Executive jets sales soar in Brazil

Banks intensify aircraft financing; it reached R$4.1bn by the end of 2021

07/19/2022

Sérgio Granado and Vitor Ohtsuki — Foto: Carol Carquejeiro/Valor

Sérgio Granado and Vitor Ohtsuki — Foto: Carol Carquejeiro/Valor

If car sales rose during the pandemic, with the middle class trying to escape the crowds in public transportation, in the more exclusive segment this movement has also been observed. Sales of executive jets have soared in recent years in Brazil, leading banks to take a closer look at this niche. Although it is a small market, as the ticket prices are high – between US$ 3 million and US$ 60 million – it guarantees multimillion portfolios for financial institutions.

According to data from the Brazilian Association of Leasing Companies (Abel), the main form of financing for aircraft, the value of fixed assets leases in this segment was R$4.1 billion by the end of 2021. Bradesco for many years led this market and, last year, had a 42.1% share, with R$1.7 billion. However, Santander created a specific area two years ago and has been growing strongly, with R$1.5 billion in fixed assets leases at the end of last year, or a market share of 36.8%. Other relevant players are Alfa, Citi, and Daycoval.

Brazil is the second-largest executive aviation market in the world, behind only the United States, with more than 16,000 aircraft. The head of Santander Private Banking, Vitor Ohtsuki, says that the bank saw an opportunity to enter this segment in 2020, with the increase in demand due to the pandemic and the strong movement of IPOs. These “liquidity events”, as they are called, have collaborated with the emergence of many millionaires in Brazil in recent years. Since then, the bank has financed 31 aircraft and expects to double this volume in the next 12 months. “There are clients who buy for leisure, but there are also many who use them for business. With a small jet, the time they save compared to a normal flight is often worth it.”

According to Mr. Ohtsuki, the bank started working with the top of the pyramid, that is, clients with R$40 million, R$50 million investment portfolios. Thus, it created a swift process that helps the client from the beginning to the end of the aircraft purchase, including tax, legal, and import issues. Now it is moving down the pyramid, including the agribusiness segment, aiming jets for farm owners (not those small aircraft used for spraying). The tickets are smaller, but the market potential is huge.

“It is a large volume of lower value aircraft. We have already talked to the 100 largest agribusiness producers, and now we are going to expand to other producers who are clients of the bank, but who are not necessarily in private banking,” says Sérgio Granado, superintendent of Products at Santander Private Banking.

At Bradesco, the financed amounts increased 134% in 2021 compared to the previous year, while the number of aircraft increased 130%. Júlio Paixão, chief loans and financing officer, says that 2020 had a bad result, due to problems in the aircraft production lines, but that 2021 was much better and this year, even in a scenario of economic slowdown, and the next should benefit from orders that are still being held up. “Last year we had a high demand for used aircraft. We even brought units that were flying in the U.S. to be sold here”, he says.

Unlike Santander, Bradesco works in partnership with the largest trading companies in the market. Mr. Paixão says that because of supply issues aircraft prices rose 47% last year, which also helped boost financed volumes, and with waiting lines until 2024, he doesn’t foresee a drop in prices any time soon. “With the pandemic, many private clients ended up showing a willingness to stop using commercial flights,” recalls Bruno Vilarinho, manager of the Loans and Financing department.

At Alfa, Ana Portela, national financing superintendent, says that the bank does not work only with leasing, but ends up using other lines of financing. According to her, the portfolio grew 50% last year and, in the first half of this year, it expanded 20%. As the second semester is historically better, the expectation is to close 2022 with an increase of 25% to 30%. “In the pandemic, with the cancellation of many flights, businesspersons found themselves without options and many ended up bringing forward the planning they already had of buying an aircraft, to be able to continue their business.”

According to her, there is no full correlation between this segment and the performance of the economic activity, but the increase in depreciation of the real affects the financing since all the costs of the sector are in U.S. currency. “There is a concern with the moment to acquire the good because everything is dollarized, but clients with this profile have programmed themselves for this, they have been following the market. They won’t go back on this decision, so I don’t see a step-back movement in the aircraft market.”

As in leasing, the asset belongs to the bank, and the default on aircraft financing is low. Not least because, as the borrower is most often a private banking client, the financial institution has a lot of information about his or her assets and payment capacity. The “know your client” processes are very robust, which makes it virtually impossible that the financed aircraft is diverted and used in illicit activities, such as drugs and weapons trafficking. In addition, the bank usually insures the vehicle.

