One day after the airline filed for court-supervised reorganization, Santiago-based group reportedly sent letters to lessors eying up to 25 aircraft


Gol shares plunged again on Tuesday (30) trading session — Foto: Fabiano Rocha/Agência O Globo

Gol shares plunged again on Tuesday (30) trading session — Foto: Fabiano Rocha/Agência O Globo

Gol is studying measures against LATAM after the competitor attempted to take 20 to 25 of its 737 planes. Gol’s lawyers told the New York judge responsible for the case, in documents seen by Valor, that LATAM sent letters to the lessors on Friday (26) to try to take the aircrafts one day after Gol filed for bankruptcy protection.

Gol shares plunged again on Tuesday (30) trading session, marking a 26.97% drop. The company ended the day with a market capitalization of R$1.2 billion, a 55.4% loss when compared to Thursday (25), when it filed for court-supervised reorganization, according to Valor Data.

LATAM does not operate the 737 model and, according to Gol’s lawyers, the Santiago-based group is trying to illegally interfere in its rival’s restructuring. Andrew LeBlanc, a lawyer at the Milbank law firm, told Judge Martin Glenn that “several” articles in the legislation prevent the Chilean company from taking such approach.

Mr. LeBlanc told the judge that Gol is studying which measures to take against LATAM. The lawyer also argued that it is necessary to ensure that Gol will be able to negotiate with lessors without the “interference” of parties acting “inappropriately.”

The 737 model is crucial for Gol’s single fleet strategy. LATAM, in turn, has a fleet of 256 Airbus models, used on short-haul flights. The Boeing family (58 units in total) is used mainly in long-haul flights—through the 787, 777, and 767 models.

The lawyer said the letter starts by alluding to “recent events” in the industry, an obvious reference to Gol’s bankruptcy filing.

He notes that LATAM also underwent Chapter 11 in New York court in a two-year process, which means, according to him, that it knows the limits of the Bankruptcy Code.

The judge asked if it was confirmed that the letter was real and, according to the lawyer, it even had letterhead. The lawyer said he believes it is real and that the airline will investigate over the next few days whether it is having an effect.

The letter to lessors comes at a time when Gol struggles to negotiate contracts. Amid issues in the production chain, the market currently operates with a tight demand for aircraft. The scenario is different from what it was at the time LATAM and Colombian Avianca filed for Chapter 11.

In a statement, LATAM neither confirmed nor denied the existence of the letter. According to the statement, the company is in “permanent contact with all relevant stakeholders in the fleet [equipment and maintenance lessors and suppliers] as part of its business.” The airline said it has been active “in the market for several months with the aim of securing the necessary capacity to meet ongoing and long-term needs in the context of global supply chain challenges and aircraft/engine shortages.” When contacted, Gol declined to comment.

The rivalry between the airlines has been quite intense. No one is hoping for a large company’s bankruptcy, which could destabilize the entire transportation industry, but everyone wants to increase market share in the face of the weakness of a competitor who, before the pandemic, was the leader. In the past, Gol had around 38% market share. Last December, it was close to 33%, when it was outperformed by LATAM, with 38.7%.

At the time of Azul’s debt restructuring with lessors, which was concluded last year, sources pointed out that LATAM had made the same attempt to take Airbus aircraft from its competitor in conversations with lessors.

When LATAM filed for court-supervised reorganization in the U.S.—between 2020 and 2022—Azul tried to negotiate with Chilean creditors the acquisition of LATAM Brasil, as reported by Valor.

But Azul’s attempt does not come out of the blue. The company tried to purchase the assets of Avianca Brasil (OceanAir) before it went bankrupt. Gol and LATAM, however, launched a harsh campaign against it, preventing the deal. As a response, Azul decided to leave the Brazilian Association of Airlines (ABEAR), which now includes both Gol and LATAM, among other smaller airlines.

*Por Cristian Favaro — São Paulo

Source: Valor International
External scenario should continue to play relevant role in the real’s performance, while commodity prices and trade balance may not provide same support as last year


Eduardo Miszputen — Foto: Carol Carquejeiro/Valor

Eduardo Miszputen — Foto: Carol Carquejeiro/Valor

Although Brazil remains a standout among emerging markets and has recently been the focus of foreign investors, the country is unlikely to attract capital flows that would push the exchange rate much higher, said Eduardo Miszputen, the head of global markets at Citi Brazil. He believes that the external scenario should continue to play a relevant role in the real’s performance, while commodity prices and the trade balance may not provide the same support as last year.

“The year 2024 should be a bit of a repeat of 2023, with external factors providing more stability to the local market than internal factors,” he told Valor. In this sense, the evolution of interest rates in the United States, which has been a daily topic for global financial assets since the turn of the year, should remain relevant.

“We still have two wars going on, and there is a risk that these conflicts will escalate. Another factor that could cause instability is the U.S. election at the end of the year,” he said.

