Kopi Kita considers buying 100,000 coffee bags from Brazil due to robusta shortage in Southeast Asia
05/31/2024
Kopi Kita, the largest coffee roaster in Indonesia, will purchase Brazilian conilon coffee for the first time, introducing the Brazilian variety to the Asian market.
Indonesia, the fourth largest coffee producer, primarily grows robusta and exports to countries like Vietnam. However, due to severe drought starting last year, the country is turning to Brazilian production to meet its needs.
Kopi Kita plans to buy 100,000 bags of coffee from Brazil this year, including both arabica and conilon varieties, Moelyono Soesilo, the company’s director, told Valor. The final decision on the volume will depend on weather developments in Brazil.
“I will wait a few more weeks to finalize the negotiations, observing the progress of Brazil’s harvest. I’ve heard from many producers and traders that the drought in Espírito Santo is affecting the quality of the conilon being harvested, and I don’t want to risk securing lower-quality beans,” Mr. Soesilo explained. He is willing to pay more for Brazilian coffee by delaying the purchase decision.
Kopi Kita is also strengthening its ties with Brazilian traders and exporters to negotiate Brazilian coffee with smaller roasters in Southeast Asia, Mr. Soesilo added. The Indonesian industry is expected to increase Brazilian coffee acquisitions this year due to low domestic stocks. Coffee shipments from Brazil to Southeast Asia are anticipated to gain momentum starting in June.
Kopi Kita began sourcing Brazilian coffee in 2023, initially focusing on arabica beans to blend for the Indonesian market, which predominantly uses robusta. However, the drought worsened between January and March this year, leading to projections of a 6 million bag harvest in Indonesia, matching 2023’s output and insufficient to meet local and Asian demand. Indonesia’s harvest peaked at 12 million bags in 2021.
According to Mr. Soesilo, Brazilian conilon’s flavor and aroma characteristics don’t fully align with Indonesian preferences. Nevertheless, due to the robusta shortage in Southeast Asia, the company had no choice but to turn to Brazilian coffee.
Adverse climate conditions in Asia have been driving Indonesia’s demand for Brazilian coffee since last year. In 2023, Indonesia’s coffee imports from Brazil grew by 19% to 415,900 bags, according to the Brazilian Coffee Exporters Council (CECAFÉ). This increase was driven by Brazilian conilon purchases, which were zero in 2022 but reached 103,300 bags in 2023, surpassing Brazilian arabica imports that year.
The trade between the two countries continues to accelerate in 2024. From January to April, Indonesia increased its purchase of Brazilian coffee by 119.1%, from 23,700 bags in the same period last year to 52,000 bags.
Technical team of CADE discusses flight-sharing agreement with airlines
05/31/2024
Azul and Gol recently announced a flight-sharing agreement — Foto: Leo Pinheiro/Valor
The technical team of the Administrative Council for Economic Defense (CADE) has been in contact with Azul and Gol, seeking information regarding the recently announced flight-sharing agreement, sources say. While the companies are not mandated to submit the agreement to CADE, the antitrust authority can review potential competitive issues, as it has done with similar agreements in the past.
According to a source, before making the announcement, the companies had already approached CADE to present the agreement. Being a “traditional” model without overlapping routes, it is likely that there will be no hurdles from the agency. However, if a merger is proposed, it will require submission to CADE.
Currently, the technical team within CADE’s General Superintendence (SG) is conducting a confidential review to determine if the companies need to formally submit the agreement for analysis. Based on this review, SG may either initiate a formal analysis and request further information from the companies or close the case.
Following SG’s decision, any CADE councilor could request an investigation, which would require agreement from the Tribunal and the technical team.
Within CADE, opinions are divided; some see the agreement as unproblematic due to the lack of overlapping routes, while others believe certain clauses, like the merging of loyalty programs, may require further clarification.
Eric Hadmann Jasper, an expert in economic law and partner at HD Advogados, noted that it is natural for CADE to seek clarifications from the companies given the operation’s significance in a strategic market.
Until mid-2017, such agreements had to be notified to CADE. The policy changed following the analysis of an agreement between Qatar Airways and Latam, where CADE concluded that typical flight-sharing agreements did not require notification.
Mr. Jasper explained that in the Qatar Airways-Latam case, the exemption was granted because the agreement did not involve payment, asset transfers, or changes in corporate structure, and the companies had the freedom to start or stop routes, set prices, and did not exchange sensitive commercial information.
