Market is going to promote investments anticipating gains brought by reform, Roberto Campos Neto tells lawmakers


Roberto Campos Neto — Foto: Edilson Rodrigues/Agência Senado

Roberto Campos Neto — Foto: Edilson Rodrigues/Agência Senado

Central Bank President Roberto Campos Neto told lawmakers that the approval of the tax overhaul will cause an immediate increase of 1% to 1.5% of the GDP in the following year because the market will promote investments anticipating the benefits of the reform, although the simplification will not come into force until two or three years later for federal taxes and only after 2029 for sales tax ICMS and Services Tax (ISS), sources told Valor.

This figure was mentioned in the round of talks among federal deputies to convince them to pass the bill. Chamber of Deputies Speaker Arthur Lira and Deputy Aguinaldo Ribeiro, the rapporteur of the matter, will hold several meetings starting this Friday to adjust the necessary points to try and pass the proposal in a floor vote next week. Rumor has it the afternoon committees may be canceled to devote full attention to the matter.

The perception of the negotiators of the overhaul is that the approval in the Chamber of Deputies will force the Senate to analyze it in the second half of the year. Although senators are more susceptible to pressure from governors and states that still oppose the bill, deputies believe they will not be able to hold back such an important issue if it has already passed the first stage, which is the vote in the Chamber.

The text, deputies believe, is different from the income tax reform, which aimed to fulfill an election campaign of former President Jair Bolsonaro to increase the income tax exemption range, but was not considered essential for the development of the country. At the time, there were no major objections when the Senate decided to halt the proposal passed by the Chamber of Deputies (also because of the perception that it created new distortions).

Moreover, since this is a proposal to amend the Constitution (PEC), the changes made by the senators in the tax reform will have to be taken into account by the Chamber of Deputies, since the PEC will only be enacted if there is a consensus between the two houses.

*Por Raphael Di Cunto, Marcelo Ribeiro — Brasília

Source: Valor International
Economist Yoshiaki Nakano criticizes new fiscal framework and lack of focus on productivity


Yoshiaki Nakano — Foto: Rogerio Vieira/Valor

Yoshiaki Nakano — Foto: Rogerio Vieira/Valor

Economist Yoshiaki Nakano is increasingly convinced that the way out for the Brazilian economy lies in agribusiness. For him, it is essential to add value to the sector’s production chains, which could drive the industry and also have a positive impact on the services sector. However, he is pessimistic about the country’s prospects. There is no long-term growth strategy, and Brazil is not moving towards the necessary reforms to ensure a sustainable expansion of the economy, said Mr. Nakano, who in May left Fundação Getulio Vargas’s São Paulo School of Economics (FGV EESP), which he led for 20 years since its creation in 2003. He currently holds the position of senior professor at the school.

A former finance secretary of the state of São Paulo, Mr. Nakano does not take kindly on the new fiscal framework bill that is about to be passed by Congress. The initiative requires significant revenue increases to support spending increases that are always above inflation. “If you don’t put a clear brake on spending, you will end up worsening the quality of the Brazilian economy,” said Mr. Nakano, a critic of fiscal adjustment based on increased tax collection. “The government is the most deficient sector of the economy,” he saif, adding that Brazil’s burden is already very high.

For Mr. Nakano, this is a poor-quality adjustment. He looked kindly to the spending cap, the mechanism created in 2016 that limited the federal government’s non-financial spending to the previous year’s inflation. It was a simple anchor based on a cap on public spending. The problem, he said, was that the reforms needed to keep the cap in place have not been made.

“It is necessary to go through the budget item by item and make a cut, a real reform,” said Mr. Nakano, who was São Paulo’s finance secretary from January 1995 to January 2001, during the Covas administration, when he carried out a strong adjustment of the state’s public accounts. According to him, one of the country’s major problems is the public sector’s personnel costs. “It’s not that you have too many employees; it’s that the average salary in the public sector is much higher than in the private sector,” said Mr. Nakano, who believes it is important to curb these costs, even if it is a politically unpopular measure.

By choosing an adjustment strategy based on increasing revenues, a very heavy burden is being placed on the consumer, the majority of the population, especially the poorest, Mr. Nakano said. For him, the tendency is that public investment will remain depressed and that the increase in revenue will finance current expenses, such as personnel. “It is necessary to significantly increase investment, especially in infrastructure,” he said, stressing the need for the country to increase productivity.

He does not see this agenda in the current government’s priorities. For Mr. Nakano, President Luiz Inácio Lula da Silva’s idea of growth is to increase “government spending.” This is the wrong direction, he said. “It’s not that way. You have to increase productivity, and make the necessary investments. You have to adjust the public accounts, create space for public investment, especially in infrastructure, which has complementarity with private-sector investment, which generates increased productivity.”