“Apart from that, the U.S. interest rate environment and the U.S. economy itself should bring uncertainties that will create some volatility in the markets,” said Mr. Miszputen. Since the beginning of the year, the domestic exchange rate has relied on expectations for U.S. interest rates, and as a result, the correlation between the performance of the real and the behavior of short-term Treasuries is quite high. Year to date, the dollar has appreciated 1.91% against the real.

As for Brazil, the executive sees a more stable scenario, although it is not yet able to attract a strong flow of foreign capital. For Mr. Miszputen, Brazil has attracted attention among emerging markets because it has opportunities for growth; some economic and fiscal stability, with reforms being made; an interest rate that should remain high; and a strong trade balance. “We are likely to become a pillar of stability, because we are far away from wars and the effects of these conflicts.”

“I think Brazil is consolidating itself as one of the most interesting emerging markets for foreign investors. Unfortunately, we are still far from investment grade. I think this is the big obstacle to an additional flow of investors into Brazil,” said Mr. Miszputen. He points out that credit rating agencies such as S&P Global and Fitch upgraded Brazil’s credit rating last year, but the country’s sovereign rating remains two notches below investment grade.

Citi, which topped the ranking for foreign exchange services to clients in 2023 for the fifth year in a row, believes that a tougher stance by the government on fiscal matters could improve perceptions of Brazil and thus increase the flow of foreign capital. “People understand that there can be some leeway and that the government is interested in social initiatives and policies. This is understandable, but obviously a greater rigidity on public accounts would lead to a better perception of the country,” he said.

The executive said that, at least for now, he doesn’t see the evolution of the debt bringing or taking money out of the country if the government maintains its plans in line with market expectations. “Today, foreign ownership of Brazilian debt is around 9.5%, a relatively low level historically. That’s why I don’t see a significant volume of outflows, even if there is a fiscal deterioration,” he said.

As for the impact of a narrowing of the interest rate differential between Brazil and the U.S., Mr. Miszputen points out that even if the Selic policy rate continues to fall, the Fed funds rate should also start to fall, and as a result the interest rate differential could remain at 5 to 6 percentage points, which would continue to be attractive to foreigners.

“If there are no major surprises, the carry trade strategy in Brazil for 2024 will be a very positive operation in terms of financial results,” he said. “We think interest rates here will fall to 10%. If that happens, and if the U.S. starts cutting rates there, we won’t have a change that will affect the appetite for investment in Brazil or the withdrawal of investment.”

*Por Arthur Cagliari, Victor Rezende — São Paulo

Source: Valor International
Result includes social tax PIS/Pasep and revenue from sale of electric utility Copel and excludes court-ordered payments


Rogério Ceron — Foto: Washington Costa/MF

Rogério Ceron — Foto: Washington Costa/MF

The Lula administration posted a primary deficit of R$230 billion in its first year, the worst result since 2020, as reported on Monday (30) by the National Treasury. Of that amount, R$92.4 billion comes from court-ordered payments of federal debts at end of the year and must be excluded for the achievement of the primary result target as per decision by the Federal Supreme Court. As a consequence, the primary deficit was R$138.1 billion, or 1.27% of the gross domestic product.

The 2023 result is lower than the target of a R$213.6 billion deficit set for 2023. However, the amount considers revenue of R$24 billion from social tax PIS/Pasep as primary, as well as revenue of R$2 billion resulting from the sale of electric utility Copel. Both revenues are not in line with what says the Central Bank, responsible for calculating official statistics. Therefore, on February 7, when the Central Bank releases its data, the primary deficit of the central government will hover around R$256 billion (with court-ordered payments) and R$166 billion (without court-ordered payments, which is considered for the target).

Although the primary result was within the target, it is the second worst deficit since official records began, second only to 2020, the first year of the COVID-19 pandemic, when the deficit was R$939.9 billion, in adjusted values. The 2023 deficit was also greater than those recorded in the first year of both Temer and Bolsonaro administrations, second only to the first year of former President Dilma Rousseff’s second term, when the central government posted an inflation-adjusted deficit of R$183.1 billion in 2015.

In addition to lower-than-expected revenue in some fronts, especially the Social Contribution over Net Profit (CSLL), which fell 10.4% (loss of R$ 17.6 billion), the increase in other expenses also played a role: there was an increase of 42.4% (R$98.7 billion) in programs whose expenditures are under control of flows, such as Bolsa Família, which has expanded, and a 7.9% increase in social security benefits (R$66.4 billion).

Furthermore, the central government’s negative result was also driven by the payment of R$20 billion in offsets to states, resulting from reductions in Tax on Circulation of Goods and Services (ICMS) rates in 2022, during the election season; R$6 billion from the allocation to the secondary education fund; and R$1.4 billion from a BNB capitalization carried out in December. National Treasury Secretary Rogério Ceron argued that the deficit would have been R$109 billion (1% of GDP) except for those three extraordinary factors, in addition to the court-ordered payments. According to his opinion, the primary result would be consistent with the target the National Treasury had been pursuing since mid-2023.