In a recent case involving Latam’s purchase of VoePass (Passaredo) shares, the technical team noted that such agreements can benefit consumers and airlines, particularly when connecting companies operating complementary routes. However, they can also reduce competition, as airlines might lose interest in exploring new or low-demand market niches.
The SG pointed out that CADE’s primary concern in reviewing domestic airline cooperation is the potential for coordinated actions, such as setting flight frequencies and fares together.
CADE councilor Gustavo Augusto emphasized that there is no precedent for absolute exemption of flight-sharing agreements. He stressed the need to assess whether the agreement involves shared risk and suggested that it would be prudent for the companies to notify the operation. “If we determine that the operation should have been notified, the companies could face penalties.”
Gol stated that the sharing agreement is a standard commercial deal within the “normal course of business,” involving only non-overlapping domestic routes, and affirmed their readiness to respond to any inquiries. Azul also expressed willingness to provide any necessary clarifications to CADE.
The National Civil Aviation Agency (ANAC) commented that commercial cooperation agreements do not require its prior analysis and approval. However, as the sector’s regulator, ANAC will monitor the implementation to ensure passenger rights are protected and operations adhere to safety standards.
Lack of consensus at Monetary Policy Committee, fiscal concerns, change in Petrobras increase risk perception
05/31/2024
André Leite — Foto: Divulgação
Investments linked to the Selic policy interest rate and CDI (the interbank deposit rate, used as an investment benchmark in Brazil) remain the main highlights in 2024. A month before the end of the year’s first half, assets regarded as risky, such as the stock market, multimarket and real-estate funds in Brazil had little chance among investors, with the Selic paying comfortable double-digit yields, at 10.5% per year. The depreciation of the real also provided a good return for those investing in the dollar or holding international assets with no currency hedge.
With further interest rate cuts by the U.S. Federal Reserve seen as less likely to occur and the slowdown in the pace of monetary easing in Brazil, the benchmark stock index Ibovespa posted losses of 2.55% in May, until the 29th, and 8.55% in the year. In the first five months of 2024, the index that tracks shares in the real estate segment showed the worst performance (-16.81%), followed by small caps traded on the stock exchange (-13.89%).
The exchange rate was 0.30% up in May and 7.33% in the year.
In fixed income, the IMA-B 5 index, comprised of inflation-indexed bonds adjusted by the Extended Consumer Price Index (IPCA) maturing in up to five years, were 0.94% up in the month and 2.81% in the year. They were still below the 4.39% CDI return since January. Debentures linked to the CDI were showing better performance, with 5.72% in the year, according to the Brazilian Financial and Capital Markets Association (ANBIMA) index.
In the international market, the S&P 500 was 9.8% up, while the Nasdaq rose 10.9% until Thursday (30) when markets in Brazil were closed due to a national holiday.
The United States has been the world’s main capital attractor, via direct and financial investment. At the same time, Brazil has disappointed investors since the government reduced its fiscal surplus target, as proposed in the 2025 budget.
“The market realized what was happening from the second half of April onwards. On the international front, there is no clear horizon for the Fed to cut interest rates, with an impact not only in the Brazilian monetary policy but for emerging markets in general,” said André Leite, chief investment officer at TAG Investimentos. “And we can’t say the government has surprised [the market] with a worse fiscal situation. It was already bad, with little [adjustments] on spending and a very high tax burden.”
Amid concerns about public accounts, Brazilian assets missed the favorable wave seen in some emerging markets in May—and even in developed economies—with a weak performance by the real and Brazilian shares, plus an increase in interest rates. The consequences of the floods in Rio Grande do Sul added uncertainty both on the fiscal side, due to the funds needed to rebuild the state, and on the monetary side, due to expected impacts on inflation.
Mr. Leite points out that Brazil is not a “guy with savings.” He said the country is more like “a guy who owes money and now has a disaster bill to pay, which explains its detachment from the rest of the world.”
The executive says that, in the composition of portfolios, both for individual and institutional investors, the year started with part of the assets allocated in dollars, with no hedge—with direct exposure to the U.S. currency. He sought a return of the exchange rate variation plus 4% in the long term, similar to that of the CDI, but with no relation to Brazilian assets. “In a bad moment, it helps part of the portfolio, reduces volatility, and is paying part of the [performance] bill.”
With artificial intelligence and incentive policies for the construction of microprocessor plants in the U.S., there is a reallocation of capital to the country, both via direct investments and financial assets, through the stock exchange or fixed income. The weak dollar thesis was not confirmed, the executive said. The spread between local and international interest rates, which was once 6 to 8 percentage points, is now close to 4, which is considered insufficient to encourage arbitrage operations.
