High long-term rates jeopardize confidence in Brazil

After three and a half years, Brazil is expected to have again a double-digit basic interest rate (Selic), after the first meeting of the Central Bank´s Monetary Policy Committee (Copom) in 2022, this Wednesday. The prevailing expectation in the market is that benchmark interest rate Selic will rise to 10.75% per year and will not stop there.

The Central Bank has been raising interest rates since March in order to contain inflation, which last year reached 10.06%, the highest rate in six years and well above the target (3.75% or 5.25%, when considering the tolerance limit). The Selic rate, which also indicates the cost of financing the federal government in the market, is set by Copom to, in the short term, contain or stimulate demand and, thus, control inflation in accordance with the target established for each year.

At this moment, amid uncertainty about how far the interest rate hikes promoted by Copom will go, there is growing concern in the market about the behavior of long-term interest rates, which roughly reflect the confidence of economic agents and investors in the capacity of the National Treasury to pay the public debt. Long-term rates traded on the stock exchange on interest contracts maturing in three years or more are above 11% per year.

These rates punish the lives of families and companies much more lastingly, since they make long-term credit more expensive, as if there were a bet that, even after the monetary tightening in force, the interest rate will remain high for many years.

In practice, this movement has an even more harmful effect on the economy than the monetary tightening itself, which is already a source of concern for economists. The rise in the Selic has as a consequence a cooling of consumption, either because credit becomes more expensive, or because it creates a stimulus to savings. It also leads investors to migrate to fixed income, which explains part of the fall in share prices in the second half of last year.

Higher long-term rates amplify this contractionary effect and can make it more lasting and widespread. Future rates make financing lines for infrastructure projects more expensive, whose term is also longer, even generating supply risks ahead. This long interest rate, which indicates some kind of distortion and a lot of uncertainty about the future of the economy, can even alienate investors and make projects with extended horizons unfeasible.

At the same time, those fees can bring down the value of companies, as the valuation is calculated taking into account the long fees. “The discount rate was higher, which means that the value projected for companies becomes lower when it is brought to present value,” defines Igor Lima, partner and manager at Trafalgar.

Fernando Honorato — Foto: Ana Paula Paiva/Valor
Fernando Honorato — Foto: Ana Paula Paiva/Valor

For Bradesco’s chief economist, Fernando Honorato, what explains this pressure on long-term interest rates is the fiscal risk, which has grown again in recent months. He recalls that a series of improvements in the fiscal framework, carried out from 2016 onwards, allowed the forward interest rate curve to undergo an adjustment and reflect more clearly the conditions of the economy. In addition to the spending cap, the change in the dynamics of the credit market, with the reduction in the supply of lines subsidized by public banks, and the creation of the Long-Term Rate (TLP) contributed to this adjustment.

For him, it is this risk that explains the real interest projected by long-term NTN-Bs, which today is around 5.6%, much higher than what was seen before the pandemic, of 3.5%. “I consider the increase in the premium of longer fees to the changes that have taken place in the spending cap,” he says.

The effects of the long-term interest rate and the tighter financial conditions create a “very negative” scenario for economic activity, warns the chief economist of ASA Investments, Gustavo Ribeiro, who projects a retraction of 0.5% in the GDP this year.

Another aspect to be noted is the cost of public debt, which is at the center of the debate and is a major source of uncertainty for investors. At this point, observes Sérgio Goldenstein, chief strategist at brokerage Renascença, the Selic has a more direct impact on the debt stock. Also, the 36.8% slice of post-fixed securities (R$2.1 trillion), the amount of R$1 trillion in repo operations is adjusted by the Selic. The effect of the long-term interest rate will be felt, therefore, in the rolling over of the public debt.

This year, the total domestic securities debt due is R$1.16 trillion and, if the current pattern is maintained, around 40% of this volume will be made through prefixed securities or NTN-B, but at higher rates than in the last three years. “The market has a limited capacity to absorb fixed-rate risk and the investor appetite has been limited by the dynamics of the curve,” says Mr. Goldenstein. “And for the curve to ‘close’, political and fiscal uncertainties have to diminish and the disinflation process needs to consolidate.”