In this scenario, Mr. Nakano is pessimistic about the country’s prospects, saying he sees no light at the end of the tunnel. He considers the Bolsonaro administration, which preceded the current one, a disaster, because it divided society and damaged democracy. But Mr. Nakano said he does not have high hopes for the Lula administration either. There are some improvements in areas like the environment, where Brazil “can do a lot, and international pressure is increasing.”

“We lack a clear direction for where the Brazilian economy is going,” said Mr. Nakano, who sees agribusiness as the country’s way out.

The way out, he said, is to add value to the sector’s production chain. “I don’t know which sector of Brazilian industry is really competitive today without subsidies. In agribusiness, we are efficient, and there are still many opportunities for innovation, for digitalization.” What has not been done, according to Mr. Nakano, is to add more value to the agribusiness production chain. If this is done, it will have a significant impact on industry and services.

For him, Brazil still needs the power of the Brazilian Development Bank (BNDES) in terms of longer-term financing. “What it doesn’t need are big subsidies. But the bank still has a role to play in providing long-term capital.”

Speaking about the interest rate controversy, Mr. Nakano says that it is a “controversy in which no one is right.” The economist says that President Lula generates uncertainties when he criticizes the Central Bank, creating noise that makes it difficult to lower interest rates.

Mr. Nakano left FGV EESP in May, after 20 years. He speaks with satisfaction about the evolution of the school, which has become one of the most respected in the country in this field. According to Mr. Nakano, the school puts a lot of emphasis on the tools that economists need today. “It’s fundamental to know how to model, so knowing mathematics, econometrics, statistics — and knowing how to think.”

The school has managed to attract a diverse group of professors, a good portion of whom have Ph.Ds. abroad. In the world of academia, it’s important that researchers can publish in the best academic journals, Mr. Nakano said. “But we make sure that the professors are not dogmatic people.” You have to know how to work in a team, how to help and be helped, he said.

EESP FGV has nearly 1,000 students today, and the idea is to double that number in four to five years, Mr. Nakano says. One project is to increase the number of scholarships to attract more underprivileged talent. The institution goes after students from public schools who have passed the entrance exam, offering scholarships and follow-up to retain these students, an effort that, according to him, has been successful.

Mr. Nakano will continue at the school as a senior teacher. Professor Lilian Furquim de Campos Andrade, who worked on the creation of the school and became vice principal in 2018, took over in May.

*Por Sergio Lamucci — São Paulo

Source: Valor International
Sector’s balance of $60.3 billion is an all-time high


Daiane Santos — Foto: Leo Pinheiro/Valor

Daiane Santos — Foto: Leo Pinheiro/Valor

With exports of $67.3 billion between January and May, up 5.8% year over year, the agribusiness sector propped up the growth of Brazil’s trade surplus this year. The sector’s balance of $60.3 billion is an all-time high for the period, and 73% higher than the country’s combined surplus of $34.9 billion.

The amount has also surpassed the result of 2018, of $34.3 billion. The growth of the agribusiness sector’s trade surplus has accelerated since 2021, when it peaked at $43.1 billion, followed by $57 billion in the same period last year.

The data were compiled by the Foundation for Foreign Trade Studies Center (Funcex), which uses the classification of agriculture products created by the Ministry of Agriculture with data released by the Ministry of Development, Industry, and Commerce. The classification includes manufactured goods like paper and pulp, leather and footwear, fibers and textile products including apparel, food and beverages.

Daiane Santos, an economist at Funcex, recalled that agribusiness historically supports the country’s trade surplus because Brazil’s agriculture exports were also relevant, while imports are typically relatively small. Except for agribusiness, the other Brazilian exports combined almost always resulted in trade deficits.

Considering the results since 1996 compiled by Funcex, the “other products” category only had surplus in 2005 and 2006, when car exports helped the country to report surpluses of $5.4 billion and $2.3 billion, respectively. In 2013, the deficit of this group of other sectors reached $92.8 billion, a year when the agribusiness sector’s trade surplus of $82.9 billion was not enough to avoid Brazil’s deficit of $9 billion.

In 2021, the agribusiness sector’s trade surplus reached $105 billion and helped to support the country’s surplus of $61.4 billion.

On that year, the “other products” category brought a trade deficit of $43.6 billion, data by Funcex show. Last year, it increased to $80.1 billion, while the trade surplus of the agribusiness sector increased 35% to $141.6 billion. This “extraordinary” level, according to experts, helped Brazil to reach a new all-time-high trade surplus of $61.5 billion.

Despite the record-high trade surplus between January and May this year, experts diverge on whether the agribusiness sector will be able to surpass the result of the full year 2022.

