Luísa Rodela, head of credit management and analysis at Bradesco Asset Management, at an event of the Brazilian Association of Pension Funds (Abrapp). “In eight months of 2022, there was a 30% year-over-year growth in the supply of credit [in the capital market]. So funding has grown a lot, but demand has been able to keep up.”

The resilience of the corporate debt market goes beyond rising interest rates that drove a migration of funds from equities and hedge funds to bonds, said Paulo Bokel, head of credit at Absolute. “There was a significant growth in the market sustained by the arrival of investment platforms and BNDES [Brazilian Development Bank] winding down subsidized loans to large companies,” he said. “We saw the stock growing mainly after 2017 and 2018.”

Mr. Bokel explains that in 2013, bank credit for businesses amounted to R$350 billion, while corporate debt securities stood at R$280 billion. “Today we have, in August data, a stock of R$1.1 trillion in corporate debt versus R$440 billion in corporate bank credit,” he said.

The transformation of the distribution channels, the investment platforms, and the end of subsidized credit from state-owned banks enabled the entry of new companies in the capital market and an increase in financial firms with teams focused on corporate debt, said Mr. Bokel, with Absolute. “Many new companies that were not so well known joined the market, and credit funds came in the wake of this expansion.”

The secondary market also reflected this expansion, said Ms. Lee, with Ibiuna. “When we look at the number of securities and the volume traded by the new independent firms, we see that the secondary [market] has improved a lot and this brings as a positive side a greater liquidity for the assets.”

“Since 2020, we started to have players in the secondary market of debentures [the main category of corporate debt securities] that didn’t operate before,” said Ms. Rodela, with Bram. “Most are operating in the secondary debenture market.”

According to her, “this year, we [Bram] have already had more than R$10 billion of trading in the secondary [market of debentures].” The specialist explains that they are “new securities that were with other players and now come to credit funds, bringing the possibility of active management that did not exist before, such as doing duration management [average investment term]”.

Data from Anbima indicate a traded volume in the secondary market of debentures of R$251 billion in 2022 by October 26. This is equivalent to a monthly average of R$25 billion. The volume is 13.63% above the monthly average of 2021, of R$22 billion. The level is more than double the 2020 average of R$12 billion, and almost three times higher than the trading per month in 2019, when the secondary market turned over R$8.5 billion monthly on average.

The variation in the spread – the premium traded in the secondary market – also provides a barometer of the current balance between supply and demand, even in times of uncertainty. The JGP Idex-CDI index, which tracks a basket of the most liquid CDI-indexed debentures, indicates relative stability in the average spread over 2022. CDI is the interbank deposit rate.

Ibiuna highlights the strength of fixed income in a broader vision. According to Ms. Lee, “there is still a strong flow of funds to [banking instruments such as] CDBs [certificates of bank deposit], LCIs [real estate credit bills] and LCAs [agribusiness credit bills] from large financial institutions.” In his view, many investors prefer the credit risk of large banks, as shown by “a very large flow directed to CDBs.”

The stock of debenture bonds is today around R$983 billion, said Ms. Lee. The supply of CDBs, on the other hand, which are the banks’ main funding instrument, currently reaches R$2 trillion. “The evolution of stock growth reflects this dynamic,” she said. “That of CDBs is double compared to 2019, while that of debentures in the same period advanced about one and a half times.”

In her view, the indication of an inflow of funds in fixed income signals the maintenance of demand for bonds in the following semester. However, from the moment in which the Central Bank starts to signal more clearly the beginning of a fall in interest rates, this flow may reverse toward riskier assets, such as equities. “Everyone knows that credit is cyclical. And a reversal will depend a lot on the performance of other asset classes, combined with a visibility of falling interest rates. The moment these numbers show net redemption, we will see a greater need for portfolio adjustment to maintain credit positions.”