Mr. Ribeiro, with ASA Investments, also notes that, in addition to domestic issues, the country must also deal with external factors, at a time when the future of monetary policy in the United States is being debated. The strong speech adopted by the Federal Reserve since the beginning of the year has promoted a rise in global interest rates, especially in developed markets, which supports the prospect of a higher neutral interest rate.

“We have had a major inflection in global assets, with the Fed pricing in interest rate hikes since the turn of the year. We have seen more hawkish signals from the Fed and is highly possible that an interest rate hike does not happen in March. In addition, the earnings reports reduction will also start earlier, generating a significant change in market pricing,” says Mr. Ribeiro. For him, the scenario became “less positive rather quickly” and affects not only Brazil but several countries.

The chief economist of Truxt Investimentos, Arthur Carvalho, also evaluates the repricing of the U.S. monetary policy as an additional factor of pressure on assets in emerging markets. For him, however, “given the size of the movement of the American real interest rate of ten years, which went from -1.1% to -0.6%, I think that the Brazilian long-term interest rate reacted lightly”.

Source: Valor International

https://valorinternational.globo.com

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Household consumption intention rises 1.1% in January

Improvement in informal work led to increase; 47.2% expect to consume less

01/02/2022

Consumption grows, but inflation worries — Foto: Marcello Casal Jr./Agência Brasil

Consumption grows, but inflation worries

After two months of decline, the Household Consumption Intention (ICF) indicator of the National Confederation of Commerce of Goods, Services and Tourism (CNC) rose 1.1% in January compared to December, to 76.2 points, and reached the highest level since May 2020 (81.7 points).

In practice, income from work supported consumption at the beginning of 2022, as well as the emergency aid, amid an environment of still pressured inflation, said CNC economist Catarina Carneiro Silva. For her, the indicator may continue to rise, even in the midst of the challenging inflation scenario.

Ms. Silva recalled that there were signs of improvement in job openings, at the beginning of the year and at the end of 2021, in the informal market. This improvement allowed the consumer to sustain consumption at the beginning of 2022, which led to an increase in the index.

According to Ms. Silva, the majority of respondents (47.2%) expect to consume less in the coming months. But this share was below that observed in December (48.3%) and lower than the share seen in January 2021 (55.4%).

Source: Valor International

https://valorinternational.globo.com

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Telecoms regulator approves Oi’s mobile sale to rivals Vivo, TIM, Claro

Deal closed for R$ 16.5 billion will have conditions and depends on antitrust watchdog Cade

01/02/2022

The board of directors of the Brazilian Telecommunications Regulatory Agency (Anatel) approved unanimously on Monday the purchase of Oi’s mobile services operation by the consortium formed by telecoms Vivo, TIM and Claro. The agency established conditions for the transaction, such as compliance with the General Plan of Universalization Goals (PGMU) and ending, in 18 months, with overlapping frequencies. The asset was sold in a judicial auction for R$16.5 billion.

Oi stated, in a material fact notice, that the sale of these assets represents an important step in the amendment to the company’s judicial recovery plan.

According to the company, the effective conclusion of the transaction is subject to the fulfillment of certain conditions established by Anatel and still needs to be approved by antitrust regulator CADE.

Emmanoel Campelo — Foto: Divulgação/Anatel

Emmanoel Campelo — Foto: Divulgação/Anatel

The trial of the case had started last Friday with the reading of the opinion of rappourter Emmanoel Campelo, but the voting did not start because colleague Vicente Aquino requested more time to study the matter.

On Monday, the request for prior consent of the transaction was approved with the vote of Mr. Aquino, who presented only some wording adjustments and additions to the conditions and determinations (competition remedies) proposed by Mr. Campelo. The adjustments were accepted by the rapporteur himself and the directors Carlos Baigorri and Moisés Moreira.

One of the changes is related to the guarantee of compliance with the General Plan for Universalization Goals (PGMU IV, 2018), which is now assumed by the three purchasing operators.