“The expectation for trade balance in 2023 is positive, driven by the good result expected for the agribusiness sector, but not extraordinary like 2022,” Ms. Santos said.

“What happened last year was outstanding. In 2022 we had good volume and excellent prices due to the effects of the recovery after the most acute period of the pandemic and the Russia-Ukraine war,” said Fabio Silveira, a partner at MacroSector.

He recalled that some prices are already falling, including those of soybeans and corn, as a result of the global economy’s weak growth. “The slowdown in the European and U.S. markets will not be offset by the reasonable performance expected for China and India,” he said. The consultancy estimates China to grow 4.8% in 2023 after expanding 3% last year. The United States, on the other hand, is expected to grow 1.4% in 2023, while the eurozone is seen as expanding 0.7%. The World Trade Organization foresees that global trade will grow 1.7% this year, compared with 2.7% last year.

“The agribusiness sector will still be the highlight, and its share will remain high compared with the country’s trade, but will not come as strong as last year, when it was driven by high volumes and prices. The global movement to raise interest rates will still make prices fall and commodities are impacted by this more quickly,” Mr. Silveira said.

Rafaela Vitória, the chief economist at Banco Inter, acknowledged that prices are being revised downwards, but believes that the high volume of agricultural production will compensate this effect. “This year, considering volume versus prices, we are likely to see more exports than last year.” She recalled that, despite the adjustments, commodity prices remain at relatively high levels. In her view, this scenario for agricultural, metallic, and energy commodities will help Brazil’s trade surplus with $75 billion, which would be a new record, considering the criteria set by the Secretariat of Foreign Trade (Secex/MDIC).

Price adjustments will not impact Brazil’s agricultural production, Ms. Vitória said, because there is demand from China and Europe, which seek alternative food supply sources. This scenario, in her view, may allow Brazil to diversify export destinations.

Ms. Santos, with Funcex, recalled that the agribusiness sector’s result has been driven by grains, especially soybeans, whose productivity has advanced thanks to new technologies. In the economist’s view, diversification would be possible by encouraging investments in other crops.

In 2022, the exports of the soybean complex totaled $60.82 billion and accounted for 38.3% of the agribusiness sector’s exports and 18.2% of Brazil’s total exports. Driven by corn, cereals, flour, and cereal-based preparations rose to 9% of agricultural exports. Beef came in third with 8.2%.

There is also a concentration in destinations. According to Funcex, considering the average of the 2021-2022 period, trade with China resulted in an agribusiness trade surplus of $44.9 billion, followed by the European Union with a trade surplus of $18.7 billion. The balance with these two regions represented more than 50% of the total trade surplus of the two-year average of Brazil’s agribusiness balance.

The diversification of products and destinations, Mr. Silveira said, requires a government policy to face protectionist barriers and resistance to the entry of Brazilian products in some markets. “Additional diplomatic efforts could take advantage of segments that already have some dynamism in the country, alongside a strategy for brand development.” In terms of products, he cited chicken, beef, and orange juice.

“Soybean exports will lose momentum at some point, either because in the longer term production from Africa and the Belt and Road Initiative will enter the scenario,” Mr. Silveira said, referring to the project launched by Beijing in 2013, which includes a set of infrastructure projects in addition to work in the energy sector.

For the economist, the diversification map should include a greater variety of products for markets such as China, the United States, and Europe, as well as expanding exports to India and Southeast Asian countries. According to Mr. Silveira, in order to face protectionist barriers and try to guarantee the maintenance of a relevant share of meat, grains, and cereals in exports, it is necessary to have a growing coefficient of environmental sustainability in the use of inputs.

*Por Marta Watanabe — São Paulo

Source: Valor International
B3 will allow investors to transfer their assets from one brokerage firm to another


Felipe Paiva — Foto: Silvia Zamboni/Valor

Felipe Paiva — Foto: Silvia Zamboni/Valor

Portability, a consolidated concept in the credit and telephony markets, will work in the Brazilian stock market as well. In response to a demand from the market, starting next week, Exchange B3 will allow investors to transfer their assets from one brokerage firm to another, automatically and online, as long as the accounts have the same ownership.

In an increasingly digital financial market, a condition boosted by the changes brought by Central Bank’s instant-payment system Pix, retail investors will find it easier to change the financial firm that holds their investments, with a process expected to be less bureaucratic. “This is a demand from investors and it has become inevitable. We already know that client loyalty is based on the service provided,” said Felipe Paiva, the executive in charge of client and individual relations at B3. The move comes after years when competition in this market grew fast, driven by the arrival of more and more players seeking a chunk of the Brazilian people’s investments.

