Metric derived from the ratio of shareholder payouts to stock price
10/25/2024
Petrobras has emerged as the Brazilian company with the highest dividend yield this year. The preferred and common shares of the oil giant are leading the list of stocks with the highest “dividend yield” (DY) percentage, according to a report by financial information platform Comdinheiro share with Valor.
This indicator is calculated from the ratio of dividends paid to shareholders to the stock price. For Petrobras, the preferred shares show a DY of 12.43% for the period from January to September. The common shares have a rate of 11.8%. Cemig’s preferred share follows, with a DY of 10.31%.
CPFL, Taesa, Vale, BB Seguridade, PetroRecôncavo, Banco do Brasil, and Usiminas complete the list of the ten stocks with the highest dividend returns for the year up until September. See below:
1. Petrobras ON (PETR4): 12.43%
2. Petrobras ON (PETR3): 11.80%
3. Cemig PN (CMIG4): 10.31%
4. CPFL ON (CPFE3): 7.88%
5. Taesa units (TAEE11): 7.85%
6. Vale ON (VALE3): 7.81%
7. BB Seguridade ON (BBSE3): 7.44%
8. PetroRecôncavo ON (RECV3): 7.14%
9. Banco do Brasil ON (BBAS3): 6.85%
10. Usiminas PNA (USIM5): 6.57%
From an investor’s perspective, it is advisable not to rely solely on the “dividend yield” when selecting a stock, but also to consider factors like inflation, sector crises, and the company’s investor remuneration policies, said Filipe Ferreira, director at Comdinheiro, a Nelogica company.
“Investors need to take a broader view and analyze the macroeconomic context in which the company operates, secular trends, and the company’s performance,” he said in a statement.
He emphasizes the importance of examining the company’s dividend policy, particularly the average DY over the past five and 10 years.
A report by Valor this month indicates that dividend payments in 2024 have reached the same level as the entire previous year, defying the more pessimistic expectations seen at the end of 2023.
By September, R$222.18 billion had been distributed as dividends, interest on equity (JCP), and other forms of shareholder remuneration, surpassing the R$171.8 billion paid during the same period last year. Throughout 2023, Brazilian companies returned R$224.2 billion to shareholders.
ith a rise of 0.54% in October, the IPCA-15 presents concerning data, according to economists, and inflation estimates for this year may worsen
10/25/2024
Mid-month inflation index IPCA-15— a barometer for Brazil’s full month official inflation—presented “concerning” data in the eyes of economists, potentially triggering upward revisions in inflation estimates for 2024. The index rose 0.54% in October compared to September, surpassing the median of 0.51% among forecasts gathered by Valor Data. With this result, the IPCA-15 now shows a 4.47% increase over the past 12 months. Year-to-date, the index reached a 3.71% increase, according to data from statistics agency IBGE.
The largest impact came from the 5.29% increase in electricity prices, which accounted for 0.21 percentage points of the overall 0.54% rise in the IPCA-15, representing 38.9% of the month’s total increase. Vehicle insurance prices surged by 3.64%, bottled gas prices climbed by 2.17%, and meal prices increased by 0.70%—these were the main drivers of inflation in October. Consequently, household food inflation rose 7.05% over the 12 months leading up to October, exceeding the 4.47% increase in overall inflation during the same period.
On the other hand, transportation prices intensified their deflation, dropping to -0.33% in October from -0.08% in September, driven by an 11.40% decrease in airfare prices and free public transportation during the first round of municipal elections.
In light of these figures, the J.P. Morgan team has already revised its inflation estimate for 2024 to 4.7% from 4.5%, which exceeds the Central Bank’s target cap.
“Looking ahead, the October IPCA-15 seems to signal a more challenging fourth quarter. First, wholesale and consumer price tracking suggests that food prices will rise further, mainly due to a spike in meat prices, leading to an upward surprise in our estimates as well. Second, the effects of exchange rate depreciation on goods prices will likely remain in play,” the bank noted in a message to clients.
J.P. Morgan also justified the revision by announcing that it no longer expects a temporary discount on electricity prices by the end of the year.
According to Alberto Ramos, chief economist for Latin America at Goldman Sachs, the October IPCA-15 results reflect a “hostile” composition due to the spread of higher-than-expected price increases, including core inflation.
In addition to the Diffusion Index, which measures the proportion of goods and services that experienced price increases, rising to 58.3% in October from 55.0% the previous month, the average of the five core inflation measures tracked closely by the Central Bank accelerated to 0.43% in October, up from 0.18% in September, according to calculations by MCM Consultores. Over 12 months, the average of the core indices rose from 3.60% to 3.81%.
“The core inflation surprise was even greater than the headline. We saw a slightly worse reading for industrial goods, but still at a relatively low level. However, when we look at services, particularly underlying services, the variation is considerably worse than expected,” said Andrea Damico, chief economist at Armor Capital.
Underlying services inflation increased by 0.59% compared to the previous month. “I see a deterioration in data quality that the Central Bank is genuinely giving importance to,” Ms. Damico remarked, reinforcing the probability that the Central Bank will raise the base interest rate by another 50 basis points in its November meeting, bringing it to 11.25% per year.
For André Valério, an economist at Banco Inter, the IPCA-15 is unlikely to change the Central Bank’s stance, which has already signaled further rate hikes at its November 6 meeting. The data also heightens pressure on the government to implement stricter fiscal adjustments.
According to Carla Argenta, chief economist at CM Capital, the scenario highlighted in this IPCA-15 report strengthens the Central Bank’s monetary tightening stance. “For the Central Bank, the economy is operating at full capacity, and with growing demand, the adjustment occurs through prices. To address this, the institution believes in an even more restrictive monetary policy,” Ms. Argenta noted.