Mr. Aquino said that, with the suggested wording adjustment, it will be possible to guarantee the offer of “internet connection with 4G technology, or higher, via industrial exploitation and wireless access arrangement” in the locations covered by the plan until the end of the fixed telephony concession (STFC) term.

The problem, according to him, is in the reference to the obligations of OI S/A, which is the concessionaire of (STFC) and responsible for the PGMU IV. With the concern of protecting small providers, Mr. Aquino recommended that the maintenance of the wholesale product offers, through a national roaming agreement, be submitted by the three Oi competitors to Anatel´s Superintendence of Competition. The idea came from the technical area, was presented by Mr. Campelo and, on Monday, it was approved after undergoing adjustments suggested by a colleague on the board.

“I consider this determination commendable. National roaming is extremely important for regional providers and for new entrants who do not yet have their own networks across the country,” said Mr. Aquino. According to him, this allows customers of small providers, who have just entered the mobile telephony market, to make calls when leaving their State of origin.

Mr. Aquino also defended “isonomic and non-discriminatory” treatment should be applied to the modality of mobile virtual network operator (MVNO) – which is the offer of mobile telephony by those who do not own the network, but “rent” the infrastructure of a large operator.

On Friday, Campelo demanded that the three telecom companies present a communication plan aimed at Oi’s customer base that will be absorbed after the transaction. According to the counselor, the communication plan for users will ensure the broad right to portability and prohibits automatic migration and imposition of contractual burden but does not rule out the possibility of additional measures by Anatel, and will be monitored by the agency’s Superintendence of Consumer Monitoring, with support from the National Consumer Defense System, of the Ministry of Justice.

The Neo Association, which brings together internet and pay-TV providers, such as Brisanet, Algar, and Sercomtel, reported that “it was already waiting for approval and that the biggest battle will be at CADE.”

According to Neo, although any interested party in the process can still file an appeal for annulment of the decision at the agency, the association will now focus on actions for CADE to adopt stricter measures to ensure competition in the sector. The smaller providers believe they will be harmed by Oi Móvel’ sale.

Ademir Pereira, a partner at Del Chiaro Law Firm and Neo’s representative at CADE, considered the conditions “insufficient”. Neo defends the alienation of part of the operator’s assets, which could be done with regional spectrum slicing.

The president of Copel/Sercomtel, Wendel Oliveira, regrets Anatel’s decision. “I see it with concern, there is a problem with competitiveness, which will certainly be affected,” he said.

The president of the Federation of Call Centers, Telecommunications and IT Network Infrastructure Installation and Maintenance (Feninfra), Vivien Suruagy, said that the entity was satisfied with the approval of the transaction and that this is important to preserve Oi and maintain jobs.

Source: Valor International

https://valorinternational.globo.com
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Government revives discussion on end of Industrialized Products Tax

Measure could work as a counterpoint to salary readjustments in the states and to contain inflation

02/01/2022

Part of the Economy minister Paulo Guedes’ agenda, the elimination of the Industrialized Products Tax (IPI) on all products, except cigarettes and alcoholic drinks, returned to the discussions of the economic team. This time, it came to be examined as a potential counterpoint to the plans of some governors to grant salary hikes to the civil service and also as a measure to help contain inflation.

According to a person close to Mr. Guedes, this would be a structural reduction in prices in general. Possibly, adds this source, it would have a more lasting effect on inflation than a cut in fuel taxes, easily outweighed by a rise in the price of barrel of oil or an appreciated dollar against the real. For people close to the economic area, however, the opinion of president Jair Bolsonaro on this alternative is not yet clear.

The discussion takes place amid Bolsonaro’s signal that he will send a proposal for a constitutional amendment (PEC) to Congress that allows for the reduction of federal and state taxes levied on fuel and energy. The idea, however, already faces resistance from governors and depends on congressional approval.

IPI is not levied on these items. It is charged on industrialized products, from automobiles to food. In addition, it would be reduced by decree. It would not depend on approval by the Legislature, nor would there be any risk of the proposal being modified and receiving additions that are foreign to its objective, turning into a “Christmas tree” bill.