The implementation will take place in two stages. During a month, all processes will be monitored and limited to a small, selected group of investors. From July 3, the portability will be available to a fraction of clients of financial firms already qualified for the first stage – 100,000 – who are clients of XP, BTG Pactual, Safra, and CM Capital. For this initial phase, the selected investors will see the portability option when accessing the investor area on the B3 website. This group will only include investors with accounts in at least two of these four financial firms, as this is mandatory for portability to take place.

Asset portability between financial firms, which a few years ago meant going to a registry office to have the signature witnessed, has went online during the pandemic. Digital signatures are now accepted, but the process is still very bureaucratic. “This is among the top 5 complaints at the CVM [Brazilian Securities and Exchange Commission]. The number of people has increased a lot and it has become a bottleneck,” the B3 executive said. Portability is on the agenda of the capital market regulator through the Open Capital Market. CVM has been actively involved in these discussions.

After this first monitored moment, other financial firms are expected to join in August. Itaú and Ágora, Bradesco’s brokerage firm aimed at retail investors, are preparing to offer the mechanism. Mr. Paiva expects all banks and brokerage firms to be integrated into the system by the end of the year, especially because asset portability will be mandatory for those with more than 10,000 individual clients next year. From then on, all clients of these brokerage firms will be able to transfer their assets through the new system if they wish.

In order to cover the entire market, the brokerage firms that qualify for the new service will also have to go through the supervised phase, but the deadline for extending portability to all clients of these firms will be analyzed on a case-by-case basis.

This year, all investments listed for portability will be available through the new system, including in stocks, exchange-traded funds, and real estate funds.

By 2024, assets traded in the over-the-counter market will be included, as well as certificates of bank deposit (CDBs) and debentures, and also tax-exempt products such as real estate receivable certificates (CRIs) and agribusiness receivables certificate (CRA). Treasury notes (Tesouro Direto) will also be included in this list, which is why B3 has met with the National Treasury to discuss this issue. Finally, next year, the service will also include shares of investment funds, the asset that may present more challenges for portability.

Finally, the portability service will also encompass investment fund shares, the asset that may present the most challenges for portability, but will also be subject to portability next year.

Throughout the testing period, B3 made a validation of the environments to verify that all were secure. In the portability, according to Mr. Paiva, the migration of assets will go through two “checkpoints.” The first is in B3’s online platform, where the investor’s investment positions are consolidated. The second checkpoint will be where the assets are held in custody. There the assets go through a process of certification and analysis of its situation, for example, if it has been given as a guarantee, if it is in a serious condition (linked to a financing contract, for example) or if the asset is in transit. According to CVM’s rules, the deadline for transfer will be up to 48 hours – and it can happen much faster.

The idea, according to the B3 executive, is to bring more features to the exchange’s online platform, which was launched in 2021 and currently has between 300,000 and 500,000 monthly hits. There, in addition to allowing investors to see their assets in a consolidated way, the exchange has a partnership with fintech mycapital, which specializes in income tax calculators. “We want to grow and offer more products, from B3 or through partnerships,” Mr. Paiva said.

*Por Fernanda Guimarães — São Paulo

Source: Valor International
Payment processing company has B3, Itaú, and BTG among its clients and takes U.S.-based giant closer to solutions like Pix


Visa completed Wednesday the acquisition of Brazil’s Pismo, Valor’s business website Pipeline reports. Visa will pay $1 billion, which gives an exit to venture capital funds such as Softbank, Accel, Redpoint, and investors such as B3 and Amazon. It also gives rise to four new multimillionaires, the founders of Pismo.

The Brazilian company provides cloud payment processing technology and had been in talks with Visa for at least six months. It is one of the largest private transactions involving a domestic startup in recent years.

Pismo’s management team will remain in place, according to Visa’s statement confirming the deal, and the transaction is expected to close by the end of the year. “Through the acquisition of Pismo, Visa can better serve our financial institution and fintech clients with more differentiated core banking and issuer solutions they can offer their customers,” said Jack Forestell, Visa’s chief product and strategy officer, in a statement. The U.S.-based company cites that Pismo will help it provide support and connectivity to new payment formats, such as Pix, the Brazilian Central Bank’s instant-payment system.

Negotiations started with Visa’s interest, and in the middle of the way Mastercard even put an offer on the table, but it was beaten by a new offer from Visa. Pipeline reported on the negotiations in March, when sources signaled Visa’s willingness to pay up to $1.4 billion, but there was an agreement on terms – the payment is now all cash.

Visa, which has not been active in acquisitions in Brazil, saw in Pismo a consolidated business platform with a portfolio of important clients. The company is the cloud infrastructure of banks such as Itaú, BTG, part of Citi’s operation, besides B3 and fintechs such as the German N26. With investments by Amazon and Softbank, Pismo is on a global expansion path, with operations in Asia, Europe, and Latin America.