The financing of business aircraft also includes helicopters. Even so, the possibility of expanding this credit to manned drones, the so-called “flying cars”, is still seen as something remote by executives in the sector. “Since leasing the property belongs to the bank, there is a great deal of rigor about the type of aircraft we finance. We need to have insurance available for them, for example. I think that drone financing may even happen in the future, but through corporate credit, for companies that operate with this type of aircraft. It takes longer to get to executive aviation,” says Vilarinho. “This is a market for 5, 10 years from now. You have to wait for the regulation and the creation of a logistic air network. When this happens, and the market evolves into a private means of transportation, we will follow this market”, remarks Mr. Paixão.

*By Álvaro Campos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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B2B e-commerce to grow 19.7% per year through 2030

Growth is driven by emergence of B2B online marketplace platforms

07/19/2022

Ambev is betting big on Bees, its digital sales service for bars and restaurants — Foto: Márcio Garcez/Folhapress

Ambev is betting big on Bees, its digital sales service for bars and restaurants — Foto: Márcio Garcez/Folhapress

Marketplace platforms, which bring together products from several retailers or manufacturers, have become a common environment in the consumer’s buying habits. Now, however, it is in transactions between companies that this model is growing at accelerated rates, promising to increase the customer portfolio of the industry, which can also capture data that help to define portfolio strategies, pricing, and even to sell services linked to products.

Ambev, for example, is betting big on Bees, its digital sales service for bars and restaurants. Besides its beers and soft drinks, the group houses in its ecosystem “small stores” of BRF, M. Dias Branco, Pernod Ricard, and Beam Suntory. By the end of the first quarter, the annualized gross merchandise volume sold (GMV) reached R$1.2 billion. BRF itself has teamed up with the technology company VTex to develop a marketplace in Chile.

According to Isaac Pessanha, VTex’s B2B leader, demand from companies for projects for these ecosystems has grown by triple digits. “The market is still incipient in Brazil and Latin America for the potential it has,” adds Erick Buzzi, VTex’s vice president of sales.

The B2B platform model is “currently at the stage B2C [sales to the final consumer] was 10 years ago”, says Guido Carelli, vice-president of B2B at Infracommerce, which develops software for online commerce. This year alone, the business unit headed by Carelli is developing 15 to 20 marketplaces for companies. Unilever’s Compra Agora platform is one of them.

Carelli says the industry began to realize the growth potential of this channel, especially for reaching small and medium sales points, such as neighborhood grocery stores or bakeries. The B2B business already accounts for 30% to 40% of Infracommerce’s revenue.

Data from research firm Grand View Research indicate that B2B e-commerce moved $6.88 trillion in 2021 and that the growth of this market should average 19.7% per year through 2030. Online retail for the end consumer, which is more widespread and experienced a boom in the pandemic, is expected to grow 9.7% per year until 2028.

But the big jumps are likely to come from the marketplaces. The estimate of the British payments research and consulting firm IBe TSD is that they will have a $3.6 trillion turnover in 2024, accounting for 30% of all B2B digital sales. In 2018, these sales were no more than $680 billion.

Among the reasons for creating a B2B marketplace, or joining a platform as a seller, are the ability to expand presence geographically, increase order frequency, and the number of items sold. According to Mr. Carelli, when a company starts selling on a marketplace, its sales can jump by 15% to 25%, depending on the region in the country.

Besides reducing costs by not needing to send a sales representative to the site, the manufacturer has more data about the purchasing habits of small and medium retailers, and the salesperson starts to act more like a consultant, suggesting what the retailer can buy and “reactivate” those who haven’t placed an order in a while, say executives interviewed by Valor.

The B2B marketplace does not come alone, says Pessanha. “It brings potential and the need to reevaluate credit even to foster that ecosystem.” In other words, in addition to selling their products, manufacturers have a better understanding of the credit profile of small retailers that were previously only served by distributors. Thus, the industry can define how much credit it is willing to give to each buyer, either in terms of limits or payment terms.

There are, however, some obstacles to development. One of them is the risk of cannibalization. Carelli says that the pace of emergence of platforms should continue intense over the next five years, but from there on there should be a consolidation.

For Fernando Gâmboa, partner and leader of consumption and retail of KPMG in Brazil and Latin America, although they benefit from working with “raw” market data and start to function as full-service providers, the companies are advancing in the distributors’ territory. “Besides breaking long-term contracts with the distributor, he will stay in the region and may bring in competitors.”