A reduction of the IPI would affect the plans of governors and mayors to increase spending because 50% of the income from this tax and from the Income Tax are transferred to states and municipalities through Participation Funds. In January alone, the transfers came close to R$19 billion.

In the opinion of a person close to Mr. Guedes, cutting part of this revenue would be a signal for the governors to hold back salary increases. The minister has warned about this, although the president himself has promised readjustments to civil servants in the area of public security, his electoral base, and to raise the salary floor for teachers.

Unlike the elimination of taxes on fuel, a general cut in the IPI would not go against the requirement of the Fiscal Responsibility Law (LRF) of adopting measures to compensate for the loss of revenue, says the economic area source.

This interpretation is confirmed by the Senate analyst and specialist in public accounts Leonardo Ribeiro. “The rule in Article 14 [of the LRF] does not require compensation if the reduction in rates is of a general nature, without differential treatment,” he said.

The effect on prices, however, is uncertain, warns Juliana Damasceno, economist with Tendências and researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV). This is because there is no way to assure that the cut in the IPI will be passed on to the consumer.

In the economist’s view, companies may not reduce their prices because they understand that a tax cut at a critical moment in public accounts is not sustainable and will turn into a new high in taxes in the future.

Speaking about fuel, specifically, she said that the prices charged today by Petrobras are already out of step with the international prices. Even so, there is enormous pressure on prices. “The source of the problem is not being attacked,” she said. Reducing taxes, as the president wants, will have little effect on fuel prices, given the way they are defined.

The reduction of fuel taxes, if it happens, will be restricted to the federal sphere, commented the chief economist at MB Associados, Sergio Vale. States will hardly reduce sales tax ICMS.

Source: Valor International

https://valorinternational.globo.com

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Elon Musk’s Starlink gets greenlight from Brazil’s telecoms regulator

Anatel autoriza Starlink, de Elon Musk, a oferecer internet via satélite no Brasil | Empresas | Valor Econômico

Brazil’s telecoms regulator Anatel greenlighted the request of Starlink, owned by billionaire Elon Musk, to start commercial operation of its satellite system in Brazil.

The company is interested in using the satellite “constellation” project, supported by SpaceX, also founded by the businessman, to start offering broadband internet connection in the country.

During a meeting of Anatel’s command last Friday, director Emmanoel Campelo said that Starlink Brazil Holding has signaled it will launch, in the “medium term,” 4,408 satellites to expand internet availability worldwide.

“It is in the company’s interest to provide broadband access to customers across the Brazilian territory, which will certainly be very opportune for schools, hospitals and other venues located in rural or remote regions,” he said.

Late last year, Communications Minister Fábio Faria released photos on social media of meetings with Mr. Musk and SpaceX executives in Austin, Texas. At the time, the minister said that they discussed a partnership to bring connection to the Amazon rainforest.

Anatel director Vicente Aquino said that the U.S. regulatory body, the FCC, has already authorized Starlink to launch up to 12,000 low-orbit satellites. According to him, the company has plans to put in operation 42,000 satellites in its constellation, ensuring internet coverage around the world.

The satellite exploration right granted to Starlink is valid until March 2027, to operate the service in the ku and ka bands.

At the same meeting, Anatel also approved the right to satellite exploration in Brazil by U.S.-based company Swarm, which will expire in September 2035.

Mr. Campelo said that the company already operates 150 non-geostationary orbit satellites. He said that, in this case, the interest lies in the provision of bidirectional data transmission services for telemetry and telecommand, focused on the Internet of Things.

To release the new foreign satellite exploration rights, the agency had to decide on a process involving OneWeb, also a low orbit satellite operator.

Source: Valor international

https://valorinternational.globo.com/

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Benchmark interest rate expected to return to double-digit level

Saiba o que é e como fazer excelente benchmark - Sebrae

At the end of 2021, concerns over weak economic activity dominated the debate over the direction of monetary policy. At the beginning of 2022, recent news suggests even higher interest rates, and for a prolonged period. High commodity prices, worrisome surprises in current inflation, high fiscal risk, still unanchored inflation expectations, and the more challenging external backdrop drive an even more heated debate about the direction of interest rates.