The platform handles more than 75 million accounts and 40 million cards, and was founded by Ricardo Josua, now CEO, Juliana Motta, head of product, Daniela Binatti, head of technology, and Marcelo Parise, vice president of engineering.

In addition to its relationship with Pismo, Visa was already familiar with another company co-founded by Mr. Josua: Conductor (now Dock), which was Visa’s first acquisition of a minority stake in Brazil in a 2018 deal.

For Mr. Josua, the deal with Visa will allow Pismo to expand even more globally in what he defines as “a new era for banking and payments.”

The original story in Portuguese was first published on Valor’s business website Pipeline.

*Por Maria Luíza Filgueiras — São Paulo

Source: Valor International
Proposal is included in a bill, which will also deal with the review of trials


Beto Pereira — Foto: Vinicius Loures/Câmara dos Deputados

Beto Pereira — Foto: Vinicius Loures/Câmara dos Deputados

The rapporteur of the bill on the Administrative Council of Tax Appeals (Carf), Deputy Beto Pereira, is expected to accept the agreement between the Brazilian Bar Association (OAB) and Finance Minister Fernando Haddad for cases where there is a tie in the trials of tax litigation, but is likely to make changes in the text, such as increasing the number of installments to settle the debt and creating a “rating of guarantees” — in which good payer companies could negotiate the guarantee offered in tax lawsuits.

The agreement between Mr. Haddad and OAB will allow that in cases of a tie in Carf trials, the taxpayer can pay the debt free of fines and interest if they decide to pay the principal without going to court. The federal government defended the return of the casting vote, in which the tax authorities had the tie-breaking vote. A provisional measure was issued with this content and was in force from January to May, but lapsed.

Mr. Pereira told Valor that the cases tried in this period “need a solution” in his bill and the tendency is to accept an amendment for them to be redone. “Taxpayers who lost their cases have the right to enjoy the benefits we are creating in the law, or they will litigate.”

Another point that the rapporteur intends to modify in the project is the so-called “compliance policy”, in which companies follow the rules established by the tax authorities for complying with tax and ancillary legislation in exchange for access to benefits, such as a faster evaluation of their customs procedures. Mr. Pereira is also considering an amendment that would reduce the fines imposed by the Secretariat of Federal Revenue on these companies — but increase them if fraud, evasion, or recidivism is proven. He needs to discuss this point with Mr. Haddad.

In addition, the rapporteur told Valor that he would accept an amendment proposed by the Federal Revenue auditors to allow them to enter into tax deals with taxpayers before the debt is recorded. This point caused a stalemate with the Attorney General’s Office of the National Treasury (PGFN) and complaints within the ministry that he was not open to dialogue.

In the opinion of members of the Federal Attorney General’s Office (AGU) and the PGFN, this amendment would be a way to exclude prosecutors from negotiating debts, but this model would not be the best because the tax auditors themselves would negotiate the assessments they issue.

One of the main novelties that Mr. Pereira tends to accept is the creation of the “rating of guarantees.” This point would allow companies that are considered to be good payers to negotiate the guarantee in tax lawsuits. In this case, they could, for example, to make a deposit with a smaller amount if they are considered to be solid. With this method, the money would go first to the Treasury account, unlike what happens when companies hire guarantee insurance or obtain injunctions that prevent collection — which leave the federal government without access to the amounts.

Currently, the guarantee must be presented thoroughly, in the same amount of the litigation, as soon as the company takes the dispute to court, either because it has given up at the administrative level or because it has lost in it.

*Por Raphael Di Cunto, Marcelo Ribeiro, Guilherme Pimenta, Beatriz Olivon — Brasília

Source: Valor International
Sources say negotiations have been more difficult

27/06/2023 21h05  Atualizado há 12 horas

Unigel continues to seek a negotiated solution with its creditors to avoid the early maturity of at least R$500 million in debt tied commitments triggered by financial leverage that the company is unlikely to fulfill in the second quarter.

The company will also engage in negotiations with bondholders who are owed $110 million due in 2026, although there is no covenant in that case, a source close to the company said.

Despite efforts to find a solution that does not involve a precautionary measure, sources close to the creditors and advisors to the company said that negotiations were tough and that an out-of-court reorganization agreement or a protection from creditors, similar to the strategy used by Oi and Light, were not ruled out. One source said that an out-of-court solution was the most likely way out at the moment.

According to a source familiar with the matter, the discussions are far from a consensus, but no decision has been made. This source said that there is a preference to have a consensual agreement between the parties, but the company could protect itself in court if there is a risk of a creditor seeking to trigger an acceleration.

Unigel denied that the alternatives of either a court-supervised reorganization or an out-of-court restructuring are on the table.