*By Sérgio Tauhata — São Paulo

https://valorinternational.globo.com/
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Petrobras to distribute R$43bn in dividends

Workers’ Party criticized decision, as unions and minority shareholders filed lawsuits to cancel extraordinary payment

11/04/2022

Petrobras announced on Thursday afternoon the distribution of dividends worth R$43.68 billion related to the results of the third quarter. The payment was approved in a meeting of the Board of Directors, even after the Association of oil workers and minority shareholders of Petrobras (Anapetro) filed a lawsuit with the Prosecutor General’s Office (PGR) requesting the Federal Supreme Court (STF) to halt the distribution.

The high distribution of dividends by the state-owned company is the target of criticism from members of the Workers’ Party (PT), of President-elect Luiz Inácio Lula da Silva, victorious in Sunday’s election. In the elected government team, the view is that the scenario reduces the company’s investment capacity.

The company Thursday afternoon released a material fact with the announcement of the distribution of R$3.35 per preferred (PN) and common (ON) stock in circulation. The first installment, worth R$1.67445 per stock will be paid on December 20, followed by a second installment, worth R$1.67445 per stock to be paid on January 19, 2023.

Adding dividends and interest on equity capital (IOC), the company has already approved the payment of R$179.98 billion in proceeds related to the results of the first three quarters of 2022. The amount is much higher than last year. During the entire fiscal year 2021, the company paid R$101.39 billion in dividends.

The company’s dividend policy provides that when it has gross debt of less than $65 billion, the company may distribute to its shareholders 60% of the difference between operating cash flow and investments. The policy also provides for the possibility of paying extraordinary dividends, provided that this does not affect the company’s financial sustainability. “There are no investments held back due to financial or budgetary constraints, and the decision to use the surplus resources to remunerate shareholders presents itself as the most efficient for optimizing the allocation of cash,” said the company in the material fact released on Thursday.

About R$20 billion of the amount announced on Thursday may go to the federal government. In a letter sent to the stated-owned companies in July, the Economy Minister had asked for an increase in revenue from dividends to cover the costs of the proposed constitutional amendment that allowed the payment of Auxílio Brasil of R$600, in addition to the handouts for truckers, taxi drivers and cooking gas vouchers.

PT’s president Gleisi Hoffman classified the volume of dividends as a “bloodletting” in the company. “We do not agree with this policy that deprives the company’s investment capacity and only enriches shareholders. Petrobras has to serve the Brazilian people,” she said in a post on social media. In the lawsuit, Anapetro also says that a mixed economy company, such as Petrobras, differs from a 100% private company by using the company’s profits to make “strategic investments” capable of ensuring “sustainability”, as well as the fulfillment of its social function. Instead, it says, the current policy has transformed the company, according to the association, into “a notorious distributor of lucrative dividends that have turned the company into a cash cow of the market.”

The entity also sent a letter to the board of directors of the state-owned company asking the collegiate to abstain from voting on this matter. The association argued that the dividend distribution refers to the company’s financial statements that will be approved in a shareholders meeting to be held only in April next year, after the government transition. In the letter sent to the collegiate, to which Valor had access, the president of Anapetro, Mário Dal Zot, says that the federal government, Petrobras’ controlling shareholder, guides the company to act in a harmful way to the national interest by “not having long-term planning that allows an efficient and timely energy transition.”

Jean Paul Prates — Foto: Edilson Rodrigues/Agência Senado

Jean Paul Prates — Foto: Edilson Rodrigues/Agência Senado

“We are facing a clear scenario of abuse of rights by Petrobras’ controlling power. If this abuse was already established with the distribution of dividends in this amount, the situation is aggravated by the post-electoral scenario and the generating obligations to the future management of Petrobras,” says the document. Anapetro, together with the Parliamentary Front in defense of Petrobras, chaired by Senator Jean Paul Prates (PT, of Rio Grande do Norte), will file a new lawsuit today in the Federal Court against the dividend distribution announced by the company. Mr. Prates is one of the names listed to assume the presidency of the state-owned company in the future Mr. Lula da Silva’s government.