In the speculative flow towards emerging markets, Mexico has stood out, while the Chilean currency has excelled thanks to the high demand for copper, a raw material with limited supply, Mr. Leite points out. The thesis can be seen in TAG’s portfolio.
The executive said that as rates paid by Tesouro IPCA+, an inflation-indexed National Treasury note (NTN-B) rose, TAG increased its exposure, favoring tax-exempt securities in the conservative portion of the portfolio. The asset manager has taken advantage of opportunities in structured credit, with a good level of guarantees, with interest rates between 3% and 5% above the CDI. The stock market, in turn, lacks the strength to gain traction. With high interest rates, local or international flows with a speculative profile are not expected to come.
At Portofino Multifamily Office, the bias is towards bonds and corporate debt, according to CIO Eduardo Castro. That applies both to Brazil and international assets.
“Interest rates are being kept high [in the U.S.] because activity is strong, which benefits companies’ results,” Mr. Castro points out. With surprises in the top and bottom lines, high-yield companies’ spread (to sovereign rates) is close to the lowest levels in 10 years. However, “the quality of companies, in general, was not affected by the recession, a prevailing narrative 12 months ago.”
According to the executive, the Brazilian stock exchange needs a trigger to adjust prices, no matter how cheap the assets may be. Considering price, macro scenario, and flow, the last two aspects do not allow a reaction. “With the real interest rate of NTN-B above 6%, pension funds are unlikely to increase allocation,” Mr. Castro adds. “For individuals, the same applies, as, in recent years, investors have been hurt by the stock market’s performance.”
In the international market, with interest rates around 5% per year and the U.S. stock market posting good returns, foreign investors are not willing to change geography. Mr. Castro points out that indices in the U.S. are no longer driven by the so-called magnificent seven—Alphabet (owner of Google), Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. According to the executive, there is dispersion to other names outside the tech industry.
“It has really appreciated, it may seem expensive if we compare the valuation with the 10-year history, but there were important changes in the sector, including technology and investment theses. Some cases could demand higher multiples, such as Nvidia,” Mr. Castro said. “Given the differences in risk, allocation, geography, and concentration between the Brazilian and U.S. stock exchanges, we prefer the U.S.”
In the Brazilian market, the preference is for floating-rate bonds as a way to benefit from the double-digit annualized carry, with an additional over the CDI. The executive favors structured credit rather than triple-A, liquid one in large issues.
“The premium for this type of company is relatively low, there is an imbalance among market agents, the originating bank, the borrowing company, and investors, which is the weakest side,” Mr. Castro points out. “Tax-exempt debentures are a good example. Some securities are paying [the yield] of the NTN-B with no additional interest rates, just because of tax exemption. In a normal market, there is a risk of increasing such spread [with the assets’ devaluation].”
However, there is no rush to invest in inflation-indexed government bonds. Although the NTN-B at 6% may be a promising starting point as, in two or three years it will likely outperform the CDI, amid the current concerns about the monetary cycle and inflation, investors would rather postpone taking that risk. “The market is pricing in inflation unanchoring, whether due to discussions about the change in leadership at the Central Bank, the division of votes [in the Monetary Policy Committee], or a slightly worse inflation combined with rising commodities.”
The lack of consensus at the last COPOM meeting, with 5 versus 4 votes for reducing the Selic by 25 basis points and 50 basis points, brought forward the debate on who will replace Roberto Campos Neto as the Central Bank president, said Evandro Buccini, partner and director of credit and multimarket management at Rio Bravo Investimentos. “It has coincided with a turbulent moment also in the U.S. monetary policy, and with the change of command at Petrobras. So, for yet another month, the Brazilian stock market was outperformed by the U.S., with the S&P 500 rising sharply.”
Mr. Buccini points out that, given the negative reactions, the COPOM will seek greater consensus at the next meeting. “It will be interesting to follow the topic and see if it [a consensus] is credible or if it will just convey the idea of a temporary truce.” In any case, he sees a troubled succession as it will be hard to find an independent name appointed by President Lula as it was in the Bolsonaro administration. “There is almost consensus that it will be someone more dovish. This matter will remain around and will only be resolved at the end of the year.”
Rio Bravo’s projection for the Selic was revised to 10% per year from 9.75% by December, with great debate and a lot of noise about fiscal policy expected along the way. The executive mentions that the launch of development bills could indicate a more active Brazilian Development Bank (BNDES) in the coming years, allowing operations below the cost of capital and bringing distortions to private funding.