The federal government posted a real drop in revenue of 2.8%. The most significant drop was in concessions and permits (82%). Dividends and shares of state-owned companies also plunged (44.7%).

According to Mr. Ceron, tax revenue was also impacted by other factors: tax offset made by companies due to the so-called thesis of the century, which struck out the ICMS from the PIS/Cofins calculation base, generating tax credits for companies—the government is now trying to address this issue through Provisional Presidential Decree 1,202, which curbs tax offset; the Events Sector Emergency Program (Perse) tax waiver, around R$17 billion, compared to the expected R$4 billion; and lower-than-expected inflation.

On the other hand, funds that have been released but were not used by ministries totaled R$19.8 billion in 2023, with a positive impact on the primary result. The “pooled” amount was slightly below that recorded in 2022, of R$20.7 billion, in current values.

For 2024, Mr. Ceron said preliminary data from January point to an increase in revenue, which creates a positive scenario for a zero deficit this year, in line with the target set in the federal budget.

Finance Minister Fernando Haddad commented that this year’s target depends on a good interaction with the Judiciary and the Legislative branches. “The target is set in agreement with Congress, but the primary result depends a lot on this good interaction with the Judiciary and the Legislative [branches]. As far as we are concerned, we will continue with the same commitment [in 2024],” Mr. Haddad said.

Rafaela Vitória, chief economist at Banco Inter, notes “the fiscal deterioration seen in 2023 is quite worrying.” “Not only did the government experience a drop in revenue, which was 2.8% below 2022 adjusting to inflation, but also expenses grew at an alarming rate of 12.5% above the IPCA,” she pointed out.

“Although fiscal expansion did not boost inflation last year, which subsided due to the fall in raw materials and the counterpoint of a restrictive monetary policy, there is concern about the continuation of such expansion, which is well above projections within the new fiscal framework,” the economist argued.

Felipe Salto, chief economist and partner at Warren Investimentos, points out that the 2023 result “was strongly affected by court-ordered payments.” “But it was important to break the snowball before it became unmanageable,” he notes. “For 2024, the key challenge is not a zero deficit. It’s about reducing the deficit and fully complying with the framework,” he argued.

*Por Guilherme Pimenta, Jéssica Sant’Ana — Brasília

Source: Valor International
Officials project scenarios for extending investment installments, creating new lines of financing, and measures to support commercialization


Carlos Fávaro — Foto: Edilson Rodrigues/Agência Senado

Carlos Fávaro — Foto: Edilson Rodrigues/Agência Senado

The combination of a predicted shortfall in Brazil’s grain harvest and continued low international commodity prices has created a scenario that is as rare and complex as it is potentially damaging to rural producers and challenging for agricultural policy in 2024, according to Agriculture Minister Carlos Fávaro.

The focus of the ministry will be to anticipate the “imminent crisis” and announce measures to help farmers before the end of the soybean harvest, the minister told Valor. The intention is to avoid an environment of debt and damage before taking action. He also believes that the second corn harvest will be smaller than originally predicted.

Mr. Fávaro informed President Lula of the situation in a phone call on Tuesday and will meet with Finance Minister Fernando Haddad next week to discuss measures to minimize the financial impact on farmers.

Faced with budgetary constraints and still incipient data on losses in the soybean harvest that has just begun across the country, government officials are doing the math and only projecting scenarios for possible extensions of investment installments, the creation of new lines of financing, and the implementation of measures to support marketing.

Mr. Fávaro acknowledged that “the profitability of this harvest is already gone, even for the highly productive ones”—due to the still high production costs and the impact of the climate on the average yield—and that 2024 will be an atypical year. “We will work with what we have and minimize the impact so that we can grow again in the 2024/25 harvest,” he said. “Now we have to do everything we can to move forward with as little impact as possible,” he added.

“Many producers will harvest less and some much less than last year. The drop in production with low prices sends up a red flag, so we have to act very quickly. It’s a rare scenario, but when it happens it becomes very serious,” said Mr. Fávaro.

The minister emphasized that one of the proposals on the table is to extend the investment installments, which could generate costs for the National Treasury. Internal analyses are being carried out to determine how many and which contracts may need to be extended, given that production in some regions of the country will be less affected, as well as the interest rates on these loans. For example, the technical team is evaluating the volume of operations contracted since the 2016/17 harvest in the Moderfrota, Pronamp Investimento and Inovagro lines, which mature in 2024.

“With the prospect of a decrease in the Selic policy rate, if the rate is closer to the interest charged on these operations in previous years, the subsidy will be small. We can try to find a space here,” said Mr. Fávaro. He noted that the budget is limited and that he will not do anything that could jeopardize the government’s fiscal targets.

The minister said the measures should not be delayed to avoid side effects in the agribusiness sector, such as defaults, producers being denied credit, lack of access to new credit, and an increase in debt. Some measures should be announced before March, he said.

The Ministry of Agriculture is also working with the Brazilian Development Bank (BNDES) to create a line of credit in dollars with an extended term for working capital, which could help retailers and other companies give a boost to rural producers who finance their activities with private loans. Mr. Fávaro said there could be other measures, but did not provide details.