By Rafael Vazquez, Lucianne Carneiro — São Paulo and Rio de Janeiro
With a competitive cost, Be8 BeVant reduces carbon monoxide emissions by up to 50%, becoming a solution for companies seeking to meet short-term sustainability goals
10/24/2024
With a green coloration, Be8 BeVant will be offered at an estimated cost up to 50% lower than the current international market price for renewable diesel. — Photo: Disclosure
A higher ester content reduces carbon monoxide emissions by up to 50%, particulate matter emissions by 85%, and black smoke by 90%. The use of this new fuel is focused on the key economic sectors looking to accelerate decarbonization.
“The great advantage of Be8 BeVant is that, unlike other technologies that depend on future infrastructure and investments, it is ready to be used immediately in current engines and new truck versions at a competitive cost”, explains Erasmo Carlos Battistella, president of Be8.
Negotiations are already underway with clients in the agricultural, urban transportation and mining sectors, with deliveries expected by the end of 2024. Besides being an accessible and easy-to-implement solution, the product doesn’t require significant changes in infrastructure or engines, unlike alternatives like hydrogen or electric vehicles.
The new biofuel has proven quality, higher lubricity, and the engine testing phase on a test bench has confirmed its advantages and characteristics. Proofs of Concept (PoC) were conducted in partnership with engine manufacturers and fleet operators.
Innovation stems from the experience Be8 gained in Europe and the United States, including operating a biodiesel plant in Switzerland.
Erasmo Carlos Battistella, president of Be8: We are facing an immediate solution for companies seeking to meet their short-term decarbonization goals” — Photo: Disclosure
Depending on market demand, Be8 plans to expand its production at the Passo Fundo (RS) and Marialva (PR) units. The product will be offered at an estimated cost up to 50% lower than the current international market price for green diesel (hydrotreated vegetable oil — HVO). It also has the distinguishing feature of a green color to set it apart from other biofuels.
“We are facing an immediate solution for companies seeking to meet their short-term decarbonization goals”, says Battistella. Biofuel is ideal for large consumers of traditional diesel oil committed to reducing their emissions, especially in high-intensity transportation sectors such as mining and logistics. The product has the potential to fuel generators and meet the demands of road, rail, waterway and maritime modes.
Accelerating the decarbonization goal
In a scenario where many companies are commited to achieve carbon neutrality by 2030, the new biofuel emerges as a strategic ally— especially after the enactment of Law 14.993/24. The Future Law, as it is called, is an important chapter in the national strategy to meet the decarbonization goals set out in the Paris Agreement and the Global Commitment for Renewable Energy and Energy Efficiency— signed by 116 countries at the last COP. The goal is to triple the world’s installed renewable energy production capacity and double the global annual rate of improvements in energy efficiency by 2030. Brazil is one of the countries with the potential to become a global power in renewable energy.
“Be8 BeVant arrives at a crucial moment when companies are looking for practical ways to meet their sustainability goals,” emphasizes Battistella. The potential is significant, considering the urgency to find short-term decarbonization solutions for the transportation sector and the companies’ commitments to net zero emissions in the coming years. “In the logistics sector, the reduction in emissions helps client companies meet their ESG goals in Scope 3, which involves the entire supply chain,” adds Battistella.
In an accelerated transition scenario, hybrid and electric vehicles are projected to dominate local market, comprising 54% of sales by 2030
10/24/2024
Raquel Mizoe — Photo: Divulgação
In five years, sales of hybrid and electric vehicles are expected to surpass those of combustion models. According to consultancy studies commissioned by the industry, this shift may occur even sooner. Currently, hybrid and electric vehicles (EVs) make up 7% of the market, but their share is set to grow rapidly starting in 2025, when the first results of investments aimed at the new generation of vehicles will begin to materialize. Expert estimates suggest that at least half of the announced cycles will be dedicated to electrification, amounting to over R$63 billion.
Since the end of last year, Brazil has witnessed a wave of successive investment announcements from automakers. With an additional R$1.1 billion from BMW announced earlier this month, total investment in the light vehicle industry now reaches R$116.65 billion for the decade. Adding R$10.6 billion from truck and bus manufacturers, the total rises to R$127.3 billion, marking the highest level of investment in the history of the automotive industry in the country over a ten-year period.
Of this total, at least 50% will be allocated to the development of electrified cars, primarily hybrids that run on ethanol, according to estimates by Paulo Cardamone, president of Bright Consulting, a firm specializing in the sector. However, investments in the new generation of vehicles could be even higher, considering the details revealed by companies in their announcements of new cycles.
At the start of Brazil’s energy transition in the automotive sector, hybrids are expected to dominate national production, according to expert projections and automakers’ announced programs. During this phase, Brazil’s unique formula for integrating itself into the global decarbonization process will play a key role: the development of hybrid models that can be fueled with ethanol.
The first ethanol-hybrid vehicle of this new investment phase will be a Fiat model, scheduled for release on November 5. Fiat, a brand under Stellantis, will join Toyota and CAOA Chery, which already produce such vehicles in Brazil.
Except for the recently arrived Chinese automakers, which need to invest in new factories, the largest established companies in the sector are not including industrial expansion in their new investment cycles. Instead, most of the funds will be directed toward the development of new products.
Márcio de Lima Leite, president of the Brazilian Association of Automotive Vehicle Manufacturers (ANFAVEA), confirmed that a significant portion of the announced programs will focus on hybrids and the development of biofuel-powered engines. “The need for a technology shift is driving our members to make these substantial investments,” he said.
For several years, heavy investments in electromobility have also been underway in the U.S., Europe, and China.