The firm’s funds have more cash available, including loans and equity. “With 10% [of the CDI], we are happy to carry it and there is no rush to allocate the money.” For individual investors, Mr. Buccini points out that strategies linked to real interest rates may be a good choice. “It could increase further if everything goes wrong and it becomes 7%, but ensuring the IPCA plus 6% in the medium and long terms is very good, especially for investors with access to tax-exempt debentures.”
If the operation proves viable, the fund’s investments in the country could reach R$1.5bn
05/29/2024
Paulo Castellari — Foto: Gabriel Reis/Valor
Appian Capital, a British investment fund focused on mining projects, is investing an additional R$350 million in Brazil to enable graphite exploration. Considered a critical mineral, graphite is essential for battery production, with 70% of the global supply currently sourced from China. If the initial operation confirms its viability, the fund’s investments in the country could reach R$1.5 billion over the next five to eight years.
With these resources, Appian will establish a demonstration unit—a pilot mineral beneficiation operation—with a production capacity of 5,500 tonnes of graphite per year at the Boa Sorte mine in Itagimirim, Bahia. Additionally, it will develop two technical studies in areas controlled by Graphcoa, a joint venture managed by the fund, which has nine mining projects spanning southern Bahia and northern Minas Gerais.
According to Paulo Castellari, CEO of Appian Capital Brazil, two of the fund’s nine global mining projects are located in Brazil. “Brazil has been an area of significant interest since 2019,” he said. At that time, Appian invested in Atlantic Nickel, which produces nickel in Bahia, and Mineração Vale Verde, a copper operation in Alagoas.
The fund is focused on materials that can aid in the energy transition, such as copper, nickel, and lithium, which are used in the positive pole (cathode) of batteries. However, they also see potential in graphite, as there is currently no economically viable substitute for this mineral used in the negative pole (anode) of batteries. “What lies ahead for graphite is fascinating,” he said.
Mr. Castellari anticipates being able to decide on the next phases of the project in Brazil, aiming for 25,500 tonnes annually, by the first half of next year after conducting tests and certifications with potential clients.
In the future, the installed capacity in the Brazilian operation could increase to 40,000 tonnes, potentially reaching 65,000 tonnes by exploring two of Graphcoa’s nine areas. “It could be the largest graphite project in the country,” said Mr. Castellari.
Currently, Brazil’s graphite production represents less than 2% of the global volume, even though the country holds deposits equivalent to a quarter of the world’s reserves. The global supply of graphite is around 1 million tonnes per year and is expected to reach 3.7 million tonnes by 2030. China’s share, which currently accounts for more than half of the production, is projected to decrease to 30%, Mr. Castellari notes.
On the demand side, a deficit is anticipated. Today, 2 million tonnes are consumed annually, with 1.4 million tonnes used for batteries. By 2030, consumption is expected to rise to 4.6 million tonnes, exceeding the projected supply.
With potential clients both domestically and internationally, the strategy is to assess the feasibility of verticalizing operations, possibly extending to battery production in the future. “The investment is not only in the use of batteries for vehicle electrification but also in general,” he said.
Neobank reached market cap of R$297bn on Tuesday, surpassing Itaú’s R$288.5bn
05/29/2024
Nubank is now the second-largest company in Brazil regarding market cap, behind Petrobras — Foto: Divulgação
Nubank has surpassed Itaú in market capitalization on the New York Stock Exchange (NYSE), claiming the title of the most valuable bank in Latin America. On the previous Friday, the digital bank had come close but did not surpass its rival. It took a 3.84% rise in Nubank’s share price on Tuesday, closing the regular session at $12.18, along with a 0.54% decline for Itaú, to make the shift official.
Nubank ended the day with a market cap of R$297 billion, according to Einar Rivero of Elos Ayta Consultoria, compared to Itaú’s R$288.5 billion. The movement makes the digital bank the second-largest company in Brazil regarding market cap, behind Petrobras.
This is not the first time Nubank has overtaken Itaú in market cap. Between January and February 2022, the two banks alternated as the most valuable. Being traded in dollars gives Nubank an edge over banks on the Brazilian stock exchange, such as Itaú, whose shares are traded in reais.
In practice, market cap is a way to measure how stock investors assess a company, including a “premium” that represents the potential for future gains and competitive presence in its market. This metric disregards aspects such as the balance of assets, cash, and liabilities.
From the perspective of the stock price relative to the bank’s book value, for instance, Nubank is being traded at a multiple of about 8.7 times. Meanwhile, Itaú is traded at around 1.7 times its book value. “The difference is that Itaú has decades of accumulated profits in its equity, whereas Nubank only started making a profit last year, in 2023; hence the difference in price to book value,” said Larissa Quaresma, an analyst at Empiricus Research.