*Por Rafael Walendorff — Brasília

Source: Valor International

Inclusion of combustion engine cars in extension of tax incentives changed scenario in Brazil


Shilpan Amin and Santiago Chamorro — Foto: Gesival Nogueira Kebec/Valor

Shilpan Amin and Santiago Chamorro — Foto: Gesival Nogueira Kebec/Valor

General Motors announced this Wednesday (24) a robust investment program for Brazil, totaling R$7 billion from 2024 to 2028. The amount will be used to renew its entire product line and update plants. However, the plan breakdown disappointed expectations that the automaker could give some indication of the strategy it will adopt to electrification of vehicles produced in Brazil.

GM’s next investment cycle was the most awaited in the sector, as the company is the only one among the most traditional automakers to consider producing 100% electric vehicles and skipping intermediate phases with hybrids, as the other two giants—Volkswagen and Stellantis—have been defending.

However, recent measures announced by the government have shifted the scenario and could cause a possible review of the strategy. The most controversial rule is in the paragraph added at the last minute to the text regarding the extension of tax incentives for automakers operating in the Northeast and Central-West regions. The text was approved by Congress at the end of the year and benefits GM’s rival Stellantis.

The original text extended benefits only to hybrid and electric models, but internal combustion engine vehicles were included at the last minute.

The change impacts investment decision in a company as GM, which will celebrate 100 years in Brazil in 2025, and which has been always dedicated to producing combustion engine cars despite CEO Mary Barra’s declared intention to produce only electric vehicles worldwide from 2035.

The issue regarding tax incentives in Brazil was discussed in a meeting between the automaker’s leaders, President Lula, Vice-President Geraldo Alckmin, and Chief of Staff Rui Costa. In the meeting, GM’s plan to lay off 1,200 employees at the end of 2023 was questioned. By court decision, the cuts were replaced by a voluntary layoff program. The company’s leaders said that was a “specific” need to cut jobs.

GM International President Shilpan Amin, who is in charge of all company operations outside the U.S., came from Detroit especially to announce the investment plan to the Brazilian government.

During his two-day visit, he expected to unveil the investment in an interview after the meeting. However, President Lula was quicker and announced the amount of the company’s investment on social media. “The investment comes at a good time, with the return of the Brazilian economy to growth with programs such as the New PAC and the New Industrial Policy,” Mr. Lula posted on X.

In the automobile industry, all activity is linked to investments. As GM’s last investment cycle (2019-2024) of R$10 billion is about to end, it was time to renew it.

The announcement put an end to rumors about the possible departure of the company, which has one of the largest industrial complexes in the country, with 13,400 workers in three vehicle plants in São Caetano do Sul, São José dos Campos (São Paulo), and Gravataí (Rio Grande do Sul); one stamping parts plant in Mogi da Cruzes (São Paulo); and one engine plant in Joinville (Santa Catarina).

During the interview, the investment announcement was overshadowed by the reporters’ insistence on asking about vehicle electrification plans. Mr. Amin and Santiago Chamorro, GM’s president for South America, answered all questions, but did not clear doubts. They chose to keep the mystery alive.

“Some markets will go electric faster than others,” Mr. Amin said. According to him, the possible production of electric or hybrid vehicles will depend on market developments, consumer interest—which GM intends to capture through research—and “building a bridge” until Brazil is included on the electrification map.

The executive said the meeting with President Lula was “fantastic.” “I believe President Lula’s mindset is aligned with ours,” he said, when commenting on the need to decarbonize transportation.

Mr. Chamorro was even more enigmatic: “Brazil has strong potential for electric vehicles as a source of minerals to make batteries. And consumer demand and curiosity are there. I wouldn’t say yes or no, but there is potential.”

For now, GM will meet the potential demand by importing fully electric vehicles. In addition to Bolt, which is already being offered in the country, the company will bring electric versions of two other cars, Blazer and Equinox.

A large part of the new investments will be allocated to renewing the entire line, in addition to updating production processes, including sustainability solutions.

On February 1, it will be Volkswagen’s turn to announce a new investment cycle. The last program, worth R$7 billion and announced in 2021, will end in 2026.

Investments by automakers are confirmed as the government solves pending issues awaited by the industry. In the last days of 2023, the government presented Mover (the new stage of Rota 2030), a program offering tax breaks in exchange for companies meeting decarbonization targets and investments in research and development.

Furthermore, at the beginning of this month, imported electric vehicles were once again charged with Import Tax, which will gradually increase, signaling that the government seeks to protect the local industry.

*Por Marli Olmos — Brasília

Source: Valor International
Industry support measures spread fear about use of public funds


José Luis Gordon — Foto: Leo Pinheiro/Valor

José Luis Gordon — Foto: Leo Pinheiro/Valor

Although the government’s new industrial policy launched on Monday (22) has raised concerns among economists about the use of public funds to back investments, most part of the amounts were already included in the Brazilian Development Bank’s (BNDES) budget for the coming years. “There will be no capital injection from the Treasury into BNDES [to support industrial policy],” José Luis Gordon, director of productive development, innovation and foreign trade at the development bank, told Valor.