For André Vidal, head of oil, gas and basic materials of XP, the payment of dividends does not compromise the accounts of the state-owned company, which “keeps generating enough cash” and has been operating under the leverage of its financial policy, which talks about a target of $60 billion of gross debt and may reach $65 billion. At Thursday’s Petrobras board meeting, nine members voted in favor of the dividend payment and two were against, according to sources. Currently, the board has four executives appointed by minority shareholders, a representative of the employees, and six appointed by the federal government, including the CEO of the company, Caio Paes de Andrade.

The Unified Federation of oil workers (FUP) also sent a letter to Mr. Andrade, with a request for the company to engage in the government transition process. In the letter, FUP’s general coordinator, Deyvid Bacelar, asks the company to guarantee the necessary information for the new managers that will take over the company after 2023.

*By Gabriela Ruddy, Fábio Couto, Maria Cristina Fernandes — Rio de Janeiro, São Paulo

https://valorinternational.globo.com/
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Rumo starts new railroad construction in Mato Grosso

Total investment is up to R$15 bn to build more than 700 kilometers of new tracks until 2025

11/04/2022

Beto Abreu — Foto: Claudio Belli/Valor

Beto Abreu — Foto: Claudio Belli/Valor

Cosan’s logistics company Rumo approved on Thursday the start of works to extend its rail network in Mato Grosso. The construction works are expected to begin this year and gain traction as of 2023, said CEO Beto Abreu.

This is a large venture to extend Malha Norte (Northern Network) from Rondonópolis to Lucas do Rio Verde, with more than 700 kilometers of new railroads. The total value of the investment is projected at R$14 billion to R$15 billion.

The project, however, is expected to be built in stages. The first phase, which will cost R$4 billion to R$4.5 billion and start now, will be 210-kilometer long and link Rondonópolis to Campo Verde. This stretch is expected to be concluded by the end of 2025 so that operations can start in the first quarter of 2026.

With the first stage of the project, Rumo is expected to increase the railroad’s capacity from the current 25 million tonnes per year to 35 million tonnes per year. This increase of 10 million tonnes is the first step. The terminal to be built in Campo Verde is expected to reach a capacity of up to 30 million tonnes. “It will depend a lot on the expansion of the market and the speed of the construction of the railroad to Nova Mutum,” said Mr. Abreu.

The idea is to build the terminal in partnership with a strategic partner. A preliminary agreement has already been signed, but the name of the group has not yet been disclosed.

This first stretch of the railroad is the most complex and costly, according to the executive. “From the engineering complexity standpoint, the trickiest part is the beginning. We will have a challenge from start, which is the construction of a 1-kilometer-long bridge across Rio Vermelho. The other two remaining stretches are easier.”

The project foresees a branch line to the capital Cuiabá and another to the north of the state, reaching Nova Mutum and Lucas do Rio Verde. The railroad is expected to be completed between 2028 and 2029.

The construction works were delayed by a few months because the Federal Prosecution Service (MPF) required that the company consult the indigenous peoples of the Boe Bororo people, from Tadarimana e Teresa Cristina villages, who live on land close to the project.

After negotiations involving prosecutors, the Public Defender’s Office, the indigenous peoples, and the company, an agreement was signed on Thursday allowing the construction of the project to begin, with the commitment that Rumo will consult with the indigenous peoples.

The construction works begin this year with the first viaduct over BR-163, a highway that intersects with Rumo’s railroad in its first kilometers. In early 2023, construction begins to gain more traction, said Mr. Abreu.

Financing for the construction work is expected to use different sources of funds. “The company’s mantra is to operate in the coming years with a leverage ratio between 2 times and 2.5 times [net debt-to-EBITDA]. Considering our expectation of cash generation, we will move forward with the necessary funding,” the executive said.

The Malha Norte expansion project is innovative from a regulatory standpoint. Unlike other large railroads in the country, the project will be carried out under an authorization model. This means the project is in private hands, with no government counterparts. Besides, it is a state contract – not a federal one – that was signed with the Mato Grosso government in September last year.