For Magda Chambriard, “dialogue” is key to reconciling different perspectives
05/28/2024
Magda Chambriard — Foto: Leo Pinheiro/Valor
Petrobras must be a profitable company that simultaneously serves the interests of both private and governmental shareholders, said the new CEO of the state-run company, Magda Chambriard, on Monday. In her first press conference after taking over the company, the executive noted that the plan is to align the company’s operations with shareholders’ interests while adhering to business logic. She added that “dialogue” is the key to balancing the different interests of investors.
Ms. Chambriard took office on Friday after being elected by the company’s board, replacing Jean Paul Prates, who was dismissed on May 14 by President Lula following months of public criticism and clashes with factions within the government.
The new CEO mentioned that when Mr. Lula invited her, he requested that she manage the company with respect for society. She said the company is committed to fulfilling promises with agility and accelerating efforts, can ensure returns for all shareholders, and must meet societal expectations, “understanding that we have to deliver returns.”
“If we make a profit and meet the interests of public and private shareholders, we will pay dividends,” said Ms. Chambriard, adding that changes in the company’s board, if they happen, will be driven by the need to adjust profiles. She noted that she is still getting to know the current board members.
When asked about the second half of the extraordinary dividends for 2023, which the company is expected to allocate by the end of this year, Ms. Chambriard said she still needs to study the matter: “I took over on Friday, so I need to look into this more carefully.”
Another crucial point for her is the exploration of new oil and gas frontiers, such as the Equatorial Margin and the Pelotas Basin. Ms. Chambriard stressed the importance of maintaining the company’s reserves, noting that the production peak of the pre-salt is imminent. The current challenge, she added, is ensuring energy security while managing the transition in the sector. “The company’s efforts must be accelerated,” she said.
Ms. Chambriard believes that the Ministry of the Environment (MMA) needs to understand better the country’s and the company’s need to drill wells in the Equatorial Margin. Brazil’s environmental protection agency IBAMA, linked to the MMA, denied an environmental permit for drilling a well in the Foz do Amazonas basin, and the company has appealed the decision, which is still pending.
“We need to discuss with the MMA and show that the company exceeds the legal requirements for environmental care,” she said. She added that issues like the exploration of the Equatorial Margin should be discussed in the National Energy Policy Council (CNPE), which she considers the most appropriate forum, with final arbitration by President Lula. The internationalization of the company, seeking areas in other countries for oil exploration and production, is on the table, but she said that the “priority is the Brazilian territory.”
According to Ms. Chambriard, the company’s experts will assess whether the repurchase of the Mataripe refinery is a good deal for the state-run company. “Refining interests us as a value aggregator.” The company is negotiating with Mubadala Capital to re-enter the refinery, which was sold in 2021.
Ms. Chambriard said that the oil company needs to increase the “availability” of its products in the market. “We must guarantee that the company is sustainable and continues with high production levels,” she added. She defended the current fuel pricing policy and said the company will continue with the goal of “Brazilianizing” prices. “It is undesirable to bring daily instability to fuel prices.”
Regarding the contract between Petrobras and the petrochemical company Unigel, Ms. Chambriard noted that the case is under review and that the company will address any concerns raised by the public spending watchdog TCU. “I will not override a respected institution like the TCU,” she said, adding that “no one here wants to waste money, and the company will continue with the contract with Unigel if it proves profitable.”
“We need to explain to regulatory bodies that fertilizers are a good business,” Ms. Chambriard said, adding that the company cannot have “excessive compliance” that leads to inertia and that Petrobras will discuss projects and their timeliness.
Unigel leased two fertilizer factories from Petrobras in late 2019, in Camaçari (Bahia state) and Laranjeiras (Sergipe state), which had been mothballed due to unprofitable operations. The petrochemical company resumed production at the two units but suspended activities again last year, citing a drop in international urea prices not matched by natural gas costs, making operations unviable.
In December, the companies signed a “tolling” agreement—an industrial processing contract on demand—worth R$759.2 million for Unigel to provide industrialization, storage, shipping, and post-sale services for urea, ammonia, and Arla (used to reduce emissions from diesel vehicles).
Aim is to channel more external resources to finance investments for transition to a low-carbon economy
05/27/2024
Nelson Barbosa — Foto: Leo Pinheiro/Valor
Brazil aims to leverage its rotating presidency of the G20 to channel more external resources into financing the necessary investments for transitioning to a low-carbon economy in emerging countries, including itself.