Of the R$300 billion to be invested by 2026 in the new industrial policy, R$250 billion (83% of the total) are expected to come from BNDES. The amount includes loans at market rates, implicit subsidies for innovation at the cost of the Reference Rate (TR, which adjusts savings accounts), and investments in funds (equity).

In the case of BNDES, the cost of loans is linked to the Long-Term Rate (TLP), but loans may also be indexed to the dollar in the case of external funding or via the Climate Fund (green bonds). There will also be subsidies via TR for innovation. The development bank also expects to raise funds to lend in the future, including to industry, via Development Credit Bill (LCD), pending on Congress approval, and via Agricultural Credit Bills (LCA). As Valor learned, should the LCD be approved, it could generate additional funds for the bank to lend, but the 2024 figures are unlikely to change.

That is because the BNDES operates with long-term loans and projects take time to mature. The bank’s budget could require more funds in 2025 or 2026, including to lend to industrial companies, but that will depend on economic growth. At the end of December, financial director Alexandre Abreu estimated that in 2024 the bank could lend from R$130 billion to R$160 billion, compared with R$115 billion to R$120 billion last year. The official figure will be known once BNDES releases its fourth-quarter report, in March.

The goal of the current administration, under the helm of Aloizio Mercadante, is to return to growth, which is expected to occur gradually. The aim is to reach 2% of the Brazilian Gross Domestic Product (GDP) in 2026, with investments of some R$200 billion per year.

Sources say the BNDES does not have current funding to sustain such investments. The available funds are enough to ensure a 1.3% share in the GDP. However, should the LCD be approved, the bank could gain momentum to raise and lend more funds, although the market is not sure about the real potential of this security to raise money on a scale enough to back infrastructure projects for long terms, of five or 10 years.

Mr. Gordon, the BNDES productive development director, notes that the “Mais Produção” program announced by the government is intended to show the available resources to the productive sector for the coming years, similar to what occurs in agriculture. “It’s the industry’s Crop Plan,” Mr. Gordon said, in a reference to the program created to boost agriculture. The initiative has been divided into four axes: innovation, exports, productivity and decarbonization. In the exports area, the bank expects to return to back services and intends to create an agency dedicated to international sales, the BNDES Exim, a plan that has been going back and forth for nearly 20 years.

Of the R$300 billion announced, R$271 billion are expected to be granted in loan operations. Other R$21 billion are expected in non-refundable facilities and R$8 billion in capital injection. Mr. Gordon says that the amount will not be used to acquire more shares in companies, but to structure investment funds in which BNDES will act as an anchor, bringing the market along. The R$300 billion figure also considers that R$77.5 billion, or 26%, were approved in 2023, most of it by BNDES, but also by Finep. The idea is to get Banco do Nordeste (BNB) and Banco da Amazônia to join the program, Mr. Gordon said.

“The ‘Mais Produção’ program is important for the economy to grow and for us to have productivity gains,” Mr. Gordon pointed out. Studies show, however, that previous initiatives, in other Workers’ Party (PT) administrations, were not enough to increase the productivity even with the BNDES injecting billions of subsidized funds into specific sectors, dubbed as “national champions.” The moniker refers to the choice of certain sectors that received support from the state in a previous version of industrial policy. Mr. Gordon claims there were indeed productivity gains. “The country will not be able to fund the production of machinery and equipment without BNDES,” he said.

Some economists understand the high degree of subsidies from the BNDES in the past pushed the private sector away in granting credit to companies. The private sector only returned after the BNDES downsized and established the TLP as the reference rate in loans. Now, new concerns are raised with the new industrial policy that past mistakes could recur.

Mr. Gordon said, “We are in alignment with the government’s budget forecasts, the BNDES is in alignment with [Finance] Minister [Fernando] Haddad’s policy. The bank will not use Treasury funds.” Although the bank’s projections indicate a limited number of subsidies in new industrial policy loans, the market is concerned.

Armando Castelar, an associate researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), says the program announced by the government does not address the manufacturing industry’s biggest problem: low productivity, which leads to a constant loss of participation in GDP. Mr. Castelar notes that the program is focused on subsidizing sectors, and not on reversing the decline in productivity.

“Why does that raise concerns among so many people? Firstly, because it is a policy intended to compensate for low productivity, not to increase productivity. It’s a local content policy. As it is local content, taxpayers are paying for that. As it is a commercial barrier, consumers are paying for that. It doesn’t increase productivity, it keeps productivity low,” he argues.

In the economist’s opinion, the government’s initiative prevents the natural selection process and the most efficient sectors from developing. “It’s a support program for low-productivity companies. The result is that the country’s productivity remains low,” Mr. Castelar said. The second problem, in the economist’s opinion, “is it all has a price, it costs money.” He explains that, to extend subsidies to companies, the government takes money from taxpayers. “Brazil already has a very high tax burden and to provide such subsidies it will have to increase tax burden even further,” he notes.