But both VTex and Infracommerce executives affirm that the figure of the distributor does not cease to exist. He can even enter as a seller on the platform, selling items from other companies, they say. “It is not disintermediation. It helps the distributor to increase inventory turnover, to optimize truck use. There is more information exchange,” says Mr. Pessanha.

*By Raquel Brandão — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Petrobras’s board rules out two federal government nominees

General meeting of shareholders to elect board members will be held on August 19

07/19/2022

Petrobras headquarters in Rio — Foto: Leo Pinheiro/Valor

Petrobras headquarters in Rio — Foto: Leo Pinheiro/Valor

Petrobras’s Board of Directors approved on Monday, unanimously, the report of the Eligibility Committee (Celeg) that considered ineligible two candidates nominated by the Bolsonaro administration to be directors of the state-owned company: the executive secretary of the Chief of Staff Office, Jônathas Castro, and the attorney general of the National Treasury, Ricardo Soriano. According to Celeg, there is an indication of a conflict of interest between the positions held by the executives in the government and the performance on the board.

This way, the board also ended up rejecting the names of the two nominees. They will not be submitted by the board to the shareholders’ meeting. Now, the decision of whether to keep or replace the vetoed names is up to the federal government, which can insist on the two nominations, submitting the names directly to the meeting, to be held on August 19.

The other seven candidates for the company’s board meet the requirements and are not barred from running for the seats, Celeg concluded. This is the case of the nominees by the minority shareholders, José João Abdalla and Marcelo Gasparino, as well as the other five nominees by the federal government: Gileno Barreto; Edison Garcia; Ieda Gagni; Ruy Schneider; and Márcio Weber.

Once elected, they will join Rosângela Buzanelli, nominated by the oil company’s employees, as well as Marcelo Mesquita and Francisco Petros, nominated by minority shareholders and elected in a separate vote.

In all, eight diverse representatives will be elected to the Petrobras board. The goal is to fill vacancies chosen through the multiple vote system at the last meeting, last April.

When one of the directors elected by this mechanism leaves the board, all the others chosen by the same system must also go through a new election.

The minority shareholders’ nominees, as well as Mr. Weber and Mr. Schneider, are running for re-election. Caio Paes de Andrade, the current CEO of the state-owned company, is also running for one of the seats.

Mr. Andrade already occupies an interim seat on the board, left by the former CEO, José Mauro Coelho, who resigned for both positions in June. Mr. Coelho was fired after the federal government criticized the fuel price increases at the state-owned company’s refineries.

*By Gabriela Ruddy e Fábio Couto — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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WPP buys Corebiz, second acquisition in technology

Deal underscores advance of advertising groups over technology services industry

07/18/2022

Renan Mota (right), Stefano Zunino and Felipe Macedo — Foto: Divulgação

Renan Mota (right), Stefano Zunino and Felipe Macedo — Foto: Divulgação

Nearly 18 months since its first move to buy a software company in Brazil, WPP is making a new incursion in the technology field. The British advertising and public relations group has acquired Corebiz, of e-commerce systems and services. The acquisition was of 100% of the capital. Financial details of the deal, which will be officially announced this Monday, were not disclosed.

“The deal shows the importance of the digital area in WPP’s strategy. Technology and e-commerce have become fundamental to the integration of customer services,” says Stefano Zunino, the group’s general manager in Brazil. “During the pandemic, e-commerce was the pillar that grew the most for WPP.”

For WPP, one of Corebiz’s attractions is its expertise in the technologies of Vtex, a Brazilian company that owns an e-commerce platform and has been listed on the New York Stock Exchange since last year. Many WPP clients already use these technologies, which are quick to implement, which makes the acquisition strategic to gain critical mass, says Mr. Zunino.

The acquisition underscores the advance of advertising groups over the technology services industry, which puts them in increasingly direct competition with large consulting firms.

In February last year, WPP acquired Belo Horizonte-based DTI, which creates and integrates systems to help businesses adapt to the digital economy. Since then, DTI’s headcount has doubled to 1,600 people, Mr. Zunino says. “To help our customer you have to have a holistic view. We are a creative transformation company. And creativity is not just advertising.”

Abroad, says the executive, it has been a decade since the group — in charge of traditional advertising and marketing brands such as Ogilvy, VMLY&R and Wunderman Thompson — acquired companies that are outside the classical advertising sphere.