Mato Grosso Governor Mauro Mendes (Brazil Union), who suggested the project to Rumo, was reelected in the first round last month. Mr. Abreu said that the election of Luiz Inácio Lula da Silva (Worker’s Party, PT) to the presidency does not impact the company’s plans. “We have our strategy regardless of the new administration that takes office in January. We have operated under the Bolsonaro and Lula administrations. No matter which party is in power, our strategy continues.”

*By Taís Hirata — São Paulo

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Vitol joins energy trading in Brazil

Company received initial investment of R$108m, will focus on large consumers

11/03/2022

Murilo Soares — Foto: Silvia Zamboni/Valor

Murilo Soares — Foto: Silvia Zamboni/Valor

Vitol, the world’s largest independent oil trading company, has launched its energy trading company in Brazil – a segment in which consumers directly negotiate their demands. The new company is called Vitol Power Brasil and aims at serving large energy consumers.

The company received an initial investment of R$108 million, is backed by its parent company, and has already started its first operations. The potential client portfolio, in theory, may be equivalent to Vitol’s own portfolio, which is not disclosed for strategic reasons. The solutions will be tailored to the client’s needs, a typical approach in this sector.

The company sees great potential in the Brazilian market, said Murilo Soares, Vitol Power Brasil’s chief commercial officer. According to him, this is the first step of a business platform.

The focus is on large players in the wake of ordinance 50, of 2022, published by the Ministry of Mines and Energy, which allowed consumers in the high-voltage market to buy electricity from any supplier. This is expected to increase the liquidity of the free market, which will bring more business opportunities, said Mr. Soares.

“Brazil is the largest energy market in South America, with more than 70 GW of demand and several large players. Vitol joins Brazil’s power industry with a long-term vision and commitment, bringing all its trading expertise from around the world to this market,” he said.

The liberalization meets the 500-kW limit defined by Law 9.427, of 1996, by allowing any high-voltage consumer, regardless of their consumption, to choose their supplier. Nearly 106,000 new consumer units will be able to join the free market.

The company knows the country’s potential, as it has been operating in Brazil’s oil and gas sectors for more than 20 years. The arrival of the global fuel giant will diversify its local operations, but it intends to operate mainly in the free energy market.

Brazil’s power industry is expanding mainly through the free market. Some trading companies are expanding their operations by offering services to consumers and generation companies and building greenfield projects specifically for renewable sources.

But Mr. Soares, who leads the company’s implementation and operation in Brazil, said this model is not Vitol’s path. The Dutch multinational company intends to be an independent trading company without generation assets, at least at this first moment.

“As an energy commodity trading company, we will not have a specific focus with regard to the energy sources we will trade. However, it is important to emphasize the company’s commitment to encouraging renewable sources. Vitol’s renewable energy business in the United States includes more than 1 GW of solar and wind power in operation or under construction and an additional pipeline of more than 2.5 GW of projects in solar and battery storage, totaling investments of more than $1 billion. In Brazil, we are unlikely to invest in generation assets at a first moment,” he said.

The market is likely to advance in the coming years, especially with regard to credit risk, with the entry of new and large customers, according to the executive. With greater security and liquidity, he expects a favorable scenario for increasing operations and creating new products.

“In this sense, the energy trading company is the first step towards the creation of a Vitol business platform in the country. By 2023, the company projects to commercialize about 50 average megawatts and by 2025, with the consolidation of the high-voltage market, to reach 1 average gigawatt.”

The focus on the wholesale market and medium and long-term contracts does not rule out retail operations. “We have already started the process to create Vitol Power Brasil’s retail profile in the Electric Energy Trading Chamber (CCEE), which shows that although it is not our focus, we will be attentive to opportunities.”

Currently, only consumers with a demand of more than 500kW, such as industrial companies with electricity bills over R$150,000, can buy electricity from any supplier. The Ministry of Mines and Energy proposes expanding the possibility of choice to low-voltage consumers – including residential and commercial ones, which are in the so-called regulated power market – as of 2028.

*By Robson Rodrigues — São Paulo

Source: Valor Interntional

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