Sergio Lazzarini, a professor at Western University, has a similar opinion. “What is worrying is that we made changes to give some discipline to BNDES loans. The TLP was implemented in recent years, and now we see changes underway to allow BNDES to change the reference rate for loans and capitalize directly,” he points out.

For the economist, it is inevitable to make connections between this Monday’s announcement (22) and the politics of “national champions,” especially given uncertainties accompanying the government’s announcement: “If it is to benefit companies and large groups with the argument that they need to export since they have national technology, we are again talking about national champions. And on a path of potential disaster as it was in the past.”

*Por Francisco Góes, Paula Martini, Rafael Rosas — Rio de Janeiro

Source: Valor International
Brazil’s tax authority cites atypical factors, believes annual result was positive


Robinson Barreirinhas — Foto: EDU ANDRADE/Ascom/MPO

Robinson Barreirinhas — Foto: EDU ANDRADE/Ascom/MPO

Federal revenues ended 2023 virtually stable compared to 2022, with a real decrease of 0.1%, totaling R$2.3 trillion (at current prices). Brazil’s Federal Revenue Service estimates that the result was “quite positive” despite atypical factors that affected the result, such as the impact of the tax exemption on electricity and fuel that was implemented in 2022, a measure withdrawn by the Ministry of Finance last year.

The performance of tax collection this year is crucial for the government to achieve its zero-deficit target. The impact will not be felt until February, and if there is a revenue shortfall, the target could be revised in March, when the new projections are released.

The economic team cited four main factors that had a positive and negative impact on revenues: a real growth of 21.6% in the collection of individual income tax on capital income, due to the appreciation of the Selic policy rate; a real growth of 3.36% in the individual income tax on work and 5% in the Social Security contribution, due to the increase in the wage bill; a reduction in the fuel tax rates and an extraordinary collection due to the Zero Litigation Program and exports of crude oil.

Special Revenue Secretary Robinson Barreirinhas referred to a “challenging year” and recalled that after the pandemic there was a surge in revenues in some sectors, especially commodities, which “distorted” the 2022 result and made it difficult to compare.

The secretary highlighted that in 2023, the tax on industrialized products (IPI) fell sharply due to the reduction in rates in 2022, which deprived the government of R$22.8 billion in revenue. “The impact was enormous in 2023, as well as the fuel tax exemption, which had a gigantic impact of billions of reais, and we are resuming it [tax collection].”

“Even with all these challenges, the numbers are positive,” he said. He mentioned that in December there was a very strong increase in the Tax on Financial Transactions (IOF) for credit operations and the IPI for car production.

Mr. Barreirinhas also mentioned Zero Litigation, which generated revenues of R$5.6 billion. The export tax on crude oil generated R$4.4 billion. The tax was created for four months to compensate for the diesel tax exemption in 2023.

In the case of administered revenues, atypical factors had a negative impact on the collection of R$46 billion in the year. The reduction of tax rates on fuel alone resulted in a loss of R$32.7 billion for the federal treasury. Without these factors, these revenues would have ended last year at R$2.287 trillion, compared to the R$2.241 trillion recorded.

In 2023, the government managed to pass a series of measures in Congress to increase revenues, but so far the only one that has generated results in 2023 is the taxation of exclusive funds. In December, they generated revenues of R$3.9 billion.

The director of the Center for Tax and Customs Studies, Claudemir Malaquias, said that the tax authorities are still waiting to see what the real gain will be from the tax on exclusive funds and offshore companies that was passed by Congress at the end of the year.

*Por Guilherme Pimenta, Jéssica Sant’Ana — Brasília

Source: Valor International
Under criticism for resuming old practices, Brazil’s government proposes to modernize sector but lack of clarity worries


President Lula, Vice President Geraldo Alckmin, and Ministers Esther Dweck and Rui Costa — Foto: Brenno Carvalho/Agência O Globo

President Lula, Vice President Geraldo Alckmin, and Ministers Esther Dweck and Rui Costa — Foto: Brenno Carvalho/Agência O Globo

The government’s new industrial policy, announced on Monday (22), envisages approximately R$300 billion in contributions by 2026 through financing, subsidies, and equity participation in projects. President Lula and Vice President Geraldo Alckmin stated that the amount was sufficient to modernize the industrial sector. Businesspeople present during the announcement viewed it as “a good start.”

The measures have received both criticism and praise. Economists have lauded them as a promising initial step in stimulating various sectors of the national economy. However, critics have also argued that these measures involve a repetition of old formulas that were ineffective during previous Worker’s Party administrations. Such criticisms include prioritizing national content in public purchases, potentially isolating the country from global production chains, and lacking clear targets.

Aloizio Mercadante, the president of Brazil’s Development Bank (BNDES), has denied that the government is reverting to the policy of national champions, which was prominent during the previous Lula administrations. He stated, “We’re not going to choose partners.”