In a survey conducted by Valor with 112 financial and consulting firms, there is a unanimous expectation that the Selic will be raised this week by 150 basis points to 10.75%, in line with what was signaled by Central Bank’s Monetary Policy Committee (Copom) in December. Brazil’s benchmark interest rate was at double-digit levels for the last time in July 2017.

The survey also shows that the median of market estimates for the Selic at the end of the current monetary tightening cycle is up. Before the December meeting, the median indicated a rate of 11.75%. Now, the estimates have risen to 12%.

“The inflation picture remains bad since the [Copom’s] last meeting, and a set of risks signal higher interest rates,” said Aurélio Bicalho, chief economist at Vinland Capital, who projects the Selic at 12.75% at the end of the cycle, in May. Besides the domestic inflation and the uncertainty about Brazil’s public accounts, the more hawkish signals from the U.S. Federal Reserve, which suggests a cycle of faster interest rate hikes in the United States, make the scenario faced by Brazilian policymakers more challenging, he said.

The preliminary official inflation report for January (IPCA-15) unveiled last week brought worse-than-expected cores and diffusion figures, which concerned market players even more. Given this context, Valor also collected inflation projections for 2022 and 2023, the years that make up the relevant horizon of monetary policy.

The median of 110 estimates for this year’s inflation was 5.24%, compared to 5% in the last survey conducted in 2021. The inflation target for this year is 3.5% and the top of the target range is 5%. Of the total, 82 analysts (74.5% of the sample) already project Brazil’s benchmark inflation index IPCA at 5% or more at the end of this year. For 2023, the midpoint of 107 estimates collected rose to 3.4% from 3.3%.

“The likelihood of a Selic rate above 11.75%, which is our current projection, has grown,” said Simone Pasianotto, chief economist at Reag Investimentos. “The persistence of inflation, which shows more inertial signs and a strong pressure from food, has put a question mark over what the peak of the Selic will be.” The economist predicts the IPCA at 5.7%, above the market consensus.

HSBC was among those projecting a slower pace of interest rate hikes from February’s Copom meeting on but changed its mind and now expects an even stronger tightening. “There wasn’t enough time between December and now for the Central Bank to start slowing down,” said Ana Madeira, the bank’s chief economist for Brazil, which sees the Selic at 11.75% at the end of the cycle.

“Inflationary pressures have resurfaced at the beginning of the year; oil is at very high levels and there may be new pressure on food due to bad weather conditions,” she added. Although the data surprised upwards at the beginning of the year, she expects the coming months to show a major slowdown in inflation, with potential positive surprises such as electricity prices. HSBC projects that the IPCA will end the year at 4.2%, well below the market consensus.

With inflationary and external risks very much in the background, the agents will be mainly attentive to the Copom’s statements about the next steps. Economists are divided about the signals that the committee will give to the markets. One group argues that the Central Bank tends to maintain its tough tone in the fight against inflation and in rebalancing expectations, and point to a new interest rate hike in March of the same magnitude or a little less – of 100 basis points. Another group, however, believes that policymakers may not define the projected pace of tightening at the March meeting, given the higher than usual level of uncertainty.

“It seems that they will release a bit more open statement regarding what they will do in March, but we expect another tough statement. They have nothing to gain by being dovish at the moment, given the challenges of current inflation, expectations that remain above the target and a tighter monetary policy environment looming abroad,” said Claudio Ferraz, BTG Pactual’s chief economist for Brazil.

The bank’s scenario includes, besides the 150 basis points increase in interest rates now, a new 100 basis points hike in the Selic in March, followed by a final 50 basis points increase in May, which would take the basic rate to 12.25% — a level that would be maintained at least until December. Mr. Ferraz notes that at the beginning of the year the market’s mood changed as it started to pay more attention to the more pressured current inflation and to statements about monetary policy in the developed world, which pushed weak activity to the back burner.