For Corebiz, the acquisition by WPP represents a boost in its ability to expand operations more quickly, especially abroad.

The company has regular customers in about 40 countries and bases itself in four international markets: Mexico, Argentina, Chile, and Spain. Revenues abroad have already become relevant in relation to total sales, but are below their potential, says Mr. Macedo.

Corebiz operates in e-commerce projects that include everything from initial stages to media management services and sales performance analysis. The main focus is on the so-called customer experience, says Mr. Mota, whose objective is to facilitate the consumer’s access to the sales channel and make the client loyal to the brand. Among its clients are global companies such as Whirlpool, Motorola, and Carrefour.

For WPP, Brazil is a very important market and is on the group’s global growth path, says Mr. Zunino. “To innovate, you have to make experiments. Acquisitions are part of the strategy, but we also want to grow in the country in an organic way.”por taboolaLinks patrocinadosConteúdo Publicitário

*By João Luiz Rosa — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Rumo sells Santos terminal to CLI for R$1.4bn

Australian group Macquarie will inject R$500m and become a partner of CLI

07/18/2022

Rumo — the logistics company of the producer of bioethanol, sugar and energy Cosan —signed last Friday the contract for the sale of two terminals in the Port of Santos to CLI (Corredor Logística e Infraestrutura), a company controlled by IG4 Capital. The agreement is for R$1.4 billion. Eighty percent of the shares of the assets will be sold, and Rumo will continue as minority shareholder, with 20%.

The two terminals sold are T16 and T19, located on the right bank of the port and intended for grain and sugar handling. The lease contract for the two areas runs until 2035. The obligations of the concession also include investments of R$600 million to expand the handling capacity of the assets by 20%.

In 2021 (year affected by crop failure), the terminals transported 12.7 million tonnes. In the first quarter of 2022, 3 million tonnes were handled.

The conclusion of the operation still depends on the approval of the port regulator Antaq and the antitrust regulator CADE.

Today, CLI already operates a grain terminal in the Port of Itaqui, in Maranhão state. The “white flag” operator is one of the four controlling companies of the Maranhão Grain Terminal (Tegram) — the others are companies linked to commodity trading companies. “We want to bring the same efficiency gains that we implemented in Itaqui to Santos,” said the CEO, Helcio Tokeshi.

The operation also marks the ingress of Macquarie Asset Management in CLI. The Australian group will become a partner of IG4 Capital, with a 50% stake in the logistics operator. The entry will be made through a capital increase of R$500 million, which will be fully subscribed by the Macquarie Infrastructure Partners V (MIP V) fund.

Macquarie had already tried to make a large investment with IG4 in 2021, when they made an offer for Andrade Gutierrez’s share in CCR. The operation, however, did not develop.

“With this acquisition, CLI becomes the largest independent operator of port infrastructure and logistics for agribusiness in the country,” says Paulo Mattos, co-founder of IG4.

When asked about the possibility of new acquisitions, Mr. Tokeshi said that CLI “is interested in continuing to grow. According to a market source, the company is already negotiating with trading and logistics companies in other regions of the country to expand the platform.

For Rumo, the sale is a way to ensure the expansion of port terminals in Santos and, at the same time, to deleverage the company. The company will have, in the coming years, multimillion investment commitments in its railroads — such as those resulting from the renewal brought forward of the Paulista Railway, the concession of the North-South Railway and the new project to extend the North Railway, up to Lucas do Rio Verde (Mato Grosso state).

“We want to focus on the railroad. We have a very robust investment plan and using opportunities like this to deleverage the company is part of our strategy”, says Rafael Bergman, Rumo’s CFO and Investor Relations officer.

The shared terminal operation model has been a standard in the company. In the Norte-Sul railroad, for example, several terminals built along the railroad were built with partners. In the Port of Santos itself, Rumo has a minority stake in three other port terminals, which are not part of the operation with CLI: TXXXIX (grain terminal, with Caramuru), Termag (fertilizer terminal, with Bunge) and TGG (grain terminal, with Bunge and Amaggi).

*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil’s reliance on imported medicines on rise

Survey shows there is room for more medicines, vaccines to be produced here

07/18/2022

Brazil’s growing dependence on imported drugs led pharmaceutical companies to submit to the presidential candidates a package of proposals to foster local production of drugs and raw materials. The document entitled “Improving Health in Brazil – Industry Proposals” provides alternatives for improving rules and encourage innovation and investments.