In Brazil, a study conducted jointly by ANFAVEA and the Boston Consulting Group (BCG) presents two scenarios. In the accelerated transition scenario, hybrids and electric vehicles would dominate the market, accounting for 54% of sales by 2030. In a more gradual transition, combustion vehicles would lose market leadership slightly after 2030. By 2035, electrified vehicles are projected to represent 65% of the market.
Bright Consulting’s projection is even more optimistic, predicting that electrified vehicles will lead the market by 2028. The consultancy estimates a 57.4% market share within three years. By 2030, the share of combustion vehicles is expected to drop from the current 96% to 28%, according to the study.
The BCG study suggests that only by 2040 will fully electric models dominate Brazil’s new vehicle market.
The announcement of the new investment cycles aligns with the launch of Mover (Green Mobility and Innovation), a federal program that provides tax credits in exchange for commitments to product development and decarbonization, among other incentives. For instance, companies that invest at least 0.5% of their revenue in research and development will benefit from reduced taxes.
This benefit also applies to the export of engineering services. “Brazil has the potential to export its expertise in biofuels,” said Raquel Mizoe, director of emissions at the Automotive Engineering Association (AEA).
To qualify for the tax incentive, companies must also comply with new CO2 emissions standards. Another aspect of the Mover program, which still requires regulation, is the measurement of CO2 emissions across the entire vehicle lifecycle, from production to consumption. Currently, emissions measurement is limited to what exits the tailpipe.
However, the drive to reduce greenhouse gas emissions is not the only factor pushing automakers to develop cleaner vehicles. Ms. Mizoe noted that Brazil’s regulations for other gases are becoming increasingly stringent.
“The PROCONVE [Vehicle Emissions Control Program] legislation, which aims to protect public health, is imposing stricter limits on gases like nitrogen oxide, hydrocarbons, and soot. These rules require changes to components like the catalytic converter,” she said. The next stage of PROCONVE, known as L8, will come into effect in early 2025.
In the initial phase of the energy transition in Brazil, the mass market will be shaped by the so-called mild hybrid, a more affordable hybrid car where the electric motor never operates independently but assists the combustion engine in reducing emissions.
Ms. Mizoe said mild hybrids offer fuel savings and emissions reductions of 8% to 10% compared to combustion vehicles. For conventional hybrids, the reduction reaches 20% to 25%.
Mild hybrids are part of the development plans of major automakers like Stellantis and Volkswagen. These models, more affordable than fully electric vehicles, are the way these companies aim to maintain market leadership.
“We will have a slower transition, but that doesn’t mean we’re lagging,” said Mr. Leite, president of ANFAVEA, which strongly advocates for the use of ethanol in the decarbonization process and opposes the increasing import of electric vehicles from China. “Brazil has already found its path with biofuels,” he said.
While automakers’ executives often claim there is room for all technologies, hybrid and electric vehicle advocates are already taking sides. Like ANFAVEA, the AEA supports what Ms. Mizoe calls “hybridization with ethanol.”
Those who support hybrid models point to the need not only to leverage Brazil’s expertise in biofuels but also to preserve the country’s existing auto parts industry. They also highlight the need to expand the infrastructure of electric charging stations to support fully electric vehicles on highways.
The growth of the fully electric fleet will require Brazil to have 500,000 charging stations by 2040, according to ANFAVEA. Currently, there are only 10,600 stations.
The higher cost of fully electric models still limits their appeal to wealthier consumers. However, this obstacle is likely to be overcome soon with the use of new minerals in batteries and the potential for recycling these materials, said consultant Jaime Ardila, a specialist in the field and founder of U.S.-based firm Hawksbill.
Mr. Ardila noted that the replacement of lithium with sodium is already helping to reduce battery costs, the most expensive component of an electric vehicle. “Lithium, which is much more expensive, will lose ground. Advances in recycling these new minerals have been significant; in Europe, it will soon be mandatory,” he said.
“With lower costs and recycling, demand for fully electric vehicles will rise because consumers will prefer them,” he said. Mr. Ardila believes the dominance of hybrids in Brazil will be temporary. “No more than five years,” he said. Additionally, he noted that the ongoing investments are increasingly directed toward electrification technologies.
“It would be a huge mistake to make such large investments in new combustion vehicles, which will have a short lifespan. Automakers’ headquarters will not support such a strategy,” Mr. Ardila added.
“Except for those who love the sound of an engine, electric cars offer more technology and all the benefits of decarbonization,” said Ricardo Bastos, president of the Brazilian Electric Vehicle Association (ABVE).
Electrification, whether hybrid or fully electric, is here to stay, and federal programs are supporting the cause. The government now owes a public policy for vehicle inspections to remove polluting and unsafe cars, trucks, and buses from Brazil’s roads.
According to the grid operator, new lines will restore wind and solar generation levels seen before the August 2023 blackout
10/22/2024
New assets have increased power transmission from the Northeast to the Southeast/Central-West by 12% — Photo: Divulgação
Brazil’s national grid operator ONS has increased the capacity to transmit renewable power from Brazil’s Northeast to the rest of the country with the activation of three new transmission lines and a power substation. These assets received operational clearance last week.
According to ONS, the new lines will allow the operator to reduce the restrictions on wind and solar generation to levels observed before a blackout in August 2023. The authorized lines, all operating at 500 kilovolts (kV), include Pecém-II – Pacatuba C, Fortaleza II – Pacatuba C, and Pacatuba – Jaguaruana II.
The Pacatuba substation has also commenced operations. This development increases the capacity of the Northeast—a region rich in wind and solar power plants—to transmit power that had been restricted since August 15, when a blackout impacted 25 states and the Federal District due to equipment failures in a line located in the region.
The power outage led ONS to adopt more restrictive operations until measures ensuring system reliability could be implemented, thereby limiting the transmission of renewable power from the Northeast to the rest of Brazil. This practice is known in the electric sector by the terms “constrained off” and “curtailment.”