According to Brazil’s Ministry of Finance, $10 billion out of $30 billion available over the next five years is not reaching those who need it most. Development banks, whether multilateral like the World Bank, national, or subnational like the Brazilian Development Bank (BNDES), are crucial in addressing this issue.
This topic links two of Brazil’s priorities for its G20 presidency: sustainable development and the reform of multilateral governance institutions, said Ivan Oliveira, undersecretary of sustainable finance at the Ministry of Finance.
The ministry has identified four main funds: the Green Climate Fund (GCF) from 2010, the Climate Investment Funds (CIF) from 2008, the Adaptation Fund from 2010, and the Global Environment Facility (GEF) from 1994.
According to Mr. Oliveira, these four funds alone have $30 billion available over the next five years. Typically, these funds are formed from government contributions and, to a lesser extent, from companies. The goal is to pool resources from developed countries to finance the necessary investments in emerging nations, particularly the poorest.
The most vulnerable nations cannot afford the investments needed, which range from building renewable electricity generation plants to transitioning truck and bus fleets, to constructing infrastructure that makes cities more resilient to climate events like floods.
Although the amounts involved fall short of the $100 billion per year estimated as necessary at the signing of the Paris Agreement during the 2015 UN Climate Change Conference, the Ministry of Finance highlights an additional problem: the difficulty in accessing these funds. Therefore, not only are the funds insufficient, but they also fail to reach their intended targets.
Mr. Oliveira suggests that discussions within the G20 could lead to recommendations for creating “country platforms,” leaving a detailed roadmap on the reform of multilateral development banks. According to Mr. Oliveira, “this roadmap is Brazil’s major contribution,” and the aim is to complete it by the end of the year, at least in terms of the governance reform of multilateral banks.
“One of the points that will be addressed is how multilateral banks need to connect more effectively with national and subnational development banks, particularly through what we call ‘country platforms,’ or vehicles created to enable international investors and other stakeholders, such as the multilateral banks themselves, to connect projects in countries and finance them,” Mr. Oliveira said.
In Brazil, BNDES often receives resources from multilateral banks. Under the leadership of Aloizio Mercadante, who took over last year with the return of the Workers’ Party to the federal government, this type of funding has advanced. In 2023, the development bank secured $3.2 billion from multilateral institutions abroad and expects another $4.6 billion between this year and 2025, Mr. Mercadante estimated earlier this month while presenting the bank’s first-quarter financial results.
In other areas, the BNDES operates the Amazon Fund, the world’s main REDD+ instrument focused on financing the reduction of deforestation, and has used the Climate Fund since last year as an alternative to expanding its funding. The National Treasury boosted the fund with $2 billion raised in November through the first issuance of green bonds in the external debt market.
“The Climate Fund has scaled up. It used to disburse R$300 million to R$400 million and now will disburse around R$10 billion per year. This will fund various initiatives: from urban transportation to the recovery of degraded areas, from the ecological transition of efficient machines to biogas production, and renewable energy sources to biofuels. This also creates opportunities for industrial policy but with a strong environmental focus,” said Nelson Barbosa, director of planning and project structuring at the BNDES, adding that the bank has already received over R$30 billion in project requests.
According to Mr. Barbosa, one of the obstacles to be overcome in the interaction between external funds and multilateral banks, on one side, and development institutions that can act as “country platforms,” on the other, is exchange rate variation, in addition to the availability of resources (funding) and guarantees.
“Brazil is now implementing a mechanism where the Treasury will reduce the cost of currency hedges for some selected projects. Globally, and I think the 2008 crisis proved this, there isn’t much of a liquidity or funding problem. The resources exist. The problem is the currency mismatch,” Mr. Barbosa said.
The Treasury mechanism Mr. Barbosa referred to is Eco Invest Brasil, launched by the Ministry of Finance in February. The program, in partnership with the Inter-American Development Bank (IDB) and the World Bank, aims to encourage foreign capital inflows into the country for energy transition investments, offering currency hedging mechanisms at lower costs than market rates.
“There is a discussion that the IMF and the World Bank, more than providing liquidity or funding, should create a global hedge mechanism. It’s like creating a currency hedge fund for selected projects, where the interested party can obtain funding and hedge more cheaply through the IMF than in the market,” added Mr. Barbosa.
Rémy Rioux, president of the French Development Agency (AFD), believes that Eco Invest Brazil could serve as an example for other countries. He was in Rio this week for a meeting, hosted by the BNDES, of the Finance in Common (FiCS) network, of which he is the chairman.