“The solution is not to restrict imports, but to make better use of the productive base and concentrate value generation here,” says Reginaldo Arcuri, head of FarmaBrasil Group, which represents the pharmaceutical companies that operate in research, development and innovation and subscribes the document.

From January to May, according to a survey conducted by the trade group, purchases of medicines abroad grew 35% compared to the averages of 2020 and 2021, reaching $4.29 billion in absolute values this year. Compared to previous years (2015 to 2019), the increase is more significant, of 56%.

The Covid-19 pandemic has increased the most recent figures for foreign purchases. In the first two years of the pandemic, drug imports grew 15% over the average of the previous five-year period.

Still, the survey shows that there is room for more medicines and vaccines to be produced here if there was more dialogue between government and industry and public policies to encourage production in Brazil.

Brazil already has a solid production base and structural conditions on the government’s side, but these need to be improved, Mr. Arcuri says. In addition, the country is a large market driven by the national health system SUS – which provides universal health coverage – and a scientific production structure.

“Brazil can accelerate the chance of having a new world-class economic sector, but there needs to be more coordination between the private sector and the state’s structures,” he says.

In his view, the statistics make clear the growth trend of foreign purchases of active pharmaceutical ingredients (APIs), which was already known, but also of ready-made drugs considered strategic. Once a major producer of raw materials, Brazil now imports 95% of the API used in the local production of medicines.

Grupo FarmaBrasil’s survey shows that, this year, imports were driven by the 41% increase in the purchase of biotech products compared with the average of the pandemic period, and 110% compared with the average of the 2015-2019 period.

Pharmochemical products saw growth of 23% this year compared to the pandemic period and 59% compared to the average for the five years prior to the pandemic.

According to the study, 54.8% of the medicines imported by Brazil between January and May came from five countries: Belgium ($684 million), the United States ($528 million), Germany ($479 million), Switzerland ($348 million), and China ($310 million).

At the moment, Mr. Arcuri says, the local pharmaceutical industry is working on this data to find out which drugs can and should be produced locally before taking these proposals to the government.

*By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Despegar plans to grow in vacation rental

Company has a portfolio of 420,000 homes worldwide, 70,000 of which in Latin America

07/18/2022

Sector has been strengthened by remote work — Foto: Getty Images

Sector has been strengthened by remote work — Foto: Getty Images

After completing the acquisition of Stays.net — a Brazilian company that manages reservations for real estate owners on platforms such as Booking, Airbnb, and Expedia — online travel agency Despegar is expected to expand in the vacation rental segment. Ivan Marenco, vacations rental VP at Despegar, says the sector has been strengthened by remote work, attracting investments from groups such as travel and tourism company CVC, which at the end of last year increased its stake in vacations rental company VHC to 100% from 69%.

Currently, Despegar, which is known as Decolar in Brazil, has a portfolio of 420,000 homes in the segment worldwide, of which nearly 70,000 in Latin America. With the acquisition of Stays.net, announced in March and completed earlier this month, the company will add 20,000 more homes to its portfolio.

“We want, in the next three years, to multiply the number of Stays properties by five,” the executive told Valor. The addition of Stays into the portfolio puts Despegar close to its goal of ending 2022 with 100,000 properties on its platform in Latin America.

According to the executive, rental management platforms like Stays have a small presence in the region, unlike other markets. “In Latin America, the segment is not so mature yet. We see that only 10% of vacation rental properties have managers. When we look at more mature markets, such as Europe, this percentage is 50%. This gap is a great opportunity that we see for Stays and Despegar,” he said.

With this strategy in sight, Despegar bought a 51% stake in the company for R$15 million. Stays operates basically in Brazil, but Mr. Marenco said that there are already studies to expand its scope to Mexico at first. Other markets such as Colombia and Argentina are also on the radar.

According to a study carried out by Deloitte in 2021, 43% of travelers opted for a temporary rental during the pandemic. Of that total, three out of four kept that option after things went back to normal. Data from Despegar shows that, on average, the segment has a 10% lower price than typical hotels.

The sector has been gaining strength, especially given the decision of companies to extend their vacation policies and the greater flexibility given to workers, which have supported new trends such as the so-called “workation” or “anywhere office.” These phenomena allow workers to extend their stay and schedule a longer trip, often with their families.