The financial market responded cautiously to the announcement, with the real losing ground against the dollar and the stock market closing lower.

There is also uncertainty surrounding whether public funds will be used to subsidize a portion of the new policy, potentially raising concerns about fiscal rules. Mr. Mercadante indicated that BNDES’s portion would be financed from its own funding but did not provide explicit details. Of the planned R$300 billion, R$271 billion is allocated for financing, R$21 billion for non-reimbursable credits, and R$8 billion for direct company contributions, primarily for purchasing shares.

The plan, “Mais Produção” (More Production), is structured around four main pillars: Innovation, Exports, Productivity, and Decarbonization. The majority of the funds, approximately R$250 billion, will be provided by BNDES, while the remainder will be overseen by the Financier of Studies and Projects (FINEP) and the Brazilian Research and Innovation Company (EMBRAPII).

The largest allocation of funds, amounting to R$182 billion, is directed towards policies to increase industrial productivity. This package includes credit lines offered by BNDES, with interest rates starting at 5.5% annually. It also encompasses initiatives such as a broadband expansion program, and another focused on digitizing 90,000 small and medium-sized industrial companies.

The Innovation pillar will receive R$66 billion in funding, with interest rates tied to the TR (Reference Rate). According to Vice President Alckmin, this financing instrument effectively addresses the issue of funding innovation in the industrial sector. He remarked, “I would say that the funding issue for research and innovation is well balanced because it is tied to the TR, which is no more than 5% a year.”

Vice President Alckmin, who also oversees the Ministry of Development, Industry, and Foreign Trade, emphasized that the innovation axis includes a portion of FINEP’s non-reimbursable resources, meaning they don’t need to be repaid.

The government’s policy of subsidizing the productive sector, particularly through BNDES, faced scrutiny from the Federal Accounting Court (TCU) during previous Worker’s Party administrations. Nevertheless, the government continues to defend this measure, considering it essential for maintaining the industrial sector’s competitiveness, and cites similar international experiences.

Support for exports is allocated R$40 billion. The pre- and post-shipment lines provided by BNDES will be remunerated based on the TLP (Long-Term Rate), the Selic, and rates linked to the U.S. Treasury.

Mr. Mercadante also used the opportunity to request that Congress authorize the institution to resume financing services abroad, an operation that was halted after the Car Wash scandal. He stated, “We’ve lost national engineering, and if we don’t export services, we won’t be competitive globally.”

In conclusion, the decarbonization pillar will receive R$12 billion in funding from the Climate Fund, which the BNDES manages. Industrial projects falling under this category will have access to financing lines with interest rates starting at 6.15% per year. Additionally, a fund is planned for investment in critical minerals, such as lithium, used in the production of electric vehicle batteries. The BNDES is expected to have a stake in these strategic projects for the country.

Beyond loans and contributions, the government has also allocated R$3.4 billion in tax incentives to rejuvenate the industrial sector. Mr. Alckmin highlighted accelerated depreciation as one of the “most effective” measures of the new industrial policy. Under these rules, companies replacing their equipment after two years of use will benefit from reduced Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).

President Lula praised the announced measures and emphasized the importance of their implementation. He expressed dissatisfaction with the lack of clear targets and stressed that the objective over the next three years should be to achieve concrete results. He also mentioned that the R$300 billion allocation would address the financing challenges of industrial modernization, and he urged Brazilian entrepreneurs to have more faith in the country’s potential.

Leonardo de Castro, the vice-president of the National Confederation of Industry (CNI), considered the R$300 billion as “a good start” and cited larger figures made available by developed countries. He criticized what he perceived as ideological influences on Brazil’s development model, emphasizing the need for honesty and a more pragmatic approach to the country’s development in the global context.

*Por Murillo Camarotto, Renan Truffi, Fabio Murakawa — Brasília

Source: Valor International
Companies announced cuts in trips in November due to a lack of aircraft


Congonhas Airport in São Paulo, one of the busiest and most profitable in the country, is expected to see a smaller reduction in the number of flights offered by airlines — Foto: Maria Isabel Oliveira/Agência O Globo

Congonhas Airport in São Paulo, one of the busiest and most profitable in the country, is expected to see a smaller reduction in the number of flights offered by airlines — Foto: Maria Isabel Oliveira/Agência O Globo

As airlines reduced the number of seats, passenger traffic slowed even more in December than it did before the pandemic. In the last month of last year, 8 million passengers were transported, down 10.1% compared to the same month in 2019, according to data published on Monday by the National Agency of Civil Aviation (ANAC).

With this result, the domestic market extended the decline reported last November. In that month, there were 7.6 million passengers, a decrease of 6.3% compared to the pre-pandemic period.

In mid-November, Brazilian airlines announced a reduction in their supply forecasts due to delays in aircraft deliveries and a lack of spare engines. The tight supply chain scenario is expected to continue until 2024. At the same time, airline Gol’s financial challenges could further shrink the market.