“We launched the FiCS Financial Innovation Lab in Rio, with the support of the IDB and the Climate Policy Initiative (CPI), which is ready to receive new ideas and help develop and disseminate them,” Mr. Rioux said in a written interview.
“Based on the Brazilian example, public development banks could be asked to develop tailor-made financial arrangements to unlock green and resilient investments, addressing the main existing financial constraints identified at the national level, such as exchange rate instability, cost of capital, lack of international financing, rating limits, etc.”
Capital injections provide relief to publicly traded companies; disbursements total R$22bn in 12 months
05/25/2024
Luciano Lindemann — Foto: Ana Paula Paiva/Valor
Facing significant financial pressure, a group of publicly traded companies is turning to their controlling shareholders for capital injections to alleviate their balance sheets amid a prolonged period of high interest rates and crises in sectors like retail and healthcare. Disbursements have totaled nearly R$22 billion over 12 months, Valor’s analysis shows.
The largest capital injection, amounting to R$12 billion, will be led by Jorge Paulo Lemann, Beto Sicupira, and Marcel Telles for retail chain Americanas, mandated by the company’s creditors following the discovery of accounting fraud. In the healthcare sector, the Bueno family had to infuse capital into Dasa on two occasions due to the company’s high leverage. In the most recent injection announced this month, the family will provide R$1.5 billion to ensure the company does not breach its maximum debt covenants, through a capital injection. Concurrently, Dasa will also be selling assets.
Another healthcare company, Oncoclínicas, also initiated a capital increase of R$1.5 billion, with R$1 billion from Master Bank, which will finance the remaining amount to be provided by the company’s founder, Bruno Ferrari. This capital will help reduce the company’s leverage.
According to a survey by FTI Consulting for Valor, there have been about 30 capital injections since November, with 80% aimed at financial stabilization. Of these, 10 companies were burning cash (negative EBITDA) and 15 had leverage ratios above five times. “Many companies waited, hoping for better economic conditions to raise funds, but ultimately couldn’t wait any longer. Those with the option of capital injections are resorting to this measure,” said Luciano Lindemann of FTI. He notes a higher concentration of such companies in the retail, infrastructure, and construction sectors.
Mr. Lindemann said that companies must address the root causes of their increased leverage despite the capital injections. “Simply injecting liquidity and reducing leverage won’t solve the problem alone,” he said.
The current economic context has also contributed to this trend. “This movement is part of the current landscape in Brazil, with closed windows for initial public offerings [IPOs] and few secondary offerings,” said Eduardo Terra, a retail company advisor and president of the Brazilian Society of Retail and Consumption. “In some cases, controlling shareholders see more advantage in capitalizing the company to avoid future losses, especially if they have already profited significantly from the business and see the potential for medium to long-term returns. In other cases, however, they may choose to exit.”
With the uncertain macroeconomic environment, more companies may need additional resources to balance their books. Daniel Calori of Íntegra Associados said that corporate debt continues to grow, meaning more companies will likely undergo restructurings, possibly including capital injections from controlling shareholders. He said that beyond ensuring solvency, major shareholders may see the depreciated share prices as an entry opportunity, anticipating future appreciation.
Mr. Calori emphasizes that companies need to tackle the underlying issues alongside capital increases, or the injected capital will quickly deplete. Creditor banks negotiating extended terms often require a capital injection as a condition.
Companies without a controlling shareholder, or with controlling shareholders unwilling to inject more funds, will likely undergo more formal restructuring processes, as seen with Casas Bahia, which entered into extrajudicial restructuring after agreements with major creditors, said Mr. Calori. According to Mr. Lindemann of FTI, these companies may seek alternative solutions, potentially turning to investors accustomed to distressed assets, such as special situation managers.
The challenging capital market has also required greater involvement from majority shareholders to ensure capital injections when needed. For instance, last year, the Pinheiro family had to contribute to the health insurance operator Hapvida in a secondary offering to address the company’s balance sheet. Similarly, in a secondary offering for Ambipar, controlling shareholder Tércio Borlenghi Junior had to inject capital due to difficult market conditions for share offerings.
At retailer Lojas Marisa, undergoing financial restructuring in recent years, the Goldfarb family plans to contribute about R$550 million, according to sources. This year, the Trajano family arranged a R$1.25 billion capital increase for retailer Magazine Luiza, with BTG possibly subscribing to R$250 million.