The opportunity exists and has been explored by several companies in the sector. Airbnb, a platform that connects properties for rent and tourists, reported a revenue of $1.5 billion in the first quarter of this year, up 70% year-over-year and 80% compared with the first quarter of 2019 — before the pandemic.

The company’s outlook is quite different from that reported by many traditional hotels, which are still struggling to recover their pre-pandemic numbers — especially operations more focused on corporate demand, which shrank dramatically in the pandemic.

In Brazil, CVC, the country’s largest travel agency, had already been eyeing the vacation rental market since 2019, when it bought control of U.S.-based VHC. Its executives realized that it would be an avenue of growth to be explored. Since August last year, CVC has owned 100% of VHC, which operates mainly in the United States, Brazil, and the Dominican Republic. The business focuses on properties for higher-income customers and is in the process of expanding to markets such as Europe.

*By Cristian Favaro — São Paulo

Source: Valor International

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Fitch revises Brazil’s outlook to stable from negative

Credit rating agency also affirmed country’s BB- rating

07/15/2022

Fitch says revision reflects better-than-expected evolution in public finances amid successive shocks in recent years — Foto: Matt Lloyd/Bloomberg

Fitch says revision reflects better-than-expected evolution in public finances amid successive shocks in recent years — Foto: Matt Lloyd/Bloomberg

Fitch has revised Brazil’s outlook to stable from negative and affirmed the country’s long-term foreign currency rating at BB-.

According to Fitch, the revision of Brazil’s outlook reflects the better-than-expected evolution in public finances amid successive shocks in recent years since the firm assigned a negative outlook in May 2020.

“Last year, Brazil recorded its first primary fiscal surplus since 2013, highlighting revenue outperformance and the authorities’ commitment to withdraw stimulus implemented during the pandemic,” the agency says. “A sharp reduction in the public debt ratio in 2021 is projected to be followed by another mild fall in 2022, considerably improving the starting point before a gradual projected rise in 2023 and beyond.”

According to the agency, “near-term growth dynamics have outperformed Fitch’s prior expectations, and incremental progress on reforms could benefit medium-term investment prospects.”

“The central bank’s decisive monetary policy tightening, supported by its new formal autonomy, highlights its commitment to addressing inflation,” the agency added.

The agency stresses in the statement that fiscal and growth challenges persist, and the October elections pose uncertainty around how these will be addressed.

“Nevertheless, these challenges are already captured in Brazil’s BB- ratings, and Fitch expects broad macroeconomic policy continuity after elections.”

Fitch added that Brazil’s ratings are supported by its large and diverse economy, relatively high per-capita income, and capacity to absorb external shocks underpinned by its flexible exchange rate, robust international reserves, sovereign net external creditor status and deep local debt market.

“This is counterbalanced by high government financing needs and indebtedness, a rigid fiscal structure, weak growth potential and a difficult political landscape hampering policy predictability and timely progress on reforms.”

The Economy Ministry said in a note that it “affirms its commitment to the fiscal consolidation necessary for the continuity of the economic recovery scenario.”

*By Eulina Oliveira — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil risk reaches highest level since May 2020

Indicator reflects cautious atmosphere in markets and follows depreciation of Brazilian currency, stocks

07/15/2022

Brazil risk rose to 332 points on Thursday, according to IHS Markit — Foto: Silvia Zamboni/Valor

Brazil risk rose to 332 points on Thursday, according to IHS Markit — Foto: Silvia Zamboni/Valor

Brazil risk measured by five-year credit default swap (CDS) contracts reached the highest levels since May 2020 amid a risk-averse environment both abroad and in the domestic market. The Brazil risk rose to 332 points on Thursday, according to IHS Markit, which is now a part of S&P Global.

The worsening in country risk is recorded at the same time as other Brazilian assets are penalized. The future interest rates remain under pressure throughout the entire term structure of the curve; the foreign exchange rate is close to R$5.5 to the dollar; and the Ibovespa falls firmly – Brazil’s benchmark stock index was close to the 96,000-point threshold.

“The U.S. inflation figures continued to be very high. This generates discomfort and a feeling that the Fed [U.S. Federal Reserve] will have to raise interest rates more than it initially thought. When U.S. interest rates rise, it strengthens the dollar and makes stock markets more vulnerable,” says José Tovar, founding partner at Truxt Investimentos. “The market had calmed down, but with yesterday’s [Wednesday’s] inflation data, we had a new increase [in risk aversion].”