Marcio Rea, managing director of ONS, said that the new assets have increased power transmission from the Northeast submarket to the Southeast/Central-West by 12%, raising the capacity from 11,600 megawatts (MW) to 13,000 MW. The capacity for power export from the Northeast to the North has also been increased by 30%, from 4,800 MW to 6,000 MW.
Later this month, the Olindina-Sapeuçu transmission line, also at 500 kV, will become operational, further boosting the capacity from the Northeast to the Southeast/Central-West from 13,000 MW to 13,800 MW. “This will reduce the need for restrictions,” said Mr. Rea.
Mr. Rea acknowledged, however, that generation cuts will not cease entirely with the activation of new wind and solar projects. “It’s impossible to eliminate the cuts,” he added.
Mr. Rea also mentioned that ONS, the Ministry of Mines and Energy (MME), and the Energy Research Company (EPE) are exploring scenarios to expedite the first battery auction in the electric sector, initially scheduled for 2028 to 2029. The auction model is still under internal discussion. Batteries are considered an alternative to manage wind and solar power transmission during peak demand times, such as between 5 p.m. and 8 p.m.
At the end of the day, as solar photovoltaic generation exits the electrical system with the end of solar radiation, the system loses about 30,000 MW. Furthermore, peak hours mark a transition period for wind energy, as winds tend to be stronger at night. To meet this demand, ONS relies on thermal and hydroelectric power plants; however, during droughts, such as the current one, the operator aims to conserve reservoir use, which limits options.
With a battery system, wind and solar energy could be stored and injected into the transmission network as needed. However, the battery auction’s execution depends on the power regulator agency ANEEL regulating the subject.
ANEEL did not reply to Valor’s request for comment. Its 2024-2025 regulatory agenda includes “regulatory adjustments” in 2025 to incorporate storage systems into the electrical system.
The ONS managing director said that ONS, EPE, and MME are in discussions with ANEEL on regulation and believes that after rule definition and auction execution, a storage project could be operational within a year post-auction. “It’s a significant step forward and would further improve the issue of renewable energy cuts,” said Mr. Rea.
He said he believes that introducing batteries into the electric sector could start with an offer exceeding 500 MW of storage to facilitate market formation. However, the initial demand definition is up to the MME.
Combination of the two companies could generate revenue of R$16bn and capture a market share of approximately 17% in the laboratory industry
10/22/2024
Negotiations for a merger between EMS and Hypera could mark the start of a second wave of consolidation among Brazilian drugmakers.
There is an expectation that other groups may accelerate mergers and acquisitions following the announcement of the EMS-Hypera deal on Monday (21), given the potential for combining two companies that together generate revenue of R$16 billion and hold a market share of approximately 17%, while typically, pharmaceutical companies do not exceed a 10% market share.
The economies of scale are significant. The combined company, for example, would gain negotiating power with distributors and pharmacies, a factor that is likely to drive business growth.
However, industry sources remain skeptical about the feasibility of advancing the deal.
The view of experts consulted by Valor is that it is not straightforward to approve a transaction stemming from a hostile bid. In addition to the largest shareholder of Hypera, João Alves de Queiroz Filho, known as Júnior, having previously rejected merging the businesses because he does not want to become a minority stakeholder in the combined entity, he also holds a significant 21.38% share, which presents challenges for widespread acceptance, one person noted.
Another person familiar with the matter pointed out that it is rare for a hostile offer from a privately held company to succeed, as the board of directors of the target rival may require extensive due diligence on the numbers presented by the bidder to feel comfortable recommending the deal.
One source mentioned that EMS is attempting to mobilize Hypera’s investors by making a hostile offer, effectively pressuring them to accept the deal. However, a potential side effect could be attracting new interest in Hypera, as all players in this industry are eyeing potential M&A deals. If this occurs, the interested company could approach Mr. Queiroz Filho and attempt to negotiate amicably.
To illustrate the potential transaction between EMS and Hypera, they rank first and third, respectively, in the generic-drug market considering Neo Química, a division of Hypera. This segment generated approximately R$29.2 billion in the 12 months ending in September, according to industry association Sindusfarma, based on data from consulting firm IQVIA.
Hypera boasts a large portfolio of over-the-counter medications with well-known brands such as Neosaldina, Rinossoro, Lisador, and Coristina. The OTC segment reported revenue of R$21.3 billion.
For an industry expert, pharmaceutical companies that do not manage to merge are likely to drive prices down, opting to reduce margins rather than lose market share. The pharmaceutical industry generates approximately R$200 billion in revenue.
Rafael Freixo, director of LEK Consulting, said if completed, the deal would be the largest transaction in the sector in recent years. “This new company would dominate several product categories. Hypera has a very strong business in over-the-counter medications. It also has a significant presence in the pharmaceutical channel, while EMS is strong in generics and similar products.”
On Monday, shares of Hypera had an unusual trading day, with transactions reaching R$1.07 billion amid the volatility caused by two announcements that elicited opposite reactions from shareholders. A working capital optimization program negatively impacted market sentiment in the morning until a proposal for a business combination made by EMS shifted the mood in the late afternoon.
The Hypera’s stock closed the day up 1.9%, at R$26.16. The trading volume of R$1.07 billion was the second-highest on the B3 stock exchange, trailing only Vale, which had R$1.15 billion, and was roughly seven times the R$151 million traded by Hypera on Friday (18).
Ana Beatriz Bartolo and Felipe Laurence contributed reporting.