Mr. Ferraz believes that the Copom may start slowing down interest rate hikes without signaling the magnitude of the increase. In addition, the absence of commitment with the next step to be taken “is the best stance amid volatility and uncertainty due to internal issues as well as external factors.”

André Loes, the chief economist for Latin America at Morgan Stanley, foresees that the Central Bank will remain willing to “doing whatever it takes” to deal with inflation, but without committing to a 150 basis points hike for the next meeting, under the risk of “ending up in a situation where it reaches a higher terminal rate than it would like.” The bank forecasts a basic interest rate of 12.25% at the end of the cycle, in May.

“I believe that the Central Bank will explain that the real interest rate, after the February hike, will already be quite high,” he said. Mr. Loes also believes that the monetary authority will become “data-dependent.” In other words, it will take future decisions based on indicators and, thus, leave the door open for slowing down interest rate hikes in March.

Morgan Stanley projects a 100 basis points hike in March and 50 basis points in May, when the cycle would come to an end. Furthermore, the U.S. bank is among those already projecting an interest rate cut this year, which would take place after the elections and reduce the Selic to 11.25% at the end of this year.

Andressa Castro, chief economist at BNP Paribas Asset Management, believes that the Copom may indicate on Wednesday the “beginning of the end of the cycle” of Selic tightening. “We see a more gradual adjustment due to the more benign behavior of implicit inflation in the market and by the stabilization of inflation expectations from Focus,” she said, citing the Central Bank’s weekly survey with economists.

According to data from Renaissance, there was an accommodation of implicit inflation, which is extracted from NTN-Bs, government bonds indexed to the IPCA – especially the shorter-term ones. In addition, the short-term IPCA coupon futures contracts (DAP) also show some relief. At Friday’s closing, the DAP pointed to an inflation rate of 5.43% this year and 5.25% in 2023.

Ms. Castro makes a caveat that, however, reductions in the Selic may only happen in 2023, should the fiscal deterioration scenario materialize, given that “today’s tax waiver becomes tomorrow’s inflation.”

“If, after the elections, there is no stress on the exchange rate in such a way as to compromise inflation and if expectations for 2023 and, mainly, for 2024, due to the displacement of the relevant horizon, are anchored, it would indeed be possible to reduce interest rates this year. However, we see this as not so likely and expect the interest rate to fall only in 2023,” the economist said.

Mr. Bicalho, with Vinland, on the other hand, is among those arguing that the most prudent thing to do would be for the Copom to maintain its tough stance and signal a new 150 basis points tightening in March. The economist notes, in particular, that the more conservative tone adopted by the monetary authority in December managed to contain the de-anchoring of inflationary expectations.

“However, there was no complete re-anchoring, looking at both market metrics and Focus itself,” he said, in reference to the median of the bulletin’s projection for the IPCA of 2023, above the center of the target. He believes that by indicating a 150 basis points hike in March, the Copom “will have a great chance to reinforce its commitment to the targets and consolidate the reanchoring process.”

Source: Valor international

https://valorinternational.globo.com/

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New ports expect private investments of R$9.5bn

Ports: green gateways to Europe DNV

In a new drive of investments in the port sector, at least 30 Private Use Terminal (TUP) projects were authorized in 2021 or are being analyzed by port regulator Antaq for authorization in 2022, unlocking contributions of up to R$9.5 billion.

For the Association of Private Port Terminals (ATP), which carried out the survey based on public calls and publications in the Daily Gazette, this proves the preference of many investors for this type of expansion in the sector.

TUPs are necessarily outside organized ports — those managed by dock companies or by state administrations — and have more flexible regulation than the leases of public areas. In the past decade, they had a 38% growth. Today, they handle about two-thirds of port cargo in Brazil, mainly minerals and fuel.

Among the new projects under analysis with chances of signing contracts with the Ministry of Infrastructure in 2022, are two large undertakings. One is Nordeste Logística, on an 83-hectare plot in Pecém (state of Ceará), with four terminals planned — for ore, grains, fertilizers, and containers. Investments of around R$2.35 billion are expected.