Earlier this month, the company hired Moelis & Company to assist in a financial restructuring process and Felsberg Advogados as legal advisor. It also hired Citi to find a partner for its green hydrogen project in Bahia and postponed investments in a new sulfuric acid plant. The bondholders, on the other hand, hired Houlihan Lokey, which settled in Brazil this year and has advised on other major cases such as Samarco and Ocyan.

On the liabilities side, Unigel has no significant debt coming due this year. However, the company is coming out of a cycle of relevant investments in expansion and reported negative operating cash generation in the first quarter, pressured by the deterioration of petrochemical spreads and the sharp fall in urea prices on the international market, without a similar adjustment in raw material costs (natural gas).

This deterioration of the financial statements has led some creditors to request early repayment of part of their debt to the group, sources say. Unigel reportedly offered assets as collateral.

A source said that they did not think it was a case of a court-supervised reorganization, but believed in an out-of-court one. “Of course, as in any case where the problem is an acute attack on liquidity, this can change, but today it doesn’t seem necessary,” said one of the sources.

The company has committed not to exceed a financial leverage of 3.5 times in R$500 million in bonds issued last year. In March, the ratio stood at 2.2 times, but credit rating agency Fitch expects it to reach 7.1 times this year.

On the operating cash generation side, the temporary hibernation of the fertilizer plants in Sergipe and Bahia may lead the company to seek funds in the market to finance itself, in a moment of scarce and expensive credit because of the retailer Americanas crisis and the situation of Unigel itself.

Moelis, Houlihan Lokey, and Felsberg Advogados declined to comment.]

*Por Stella Fontes, Mônica Scaramuzzo, Fernanda Guimarães — São Paulo

Source: Valor International
Banker’s heirs hired consulting firm Galeazzi to restructure business


Chain with 36 stores in São Paulo, Rio de Janeiro, and Espírito Santo has been put up for sale — Foto: Divulgação

Chain with 36 stores in São Paulo, Rio de Janeiro, and Espírito Santo has been put up for sale — Foto: Divulgação

The heirs of banker Aloysio Faria, of Alfa Bank, have hired the consulting firm Galeazzi to restructure the building material chain C&C, two sources familiar with the matter say. After analyzing the retailer for 60 days, the diagnosis was clear: it will be necessary to close at least a third of the stores, according to a person familiar with the matter.

With 36 stores in São Paulo, Rio de Janeiro, and Espírito Santo, the chain has been put up for sale but has not attracted any interested buyers. Faced with the loss of profitability, the heirs of the banker deceased in 2020 asked the consulting firm Galeazzi to study C&C.

With revenues below R$1 billion, the company has already begun to lay off executives and will close at least 12 stores by the end of the year, Valor found. There is a consensus that the model of large stores for building materials retailers is no longer working well and that at least a third of the group’s stores are loss-making. The chain grosses R$70 million to R$80 million a month.

The banker’s heirs have asked BTG Pactual to gauge interest in the business. The operational restructuring is expected to be completed by the end of the year. A smaller chain is seen as more attractive to buyers.

In the market, there is an understanding that chains such as C&C and Telhanorte, which was also put up for sale, must change their business model. According to another source familiar with the matter, the building material chains is unlikely to become a 100% digital platform, since consumers visit stores and make a purchase decision after seeing the products.

To adapt to the new environment, companies like Telhanorte and Leroy Merlin are betting on smaller-format stores — which will allow them to enter neighborhoods and new markets —, providing services to consumers, such as the installation of equipment, and expanding e-commerce operations.

C&C was one of several companies founded by Aloysio Faria, who resisted the idea of getting rid of the business, even with the restructuring carried out in recent years. Since the founder’s death, the banker’s five daughters have sold the group’s main business — Safra bought Banco Alfa for R$1 billion, as well as the Alfa theater and Transamérica hotel, which will be transformed into an entertainment complex.

According to another source, the lack of a succession, which should have been carried out by the banker, caused the dismantling of the conglomerate in the last three years. Lucia, Junia, Flavia, Claudia, and Eliana, Aloysio Faria’s direct heirs, never participated directly in their father’s business. Each of them inherited 20% of the banker’s business. Mr. Faria was once a billionaire on the Forbes list. He usually had the final say in his businesses and trusted few executives.

The Agropalma (palm oil) company and the La Basque ice cream chain are still controlled by the family and are also expected to be sold, according to sources familiar with the matter. However, Agropalma is also not attracting interest. The family also owns Águas da Prata mineral water.

One of the most well-known bankers of his generation, Aloysio Faria, who died in September 2020 at the age of 99, had a degree in medicine. He inherited the Banco da Lavoura de Minas Gerais from his father at the age of 28. Years later, he and his brother Gilberto Faria split the business and Aloysio Faria founded Banco Real (which was sold to ABN Amro in 1998 for $2.1 billion).