*By Beth Koike, Fernanda Guimarães, Ana Luiza Carvalho — São Paulo
Early redemption of debentures totaled R$76.4bn from January to September, nearly ten times the amount from the same period last year
10/22/2024
Felipe Moraes — Photo: Rogério Vieira/Valor
Amid a rush by investors and issuers into the corporate debt market, and consequently, a sharp reduction in risk premiums, companies have already repurchased R$76.4 billion in debentures from January to September, a record amount in Brazil’s market, according to a survey by fintech Bamboo commissioned by Valor. The total is nearly ten times higher than the R$8.3 billion repurchased during the same period last year and more than double the R$28.9 billion in 2022. On the one hand, companies are taking advantage of favorable conditions to improve their capital structure; on the other hand, investors and asset managers face an unprecedented wave of early redemptions.
Buybacks are provided for by law, and the terms are specified in the offering rules, including the date from which it can occur and the additional payment the issuer must make to the buyer on top of the remuneration and interest established in the transaction. However, until recently, this option was rarely used by companies. Since the start of this year, demand from investors for funds that allocate to these securities, as well as direct purchases, particularly tax-exempt ones, has surged.
With the increase in demand, prices in the secondary market have risen significantly, which affects the final spread. By paying more for the security, it effectively yields less—resulting in a lower spread. Depending on the acquisition price, the buyback can lead to losses.
Ricardo Nunes, credit and high-net-worth investment director at Paramis Capital, explained that many debentures are below the breakeven point. “There are likely asset managers incurring losses because they didn’t consider the calculations or didn’t think the risk of a buyback was significant.” He noted that if the volume remains high for another two or three months, “it will start to cause a stir,” as funds are required to update the daily value of their units based on the value of the securities in the market, and the buyback can impact the unit value, Mr. Nunes said.
One example of a debenture below the breakeven level in the secondary market is Equatorial Energia’s EQTL15, issued at the Interbank Deposit Certificate (CDI) rate plus 1.55% and maturing on December 15, 2026. It can be redeemed starting December 15 of this year with a 20-basis-point annual premium. According to one fund manager’s calculations, the breakeven is at CDI plus 1.26%. However, market transactions now range between 0.9% and 1.20%, thus below that threshold. Equatorial declined to comment.
Jean-Pierre Cote Gil, credit manager at Vinland Capital, agreed that there is a potential loss in fund value but stressed that it is limited since there aren’t many securities with a close buyback window and a price gap of over 0.5% from the market value. He explained that when evaluating secondary-market securities, he considers the buyback price and the likelihood that issuers will exercise the option. “In some cases, it makes sense to buy at a price above the buyback price if the early redemption period is still in its grace period.”
To mitigate the challenge of difficult allocation, where secondary and primary issuance spreads are very low and early redemptions are high, many asset managers have opted to increase the portion of their funds in liquid assets, often dominated by LFTs (fixed-rate treasury bonds). This is the case for Vinland, which manages over R$1.5 billion in credit. “In general, we have opted to hold more cash rather than acquire securities with the risk of losses from buybacks,” Mr. Cote Gil noted.
Paramis, in addition to increasing cash holdings, has raised the share of bank securities in its portfolio, such as CDBs (Bank Deposit Certificates) and senior financial bills (LFs), which cannot be repurchased—only subordinated and perpetual LFs allow early redemption. The company has also allocated more to credit rights investment funds (FIDCs), which offer higher rates. “Nearly half of the corporate debt portion of our DI [Interbank Deposit] fund is now in bank securities. In our high-grade fund, we have one-third, and in the high-yield fund, 28%. In these adverse conditions, we remain selective,” Mr. Nunes said.
Juliana Tomaz, head of structured credit strategy at AMW, Warren Investimentos’s asset manager with R$1.9 billion in credit, noted that the cash level in her funds has risen from a typical 10%-15% to between 20% and 30%, waiting for a market correction. She mentioned that banks have recently started to exercise early redemption of perpetual LFs. “For fund managers, with reduced spreads and early redemptions, allocating resources is a challenge. We are filtering and managing to purchase securities, but the flow of opportunities is low,” she said.
Felipe Moraes, CEO of Bamboo, said the strong growth in corporate debt—totaling R$423 billion in issuances from January to September, compared to R$395 billion last year—has driven many asset managers to invest in this segment, increasing competition. Many are actively seeking companies to offer debt restructuring services, swapping shorter, more expensive debt for longer, cheaper options. This allows them to secure the mandate for offerings in the market with better terms for the issuer.
“We look for companies that have issued at least once in the capital markets and have a good payment history. A swap from two-year to five-year securities, for example, with a one-year grace period for repayment, provides breathing room for the business,” Mr. Moraes explained. The platform, which facilitates access for companies with revenues between R$20 million and R$200 million to capital markets—structuring and distributing primarily real estate receivables certificates (CRIs), debentures, and commercial notes—expects to end the year with R$500 million in originated transactions, a 300% growth compared to last year. “Many first-time clients from last year have returned.”
The Bamboo survey considered only corporate debentures, which are mostly bought by institutional investors, such as mutual funds and bank treasuries. The movement is even larger, as tax-exempt securities, like incentivized debentures, CRIs, and agribusiness receivables certificates (CRAs), which are favored by individual investors, are also being redeemed early.
This year, the most notable deal in the market was JBS’s repurchase of R$3.9 billion in CRAs in September, while its subsidiary Seara raised R$1.5 billion in October across three series of 5, 10, and 20 years. The shortest was adjusted by the exchange rate plus 5.3%, but the longer securities had the lowest spreads over the NTN-B (government inflation-linked bonds) in JBS’s history (0.3% and 0.45%, respectively). In May, the company had already raised almost R$1.9 billion under highly favorable terms. The CRAs were issued at 6% in the first series (in U.S. dollars) and at the IPCA official inflation plus rates between 6.6% and 7% in the other three. For comparison, JBS’s average debt term in May was 11.1 years, at a cost of 5.78%.