In 2023, Brazilian civil aviation handled 112.6 million passengers, the best annual result since 2020, although still 95% of the total handled in 2019. Compared to 2022, the result represents an overall 15.3% increase.

In the domestic market alone, there were 91.4 million passengers in 2023, 11.2% more than in 2022, while the international market totaled 21.2 million passengers, an increase of 37.5% on the same basis.

Domestic demand, measured in revenue passenger kilometers (RPKs), increased by 3.7% compared to December 2022. Meanwhile, seat supply, measured in available seats per kilometer (ASK), decreased by 1.3%. Compared to December 2019, demand and supply were reduced by 5.4% and 2.8%, respectively.

On the international market, demand increased by 17.2% compared to December 2022. Supply increased by 12.5%. The international market is also lower than before the pandemic: in December, demand fell by 1.7% while supply was cut by 2.1%.

In December 2023, domestic cargo handled 43,100 tonnes, 5.9% more than in the same month in 2022. International cargo handled 69,300 tonnes, 2.2% more than in December 2022.

The crisis of Gol, which is mulling over a court-supervised reorganization in the United States to resolve its high debt, could complicate life for consumers. This is because the airline, once the leader, is now the second largest in the domestic market—it has a share of around 30%, behind Latam. A possible legally-backed debt restructuring could lead to an even greater reduction in the company’s supply.

Bank BTG analysts have already signaled that a worsening of Gol’s crisis would be an opportunity for Azul to grow in the market. This is because the overlap of routes with Latam today is mainly in busy hubs such as Congonhas and Guarulhos in São Paulo, Santos Dumont in Rio, and Brasília. These more profitable routes are expected to see a smaller reduction in supply.

*Por Cristian Favaro — São Paulo

Source: Valor International
Claims by lawmakers echo Ban The Batistas movement, whose supporters are not known


U.S. senators claim that JBS listing would put shareholders in the country at risk — Foto: Divulgação

U.S. senators claim that JBS listing would put shareholders in the country at risk — Foto: Divulgação

After British lawmakers have requested that the U.S. Securities and Exchange Commission (SEC) block the proposed listing of JBS on the New York Stock Exchange, now American senators are trying to stop the Brazilian meatpacker from going public in the country.

In a letter sent to SEC Chair Gary Gensler on January 11th, the senators claimed that JBS listing would put shareholders in the U.S. at risk. They cite a history of “corruption, human rights abuse, monopolization of the meatpacking market, and environmental risks” by the company.

In the senators’ view, JBS listing might also strengthen its market position in the U.S., which they say could harm competitiveness and the country’s farmers and ranchers.

They ask that the SEC evaluate JBS’s draft filing to ensure that the company provided all information required on such sensitive topics. “Should JBS fail to cure any such disclosure deficiencies, we would ask that the SEC decline to declare the company’s registration effective,” they wrote.

The letter cites that, in 2020, JBS holding company J&F Investimentos pleaded guilty in cases of bribery in Brazil and the U.S., including in the acquisition of Pilgrim’s Pride, in 2009. The lawmakers also cited cases of deforestation in the Amazon linked to the sale of cattle to the company.

When contacted, JBS argued that the dual listing would increase scrutiny on the company’s processes, which would have to comply with the standards of the SEC and the New York Stock Exchange. “Stakeholders truly interested in the development and growth of the company and its entire value network support JBS shares listing in New York,” the company wrote in a statement.

U.S. senators’ arguments echo the manifesto by the Ban The Batistas movement, which promises to fight to “protect U.S. farmers, ranchers, consumers, and investors from the risks of an IPO by JBS.” The group also mentions an alleged “unchecked power grab by its majority shareholders, brothers Joesley and Wesley Batista,” who would take advantage of the listing to increase their position in the company to 90%.

According to the Politico website, which specializes in covering U.S. politics, the movement had hired consultancy firm Actum to try and block the IPO. However, it is hard to connect the U.S. lawmakers’ letter to the group—contacted by Valor, the Ban The Batistas movement declined to inform on which organizations, companies, or individuals are supporting and backing the group.

Igor Guedes, a commodities analyst at Genial Investimentos, said that JBS expected to complete the offering in 2023, but the process proved to be more complex than expected. “They are now avoiding giving a new date and frustrating the market, but the chief investor relations officer says it is a matter of time,” the analyst says.

According to him, JBS listing in New York would increase the company’s liquidity in the U.S. market, where investors currently have access to the company’s shares through American Depositary Receipts. “JBS is traded at a value below its U.S. peers, like Tyson, while we think it should be the other way around,” he argues.

Mr. Guedes believes the possible listing may be upsetting members of the U.S. meatpacking industry, as the Brazilian company’s diversified portfolio would give it an advantage over companies that only operate with beef in the U.S. “The capital that filled the gap [in JBS’s market capitalization] in relation to its peers would probably come from those same peers,” he said.

Por José Florentino — São Paulo

Source: Valor International