Galeazzi declined to comment. C&C and the family’s spokespeople did not reply to the requests for comment.

*Por Mônica Scaramuzzo — São Paulo

Source: Valor International
Crop Plan to offer R$364bn, reward sustainable practicesunds available in 2023/24 cycle is 27% higher than in current season


Luiz Inácio Lula da Silva — Foto: Ricardo Stuckert/PR

Luiz Inácio Lula da Silva — Foto: Ricardo Stuckert/PR

The Crop Plan 2023/24 for corporate agriculture will have R$364.2 billion in funds as of July, amount 27% more than the amount extended in the season that ends this week, of R$287.1 billion.

The priority will be to cover the current expenses of the new crop, given the scenario of falling prices of agricultural commodities and lack of capital this year. The lines for this purpose will amount to R$272.1 billion, with interest rates between 8% and 12% per year. Another R$92.1 billion will be allocated to investment programs, with interest rates ranging from 7% to 12.5% per year.

The Crop Plan, which was launched on Tuesday in a ceremony at the presidential palace, will provide up to R$12 billion to finance producers who have the Rural Environmental Registration (CAR) analyzed, no environmental liabilities, or who have already joined the Environmental Regularization Program (PRA). As a result, the final interest rate will be reduced by 0.5 percentage points.

The novelty will also “reward” those who adopt sustainable production techniques, such as the use of bio-inputs, the maintenance of green roof in the country, and waste treatment, among others. The total reduction may reach 1 p.p. The rules to tap these cheaper funds and the ways of verification to satisfy the control agencies will be defined and published shortly.

Agriculture Minister Carlos Fávaro said President Luiz Inácio Lula da Silva determined that there should have enough funds for financing without increasing interest rates. “We gave priority to having plentiful means for financing. Since we did not have so much money for subsided financing, because interest rates are so high, it was fundamental this determination of President Lula to have the capital to finance the harvest,” he told Valor.

Mr. Fávaro said that the R$5.1 billion budget for subsided financing was lower than what he requested to the economic team, but that there was a “confrontation” with the Central Bank to increase the demands of rural credit sources. This measure, according to the minister, allowed the expansion of the volume of financing for the next season.

“This is the secret about where the money came from. The government’s decision to allocate more funds to agriculture was crucial,” he said. “It increased funds for subsided credit, but not as much as we wanted, because it costs the Treasury. The bill was very high because we wanted more funds and with much lower interest rates,” he said. The request reached R$18.5 billion for the entire plan. The proposal included lower interest rates and higher premiums, with a reduction of up to 3 p.p. to encourage sustainable practices.

Mr. Fávaro said there will be no shortage of money to finance the crop and that he expects subsided lines to have available funds until June 2024. To complement these volumes, he said he would continue to work on the formulation of alternative sources of financing, especially with the Brazilian Development Bank (BNDES).

The general interest rates for the next season were maintained at 8% per year for the program of support to medium-sized farmers (Pronamp) and 12% for large producers in the 2023/24 Crop Plan. Some strategic lines will offer better conditions, such as the purchase of machinery by medium-sized farmers in Moderfrota (credit program for equipment, such as tractors), with a rate of 7%. Mr. Fávaro also highlighted the increase in funding for the Program for the Construction and Expansion of Warehouses (PCA).

The event was attended by several leaders in the agricultural sector and was received as a gesture of goodwill by the government. “No country in the world can compete with Brazil when it comes to sustainability,” Mr. Lula said at the event. “We don’t need to deforest anything to raise more cattle or plant more soy. We have the opportunity to recover millions of hectares of degraded land in this country. We don’t even have to invade more land. The government can survey vacant and unproductive lands. We can create a ‘land shelf’ for agrarian reform,” he said, in a new nod to the sector.

The ceremony was also full of criticism directed to Central Bank President Roberto Campos Neto for keeping the key interest rate Selic high. “Brazil cannot be held hostage by a person who is not committed to economic development. This Crop Plan is being built with a [base] interest rate of 13.75%. It is very difficult to offer subsidy based on that,” Mr. Fávaro said at the event.

Environment Minister Marina Silva highlighted the environmental components of the 2023/24 Crop Plan, saying that it could be an “important inducer” of productive practices aimed at sustainability, but that this would be done gradually. She also said that access to rural credit will be blocked for areas in any biome where there has been illegal deforestation. This measure was previously applied only to Amazon.

Mr. Fávaro stressed that since the entire Crop Plan is based on low-carbon agriculture, the ABC+ credit line has now been renamed RenovAgro. According to the minister, it will begin to promote the conversion of degraded pastures, with interest rates of 7% per year, but a major plan to transform these unproductive areas into crops is still under study.