“Investors were not used to this; it’s something new, as individuals tend to hold the security until maturity,” said Raphael Vieira, co-head of investments at Arton Advisors, a multifamily office managing R$8 billion, R$3 billion of which is in corporate debt. However, he noted that early redemption, while potentially disappointing for those planning to hold the debenture, creates opportunities for asset migration. “Some reinvested in the company’s new issuance, while others chose to switch. However, investors who bought in the secondary market may face a loss on the principal.”
Mr. Vieira explained that the taxation of exclusive or restricted closed funds led to the dismantling of these structures. In their place, it has become common to form a managed portfolio with tax-exempt securities and credit funds. Furthermore, the poor performance of multimarket funds has triggered many redemptions, with that money flowing into fixed income. Compounding this, in February, the National Monetary Council (CMN) imposed restrictions on real estate and agribusiness credit notes (LCIs and LCAs), increasing their minimum maturity from 90 days to nine months.
“The market has grown significantly, but it’s limited in terms of company size and debt issuance capacity,” a report from BTG Pactual’s research division highlighted. The allocation of individual investors in debentures, CRIs, and CRAs reached R$317 billion in July of this year, compared to R$261 billion in December 2023. This volume represents 4.5% of the total assets under private and retail management, up from 4% in December 2023.
Mônica Araújo, an allocation strategist at InvestSmart XP, one of the country’s largest offices in terms of advisors, said that due to reduced risk premiums and the high volume of buybacks this year, they do not prioritize these securities. “We have to respect the client’s profile and preferences, but if they are interested in corporate debt, we recommend funds that offer diversification and professional management. Direct investment in securities doesn’t offer a return that justifies the risk.”
Thiago Giantomassi, a partner at Demarest Advogados, noted that new transactions are still expected this year, as companies continue to approach the firm. He explained that when buybacks are coupled with new issuances, a mix of solutions is considered. The acquisition of a company’s own debentures, he said, is part of its “liability management,” which involves managing risks to avoid mismatches between assets and liabilities.
Lack of “deliveries” in fiscal area concerns, with pressure on exchange rates, interest rates
10/21/2024
Silvia Matos — Photo: Leo Pinheiro/Valor
The anticipated cooling of economic activity after a surprising first semester is beginning to show in indicators, along with decreasing fiscal momentum. What could be seen as a relief and good news for inflation, however, is overshadowed by the growing deterioration of agents’ risk perception regarding the Brazilian fiscal scenario—a situation that pressures the exchange rates and the interest curve. In such a scenario, it is necessary to urgently “deliver” spending adjustment.
The October edition of the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV)’s Macro Bulletin slightly revised the expectation for 2024 GDP growth from 2.9% to 3%. Following August data, the third quarter projection was adjusted from -0.1% to 0.1%, compared to the previous three months.
Annually adjusted, it is still a strong expansion of 3.2%, according to Silvia Matos, the survey coordinator. “Household consumption will likely remain very strong, we anticipate a year-on-year increase of 3.8%. Although the job market remains tight, the peak of fiscal stimulus is passing, along with the electoral cycle. It will eventually pressure down not only government consumption but also household consumption and investments in the third quarter,” she explained.
Ms. Matos notes that sectorial data from industry, services, and retail also point to accommodation, while confidence indicators suggest a cooling of business sentiment.
The Business Confidence Index (ICE) calculated by Ibre-FGV dropped 0.8 points, the first decline after six consecutive rises and only the second in 2024.
In terms of supply, the perspective is that the service sector should continue leading with a 0.4% increase compared to the previous quarter, followed by industry (0.3%), while agribusiness should see a 1% decline.
Except for the latter, these are more modest numbers than seen in the second quarter (1% and 1.8%, respectively).
On the supply side, a similar situation is seen. Two of the previous quarter’s drivers, household consumption is expected to slow from 1.3% to 0.2%, while government consumption goes from 1.3% to 0.5%. Ibre-FGV expects zero growth in gross fixed capital formation on a quarterly comparison. Meanwhile, exports could slow from 1.4% to 0.7%, and imports, from 7.6% to 0.4%.
“It will not be a sharp slowdown, the output gap will not return to negative, especially since we expect a resumption of activity in the first quarter of 2025,” Ms. Matos added. Ibre projects a 2% growth next year.
This scenario could help the inflation outlook but it has been pressured by two components. First, the severe drought and its impacts on food, as well as on energy tariffs. Economists André Braz and Mateus Dias note that farm products inflation rose by 8.4% in September, compared to a decrease of 6.9% a year earlier.
“This pressure is already felt by consumers, with food at home prices rising 6.1% in the last 12 months, against a drop of 0.78% in the same period of 2023,” the economists write. Given the change and maintenance of higher tariff flags, electricity has risen approximately 10% this year, adding 0.4 percentage points to the Extended Consumer Price Index (IPCA).
Ibre estimates the indicator to close 2024 at 4.7%—above the upper target pursued by the Central Bank, and to slow to 4.3% in 2025. In addition to the effects of the drought and strong activity, Ms. Matos highlights the sharp worsening of the fiscal perception, which has kept the exchange rate and interest curve high, a movement that pressures agents’ expectations about inflation and, consequently, the Central Bank.
“The inflationary situation worsens in the short term, so the Central Bank needs to act more decisively. With projections trending above the target this year, it’s hard to see the Selic policy interest rate falling next year,” Ms. Matos pointed out. “Even the international scenario may not help much, as was once expected. The Federal Reserve began its rate-cutting cycle with 0.5 percentage points but indicates it might opt for 0.25 points at the next meeting, or even pause it, amid issues around the U.S. elections. Trump has a rather protectionist agenda, which can be inflationary.”