In a market communication, Oncoclínicas announced a goal to achieve a financial leverage ratio of two times net debt to annualized fourth-quarter EBITDA. Ambipar and Marisa declined to comment.
Hapvida said in a statement that its last capital injection in April 2023 was aimed at strengthening cash flow and optimizing the company’s capital structure. Since then, the company has been reducing leverage through robust operational cash generation and has no ongoing capital injection plans.
Magazine Luiza stated that the capital injection in January reflects the controlling shareholders’ confidence in the company and its business model. “The operation saw record participation from minority shareholders at 75%. The funds are being used to accelerate technology investments and improve capital structure.”
Dasa said that the transaction is part of operational and strategic initiatives aimed at reducing leverage, establishing a solid financial position, and enhancing investment capacity. The R$1.5 billion injection underscores the controlling shareholders’ long-term commitment.
*Por Fernanda Guimarães, Mônica Scaramuzzo — São Paulo
Codeshare does not require antitrust regulator’s approval; experts say operation tends to attract attention
05/27/2024
Partnership will combine the two carriers’ airline networks in Brazil through the codeshare system and involve both companies’ loyalty programs — Foto: Leo Pinheiro/Valor
The cooperation agreement between Azul and Gol announced on Thursday (23) agitated the market, as experts saw the approach as the start of a consolidation process between the companies. On Friday (24), Gol rose 11.9% to R$1.41 on the B3, while Azul soared 5.18% to R$10.36—the biggest appreciation of companies in the benchmark stock index Ibovespa on that day.
The partnership will combine the two carriers’ airline networks in Brazil through the codeshare system and involve both companies’ loyalty programs. Customers purchasing airline tickets included in the codeshare can choose to which program they wish to allocate the points they are entitled to. Azul and Gol carry out around 1,500 flights daily. The agreement will create more than 2,700 travel opportunities with just one connection.
The market says the deal resembles a partnership signed by Latam and Azul in 2020. The agreement was abruptly terminated a year later due to Azul’s attempt to take over Latam after the latter filed for a court-supervised reorganization under Chapter 11 in the United States.
Behind the scenes, Azul is said to be in advanced talks with Gol for a merger. At the first moment, Azul was reportedly willing to acquire Gol. Now, the prevailing view in the market is that the airlines could join forces to create a new firm that would also include Abra—the holding company controlling Gol and Colombia-based Avianca—as a shareholder. It remains unclear who would be the controlling shareholder. Azul is currently controlled by businessman David Neeleman.
The codeshare does not require approval by the Administrative Council for Economic Defense (CADE), as it is regarded as a commercial agreement. However, experts point out that it tends to be handled as a different operation and attract the antitrust regulator’s attention.
Furthermore, the deal has a relevant background, which is the behind-the-scenes’ moves by Gol and Azul toward a possible consolidation. If the agreement is regarded as preparation for a future merger, it could raise a flag at CADE. Azul and Gol declined to comment.
When Latam entered into a codeshare with Azul in the past, Gol asked CADE to apply some type of penalty against the two companies for a practice that could harm consumers. However, the request did not advance as the industry was struggling with the effects of the COVID-19 pandemic.
Experts point out that CADE has the power to request an analysis of the operation although its history shows it did not require prior notification in previous codeshare cases.
The airline industry is under heavy public scrutiny due to the increase in ticket prices and has been in constant attrition with the Brazilian Congress. On May 14, during a hearing before being reappointed as the CADE’s general superintendent, Alexandre Barreto said the antitrust regulator is preparing “a broad investigation” into ticket prices.
In a report, Bradesco BBI analysts pointed out that the current agreement seems to be more robust than the one signed between Azul and Latam in August 2020. The previous agreement did not involve frequent-flyer programs and was limited to 64 domestic flights. The bank also emphasizes that the partnership appears to be the first step to a possible merger.
Itaú BBA expects the deal will benefit Azul as it gives the company access to a larger network connected to its regional operations.
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/D/F/cFag8JSAW36CdZxle8yQ/avioes-gol-e-azul-leo-pinheiro-valor.png)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/4/a/ESnBbITBOf8KJhkzqYqA/andre-3.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/T/l/rWxWrBQ3WKAlmcuKjnOg/280524appian10.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/x/E/FdCrqATIutho7bQIGuqw/nubank.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/c/B/OL5UjxQZAi02mXfIaDSA/270524magdachambriard04.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/c/B/kVsNP6SqeB1u8XybP7zw/200323seminariobndes135.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/n/L/ayafSLRZC5sACe3Vb3FQ/luciano-lindermann-da-fti-ana-paula-paiva-valor.png)