*Por Rafael Walendorff, Fabio Murakawa, Andrea Jubé — Brasília

Source: Valor International
Monetary Policy Committee was split in policy meeting last week between moderates and conservatives


Central Bank's building in Brasília — Foto: Cristiano Mariz/Agência O Globo

Central Bank’s building in Brasília — Foto: Cristiano Mariz/Agência O Globo

The Central Bank’s Monetary Policy Committee (Copom) was split last week between moderates, who wanted to signal the start of monetary tightening for August, and conservatives, who think it is too early for anything. But even moderates are being quite cautious: they are talking about a “parsimonious process” of change at the next meeting.

In the wording historically used by the Copom, parsimony means 25-basis-point moves in the key interest rate Selic, which currently stands at 13.75% per year. Last week’s statement referred only to “caution and parsimony,” implying that the hypothesis of a minimal rate cut applies only to the August meeting – and that the pace of rate cuts could therefore be adjusted to, say, 50-basis-point cuts at subsequent meetings.

When the moderates of the Copom speak in the minutes released Tuesday that we could have the beginning of a “parsimonious process” of policy shift, some doubts arise. Is the Copom signaling that if it begins to cut rates in August, it will continue at 25-basis-point cuts in subsequent meetings? Or will the pace of monetary easing be modest, with a 25-basis-point increase between meetings?

In the past, these keywords indicating the pace of expansion have been used in more than one way. During the Ilan Goldfajn administration, “moderate” was used both to refer to adjustments in the pace of rate cuts (for example, to 50 bp from 25 bp) and to signal a 25 bp move.

Whatever the meaning of “parsimonious process” may be, it is clear that the signaling is aimed at maintaining financial market bets on how far interest rates can fall in this initial phase of the easing cycle.

The Copom minutes show that even the moderates are very cautious about signaling rate cuts. And it is unclear whether they really believe that caution is needed – or whether this was the signal that the group thought it was possible to send at the moment, given that on the other side there is a strong group of conservatives hitting on the brakes.

The moderates had a majority and theoretically could have sent a stronger signal about what they thought was likely for the August meeting. But that signal was left out of the statement released last week. It only came out now, in the Copom minutes, in a more diluted form and somewhat weakened by the view of the conservatives of the committee. Why did the majority of the Copom give so much voice to the minority?

First, it is necessary to highlight the style of Central Bank President Roberto Campos Neto, who has always sought consensus. The search for a minimum consensus is all the more important at the present time, when the market’s inflationary expectations – both by economists and traders – remain de-anchored.

Second point: the dissidence is numerous because it seems to consist of at least three members. The Central Bank has never used the word “group” in its official documents as it does now. A two-member group is possible, but that would be a misuse of the word. So there is probably a moderate majority of five and a conservative minority of three.

It is also possible that the dissenting votes include more influential members within the Copom. These members, who, like Mr. Campos Neto, are independent directors with a term, are increasingly expressing their views in public.

Some economic analysts believe that these discussions among members are set up to signal austerity and hold the bets. In other words, they see dissent as a tool of monetary policy communication. This does not seem to be the case.

The history of the last four Copom minutes consistently shows two groups with different views coexisting, one more conservative and the other more moderate. This division can be traced back even further, to last September, when there were two votes for a residual rate hike.

Since January, this more conservative group has been hypothesizing that the neutral rate of interest (the minimum level of the Selic rate at which the economy begins to cool and inflation begins to fall) is higher than previously thought. One argument of this group is that the cooling of the economy and the decline in inflation are not occurring as expected.

At last week’s meeting, the thesis of this conservative group prevailed and the estimate for the neutral rate was revised to 4.5% per year from 4% per year. In theory, this should have calmed things down: the Copom recalculated its inflation projections to reflect the higher neutral rate. The most pessimistic scenario is in the accounts, since what was uncertainty became the central scenario of the committee.

But this is not what happened: according to the Copom’s minutes, the conservative group said, in the discussions on whether to signal an expansion for August, that “the uncertainty about the output gap [the degree of economic slack] creates doubt about the impact of the monetary tightening implemented so far.” This group also advocated the need to “accumulate more evidence of disinflation in the more cyclically sensitive components.”

Mr. Campos Neto is unlikely to abandon his style of seeking consensus, even if unanimity is not always possible. For this reason, this division within the Copom – which is likely to persist until the conservatives are no longer comfortable with the scenario of falling inflation – is expected to act as a brake not only on the decision to start cutting interest rates, but also on the signals regarding the pace of disinflation.

*Por Alex Ribeiro — São Paulo

Source: Valor International