Another project that draws attention in the sector is Porto Guará, neighboring Paranaguá (state of Paraná), whose plan also involves the movement of different types of cargo. The request to Antaq mentions disbursements of R$3.85 billion.

Both have already gone through a public call – a process in which the agency opens a period of 30 days for the manifestation of any interested parties in building a TUP in the same geographic region – and are awaiting authorization. For this, it is necessary to have at least a term of reference issued by federal environmental agency Ibama for the preparation of environmental impact studies and land regularizations, as well as the absence of tax pending issues.

“Investor interest is greater in private terminals than in leases within organized ports,” says ATP president Murillo Barbosa. “No one has to wait for the government’s goodwill to conduct bidding processes. The private terminal has more flexibility. It can choose the location and type of cargo. It does not need to comply with the development and zoning plan of the public port.”

In 2013, with the new Ports Law, the requirement for new private terminals to predominantly handle their own cargo was dropped. Thus, the movement of third-party cargo was allowed. According to Mr. Barbosa, the number of authorized TUPs soared to 253 today from 124 that year.

In the calculations of the Ministry of Infrastructure, which are different from those used by ATP, the number of private terminals currently awaiting authorization reaches 53 projects and provides for investments of R$38.8 billion. “The government is no longer hampering investment. The investor’s challenge becomes environmental licensing and the economic viability of the project. It’s up to him to decide,” says the national secretary of Ports, Diogo Piloni.

In fact, however, many authorized projects die out along the way or remain undefined for years because of environmental restrictions or lack of capital for the works. Projects such as the Alcântara Port Terminal (state of Maranhão), Petrocity (state of Espírito Santo), and Porto Sul de Ilhéus (Bahia) disclose figures of billions of reais, but have not yet considered financing or have not yet obtained a prior environmental license.

For consultant Frederico Bussinger, managing partner at Katalysis consultancy and former president of the Port of São Sebastião, one of the most important factors for the success of a TUP project is the cargo guarantee. Therefore, according to him, terminals associated with the owner’s own production chain tend to start operating more easily. This has been the case, for example, with new facilities for the outflow of grain by groups such as Cargill and Louis Dreyfus, in the so-called Arco Norte.

In Mr. Bussinger’s assessment, the difficulty is significantly greater for structures that intend to move different cargoes that are unrelated to the business itself. There are still few successful cases, such as Porto do Açu (state of Rio de Janeiro) or Portonave (Santa Catarina), in creating private ports that handle third-party containers or cargo. “With a guaranteed cargo, the money appears quickly.”

Given the ease with which Antaq’s approval to build TUPs can be obtained, says Mr. Bussinger, permits often become a kind of “government bond”, and applicants only then go after real investors.

Despite the growth trend of TUPs, companies complain about recent attempts to increase regulation on an activity that is entirely private. A group of industry associations even overturned in court, in 2019, Antaq’s resolution that created a system for monitoring prices charged by its customers’ terminals.

The end of Reporto, a tax regime that made investments in ports and railways cheaper, whose recreation was barred by President Jair Bolsonaro in January, is also much criticized. Murillo Barbosa, with ATP, says that the absence of the benefit makes the value of a portainer (a type of crane used for loading and unloading containers) rise to $15 million from around $11 million.

Even with many advertised terminals having difficulties materializing, Mr. Piloni says that TUPs are already the main growth vector in the sector. “For every R$1 in investments effectively executed in port leases, we had R$3 in private terminals in 2021.

Source: Valor international

https://valorinternational.globo.com/

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Arezzo goes for Soma, Centauro or Renner after follow-on offering

Sobre Arezzo | Arezzo

As Arezzo&Co moves forward in recent weeks with a secondary offering to raise up to R$830 million, the company’s appetite for mergers and acquisitions caught the investors’ attention in the roadshows.