The economist notes that, in Brazil, for a while, the market gave the benefit of the doubt to the fiscal framework. “Some had a very optimistic view. Now the market is waiting for some concrete measure of spending control.”
Ms. Matos regrets that, in Brazil, a severe worsening of the scenario is needed so that there is a favorable policy in tackling the fiscal issue. “We need to see a prospect that some positive primary result can be foreseen on the horizon, which has not yet occurred. The transition proposal to amend the Constitution (PEC) was approved at the end of 2022 without major disruptions—and it violated the Fiscal Responsibility Act by increasing recurrent spending by around 1% of GDP without saying how this would be financed. That 1% is exactly the current gap. Simply put, this issue remains hindering a scenario that could rather be much more positive, with growth slowing down slowly, a smaller interest rate hike.”
In this context, the proposal for income tax exemption for individuals earning up to R$5,000 could cause even more distress if it is compensated by applying a minimum tax of 12% to 15% on taxpayers with income exceeding R$ 1 million annually. “That is a way of re-taxing incomes that are currently exempt, such as profits and dividends and certain types of financial investments. According to Federal Revenue data, the top 0.01% of the Brazilian population with the highest income receives more than half of its income in the form of profits and dividends,” economist Manoel Pires wrote in the report. From a macroeconomic standpoint, however, “the redistributive change should produce an expansionary impact on aggregate demand. By taxing the richest to finance the relief of the lower-middle class, the proposal should stimulate consumption,” he warned.
Mr. Pires acknowledges that little is known about the measure. He considers its discussion inopportune at the moment, given its strong electoral impact and on public accounts. He adds that the biggest problem concerning the individuals’ income tax is not the exemption bracket, but its design.
“In a comparative study of 2023, published in the Fiscal Policy Observatory, it was found that, in Brazil, the deduction per dependent is very low compared to that of OECD countries. For example, a four-member—with three dependents—tends to have a much higher tax burden than a single-parent household with the same income,” Mr. Pires pointed out, noting that the latter has a much greater capacity to contribute. “Adjusting this type of inequality is more efficient and cheaper for the government.”
Another consequence of the overheated activity starts to appear in the external sector accounts: the current account deficit moving towards near 2.5% of GDP. Although exports remain strong, there was a significant increase in imports. Economist Livio Ribeiro points out that, although such a deficit does not pose a threat to the country’s external sustainability, “it will require more short-term capital, which could make the balance of payments results more unstable.”
Ibre-FGV study shows formal job openings in 2024 increased by 45.2% for women and 10.1% among men
10/21/2024
Janaína Feijó — Photo: Leo Pinheiro/Valor
In a scenario where women remain underrepresented in the job market, the rate of formal job creation for them in 2024 has so far been much higher than for men. This movement has helped reduce inequality in the composition of these new jobs in Brazil. These were the findings of the study “Quais os grupos mais beneficiados com o bom desempenho do mercado de trabalho em 2024” (or “Which Groups Benefit Most from a Stronger Job Market in 2024”), carried out by the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV) researchers Janaína Feijó and Helena Zahar.
Experts welcome the trend seen in 2024—driven mainly by the employment boom—but point out that it does not change the existing structural gender inequality in the job market, and it remains to be seen if the trend will continue in the future.
Based on data from the General Register of Employed and Unemployed Workers (CAGED), the study shows that the balance of formal jobs held by women grew by 45.2% from January to August 2024, compared to the same period in 2023. Among men, the increase was 10.1%. Of the balance of formal jobs created in 2024 up to August, 46.4% were occupied by women and 53.6% by men. In the same period of 2023, these shares were 39.6% and 60.4%, respectively.
This movement contrasts with 2023—when there was a loss of the female share in the balance of new formal positions—and marks a return to levels close to 2021 and 2022, although they were considered atypical as they were driven by post-pandemic recovery, Ms. Feijó says.
“Although the labor market is still imbalanced, it was much more so in the past. The strong performance in 2024 helped absorb the overall female workforce. This year, the market reacted and helped combat this inequality,” said Ms. Feijó, an economist specializing in gender issues in the job market, among other topics.
Behind the faster expansion of formal positions among women in the country in 2024, the Ibre-FGV researchers believe there is an influence of the profile of the sectors that drove the expansion—mainly services, commerce, and customer service—, where the female demographic is more present.
“The occupations that have been generating the most [positions] are also those that tend to absorb more women, as is historically the case with the services sector. However, compensation is not high. It’s a double-edged sword: it can absorb, but not address the salary equality issue,” the Ibre-FGV economist said.
Ana Luiza Barbosa, a researcher at the Institute of Applied Economic Research Institute (IPEA) and vice-president of the Society of Family and Gender Economics (GeFam), says the news of a better composition of the balance of formal job positions is positive. She says it results from better job market dynamics and hides the persisting gender inequality.
“There is a significant difference in the pace of growth in the formal job balance. The job market is continuously tight. Of course, that is a good thing but it somewhat masks a structural gender inequality,” Ms. Barbosa said.
In her reading, it is hard to tell if that is a permanent trend. As it is closely tied to the dynamics of the Brazilian job market as a whole, it could be a temporary movement. “Reducing inequality in the balance of new positions is different from doing so in the entire market. The study portrays the market’s dynamics, and how it is functioning. It is still positive news but we can’t say it will continue,” the IPEA researcher argued. She describes the reduction in gender disparities in employment in the country as “very slow.”
Janaína Feijó, one of the study’s authors is also wary: “What we see in 2024 is that the formal job market is absorbing more women but we are not addressing the quality of these positions. More observation over time is necessary to say if this will continue. For that to be seen as a permanent trend, the market must continue creating formal jobs and absorb more women,” she states.