Mr. Tovar reveals Truxt’s multimarket funds are betting that U.S. and Canadian interest rates will rise and is long on the dollar against the real and the euro. “These are positions in the direction of more interest rates in the developed and emerging markets,” he says. As for Brazil, he points out that the measures adopted by the government have generated positive trends for the country’s growth this year. “But this drives inflation and forces the Central Bank to keep raising interest rates, which are likely to rise to around 14%” per year, he says.

Rogério Boueri, head of the Special Advisory of Economic Studies of the Ministry of Economy, said fiscal policy is not the reason for the higher Brazil risk measured by five-year CDS contracts, the worsening of the public debt financing conditions, the weakened real against the dollar, or stock market swings.

The CDS rate is rising for all countries, not just Brazil, he said. “International conditions are worse, but Brazil is in a better shape compared with emerging peers,” he said. “It is not a domestic fiscal problem in Brazil what is causing the worsening of the CDS.”

The “real problem” that explains this development, in the official’s view, may be the five-year nominal interest rate in the United States, whose average is at the highest level since 2008.

“Everyone is forecasting interest rate increases in the U.S., and this has an impact around the world, including in the [Brazilian] Treasury’s funding rate,” he said. “Brazil is not an island. We are impacted. But we are not the only ones.”

Despite the influence, Brazil’s nominal rates are not rising faster than the U.S. rates, he said. “We see stability in the rate differential with the U.S.,” he says. “Our rates go up domestically because of international conditions.”

To demonstrate this thesis, he says Brazil’s five-year nominal interest differential is lower than the average of two similar economies: Mexico and Colombia. The data shows an improvement in Brazil’s funding conditions, he said. Considering real rates for ten years, the differential of the funding rate between Brazil and the United States shows an improvement, according to him.

*By Victor Rezende, Lu Aiko Otta, Estevão Taiar — São Paulo

Source: Valor International

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Braskem sale stalls as stocks decline

Partners Novonor, Petrobras are in no hurry to negotiate due to worsening economic scenario

07/15/2022

The process of selling the petrochemical company Braskem, whose shareholders are the Novonor group (formerly Odebrecht) and Petrobras, is stuck again. Sources familiar with the matter told Valor the two partners have made little effort to move the negotiation forward, largely because the market is not favorable to a stock offering.

However, internal issues at Petrobras, including the change of the CEO, and uncertainties about the state-owned company’s strategy have removed the sale of Braskem from the priority agenda, at least for now. At Novonor, which is advised by Morgan Stanley, there has been no definition of a new timeline after the suspension of the preferred stock offering in January.

A source connected to the company’s creditors said that the current price of the shares is well below what is necessary to pay off debts and below the interest of Novonor to get rid of its participation in the business. The total debt of the banks that have shares in guarantee is about R$15 billion. A good part of Braskem’s dividends has been assigned to reduce debts and interests on this debt.

The petrochemical company is also waiting for market conditions to improve in order to go ahead with the secondary offering. Since the second half of last year, the capital market has been closed to offerings. Thursday the stock price closed the day at R$33.02 on B3, the Brazilian stock exchange. This year, the shares aggregated a fall of 40.39%, according to a Valor Data survey. The petrochemical company’s market capitalization is R$26.7 billion.

According to a source close to Braskem, the company is practically ready to go to the Novo Mercado — the strictest governance segment of B3. However, the operation has not yet materialized because the plan is to conduct the secondary offering together with the migration.

As the interest rates are on the rise, the stock exchange is no longer an interesting option for the sale of the petrochemical company. A merger and acquisition process would make more sense and would bring more value to the company, said another source.

The company’s shares have been falling since last year. The strongest pressure came from the energy crisis in the world, which reduced the margins of the Brazilian petrochemical company. The higher prices of natural gas and oil, and consequently of naphtha and is expected to continue to weigh on the company’s results.

Earlier this month, Bank of America (BofA) reduced its estimates for the company between 2022 and 2024, resulting in a new target price of R$55 per share, much lower than the previous R$80. However, the bank maintained its recommendation to buy the shares, given the potential for appreciation and expectations regarding the Novo Mercado. Today, the stocks are traded at B3 at low multiples, with an enterprise value (EV) of around 4.3 times the EBTIDA projected for 2022.

Braskem, J&F, Novonor, Petrobras, Ultrapar and Unipar declined to comment on the matter.

*By Mônica Scaramuzzo, Stella Fontes — São Paulo

Source: Valor International

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