For this unprecedented offering, the first since the IPO, Arezzo presented an aggressive plan, which surprised even potential investors aware of Arezzo’s ambition to become a major “house of brands.” In the rounds, the company’s management team unveiled a list of top assets it is interested in, including retailers Renner, C&A, Soma (already with Hering, a battle Arezzo lost), Centauro and Amaro, two sources said. To get off the drawing board a large deal, the company has been sounding out assets, with no clear evolution so far. The model Arezzo has in mind for these “big” deals involves share exchange, cash and debt. “Soma is the company they want most,” a manager familiar with the matter said.

Arezzo has already looked deeper into C&A after the pandemic, but the talks did not move forward.

Two managers who were at the roadshows see a short-term deal with Amaro, Soma or Centauro/Nike as the most likely, considering synergic portfolios and a potential open door for negotiation.

As Arezzo has little debt, there is still room to strengthen the cash flow, if necessary, without leveraging the company so much. In the same vein, a greater dilution of the partners is not an obstacle, considering the eventual need for new offerings. Arezzo believes that it makes sense to be smaller in something much bigger.

Anderson and Alexandre Birman hold 45.8% of the company. The stake fell to less than 50% after Arezzo bought Reserva in 2020. So, in practice, both have already given up the paradigm of being controlling shareholders, sacred to many Brazilian family groups, in exchange for faster growth.

Regarding leverage, the net debt-to-EBITDA ratio was 0.5 times in September, above what was seen a year ago, but one of the lowest in the sector.

Despite the great expectation generated in the market, as Arezzo has so far not done business with brands of large Brazilian retailers with a nationwide scale, it remains to be seen how the company would combine cultures and governance in businesses with consolidated management. “It’s one thing to buy Reserva, it’s another thing to combine it with Renner,” an investment analyst said. Since Reserva’s acquisition, Arezzo has brought in smaller businesses, such as streetwear brand Baw and womenswear brand Carol Bassi. Still, the prevailing assessment is that the Birmans are focused on putting together this digital “lifestyle” fashion retail model in the short to medium term – and are unlikely to stop until that strategy moves forward.

In the fully primary follow-on offering, the base offering is for 7.5 million shares (about R$615 million at the current price) and could reach R$830 million, considering the additional lot of up to 35%.

Source: Valor international

https://valorinternational.globo.com/

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Great Wall will make only hybrid and electric vehicles in Brazil

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Chinese company Great Wall will make only electric and hybrid models in Brazil, starting in mid-2023. In an event to celebrate the automaker’s arrival in Brazil, Great Wall’s management team confirmed an investment of R$4 billion by 2025 and said future plans could total R$10 billion. In the first phase of the investment, which includes the start of operations at the factory in Iracemápolis, São Paulo, 2,000 workers will be hired. The company foresees 8,000 indirect jobs in this phase.

The Chinese automaker intends to export vehicles to markets beyond Latin America, said Koma Li, head of the Brazilian operations. According to him, the company is also preparing a research center in Brazil and intends to form partnerships with universities.

“Why Brazil?” asked the executive in his presentation at the factory. Because the country is among the 10 largest markets and car producers in the world and is the largest market in Latin America, he said.

According to Mr. Li, the country plays an important role in the expansion plans of the group, which wants, by 2025, to expand global production to 4 million vehicles per year from the current volume of 1 million.

Regarding the decision to only produce hybrid and electric vehicles, Pedro Betancourt, the company’s public relations officer, said: “We are a young company, only 30 years old; we don’t have to fight with those who defend things that have been done for years.”

According to Oswaldo Ramos, Great Wall’s chief commercial officer, surveys show that 43% of Brazilians want their next car to be electrified and 48% no longer want vehicles that do not offer the minimum of technology-related items, such as connectivity and safety. According to him, the vehicles that will be manufactured in the country will be of new generations, different from those already sold by the company in China and other markets.

Before the start of production in Iracemápolis, Great Wall will sell imported SUV and pickup truck models of its three brands (Haval, Tank and Poer). In this case, the imported ones will be hybrids and plug-in hybrids (which allows the hybrid to also be charged in an external power source). According to Mr. Ramos, the fully electric vehicles will arrive in the second phase, including those that will be produced in the country.

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