Even with the faster rate of increase, the absolute balance of formal positions in 2024 is still smaller among women (800,200) than among men (926,200). The gender disparity is evident when comparing the female participation in the population as a whole with that in the job market when considering the total number of job positions.
In the population aged 15 or older, women make up 51.8% of the total, and men 49.1%, according to the 2024 population projections by the Brazilian Institute of Geography and Statistics (IBGE). Data from the Continuous National Household Sample Survey (PNAD Contínua)—which includes both formal and informal job markets—show that women make up 43.7% of the labor force, which includes workers who are employed or seeking a job. Men account for the remaining 56.3%, a share greater than their portion of the Brazilian population.
The employment rate among women reached 48.1% in the second quarter of 2024, a record since official records began in 2012, but still below 50%. Among men, the rate is 68.3%. The indicator points to the share of people aged 14 or older who are employed.
The study shows the greater incorporation of female labor in formal job positions in 2024 but that is only one part of the inequality observed in the market, Janaína Feijó argued. “We are only talking about the absorption of female labor, which is a good thing, although it is not everything.” Data from the New CAGED, from the Ministry of Labor, indicate little change in women’s average income in the formal market.
On average, the real average entry salary for formal workers was R$2,156.86 in August 2024, with relative stability over the previous 13 months. For men, it is slightly higher at R$2,245. Women’s monthly earnings are R$2,031, although it shows stability.
“Over the last 13 months, there have been small monthly variations but the difference between men’s and women’s average salaries remains evident, with women consistently receiving an average entry salary around 10% to 11% lower,” Ms. Feijó concluded.
In Brazil alone, $64.5bn is expected to be invested by 2028, according to the Brazilian Mining Institute, not counting potential acquisitions
10/21/2024
Gold mining area located along the banks of the Peixoto de Azevedo River, in northern Mato Grosso — Photo: Lalo de Almeida/Folhapress
Interest in tech-related and energy-transition metals like lithium and copper has driven a surge in the search for mineral deposits and projects worldwide, spurring mergers and acquisitions in the sector. In addition to these minerals, gold remains in high demand, with Brazil being a key target for foreign companies and governments due to its significant reserves.
Globally, according to Dealogic data, announced M&As in the industry amounted to $48 billion by August, an 8% year-over-year increase, including deals that impacted Brazil. This figure could have nearly doubled had Anglo American not declined BHP’s $43 billion acquisition offer in May.
Experts and industry executives noted that this trend is likely to accelerate in the coming years. The planned investments are substantial: in Brazil alone, $64.5 billion is expected to be invested by 2028, according to the Brazilian Mining Institute (IBRAM), not counting potential acquisitions.
Australia’s lithium giant Pilbara Minerals entered Brazil in August by acquiring fellow Australian company Latin Resources for $370 million. Last month, Pilbara announced a R$2.2 billion investment to develop its Salinas project in Vale do Jequitinhonha, Minas Gerais.
“The Salinas Lithium Project, with its potential to become one of the world’s largest hard rock lithium operations, will be vital for consolidating our leadership position in the North American and European battery markets,” said Dale Henderson, managing director and CEO of Pilbara Minerals.
Sigma Lithium, the leading company in Brazil’s lithium sector, also operates in the Jequitinhonha River region.
In the same week, G Mining Ventures purchased the rights to explore the CentroGold gold project in Maranhão from BHP. Shortly before, Australia’s St. George Mining announced its acquisition of the Araxá project, a niobium and rare earth metals operation in Minas Gerais.
“This activity will remain very strong. Since 2020, the number of transactions has accelerated,” said Alexandre Pierantoni, executive director of Kroll in Brazil. Between 2013 and 2019, Mr. Pierantoni noted, the number of global M&A deals in the industry averaged 750 per year. Since 2020, that average has risen to 1,200 to 1,300 deals annually—in 2023 alone, according to Bloomberg data, there have been 1,500 transactions, moving $80 billion.
The global drop in interest rates is expected to fuel further deals, although volatility in commodity prices makes asset valuation more challenging. “There are triggers that drive demand, like the energy transition. But this comes with a cost, meaning the world can’t completely abandon the [energy] base it’s built. Significant investments in oil and gas are still ongoing,” Mr. Pierantoni said.
In recent years, countries’ commitments to reducing greenhouse gas emissions have fueled growing demand for electric vehicles, whose batteries depend on lithium, copper, rare earth elements, and other minerals. Technologies like wind energy generation and solar panels also rely on these critical minerals.
“We are in an extremely productive phase in terms of new research, especially for minerals related to the energy transition, like lithium, nickel, vanadium, and rare earth elements. There is significant appetite in Brazil for these minerals,” said Julio Nery, director of sustainability at IBRAM. “This surge in research is happening in many countries,” he added.
*By Stella Fontes, Marcos de Moura e Souza — Sao Paulo
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/D/7/dgbxW3TJud9hWHlvKgHQ/dzv-8774-.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/E/n/gq7Y03QiitoxHzlEKlAA/erasmo-2024-5-1-nova-foto.jpg)
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2024/Z/U/qUEjAXSmewyQf1YBoK6g/foto24emp-101-marli-b4.jpg)
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2021/A/1/zBbF2OQ0G2MxlAbtdPnw/eolica-mangue-seco-2-divulgacao.jpg.png)
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2024/W/i/6IDalbTqCNAS4brUUK9A/foto22fin-101-deben-c6.jpg)
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2024/s/G/aAhatzRoWABHKeiZxuBA/foto21bra-101-bmacro-a6.jpg)
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2024/5/W/AV5vFWSHSDGjFXrlGICg/foto21bra-101-mulher-a9.jpg)
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2024/Q/z/diJqdOToOm8B6cOdoPWQ/foto21emp-101-mineracao-b1.jpg)