GDP expected to slow down after Q2 growth

Projections indicate that economy’s performance in first half will drive year’s result

08/30/2022

The good performance of the Brazilian economy in the first half of the year may account almost alone for GDP growth in the full year 2022. The dynamism bolstered especially by the services sector, however, is not expected to remain in the second half, when the lagged effects of monetary tightening are likely to start appearing more consistently. Meanwhile, uncertainty grows due to the elections and factors such as the momentum of economic reopening lose effect.

The median of 75 estimates collected by Valor points to a GDP expansion of 0.9% in the second quarter compared with the previous quarter. This way, the average point for the year-end result, based on 80 estimates, reached 2.1%, compared to 1.4% at the end of May. Of these, only 16 are below 2%.

Last quarter showed widespread growth, with services, industry, and farming standing out, said Lucas Maynard, an economist at Santander. In services, he points out the reopening of the economy, the increase in disposable income as the labor market improved, and the effects of fiscal stimuli, such as the early payment of the 13th salary (a mandatory year-end bonus for formally employed workers) and the authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts.

The higher income also favors the consumption of industrial goods, a sector that has benefited from the improvement in global logistical hurdles caused by the mismatch between supply and demand. Inventory data, says Mr. Maynard, suggest a gradual normalization of the production chains. Industry, in particular, had a better performance in the first half of this year, unlike the second half of 2021, when it was affected by lower income and the preference for services in the consumption mix.

Santander projects growth of 1.1% for the second quarter of 2022 and expects GDP growth of 1.9% for the year. The statistical carryover for the second half is 2.3%. That is, with zero growth in the second half, this would be the country’s GDP growth.

Fernando Honorato — Foto: Carol Carquejeiro/Valor

Fernando Honorato — Foto: Carol Carquejeiro/Valor

Besides the broader factors amid a set of government measures, a structural component played a role: the surprising dynamism of the labor market recently, said Fernando Honorato Barbosa, the chief economist at Bradesco. “I see two reasons for the good moment of employment. On the one hand, the overhaul of labor laws brought more flexibility in hiring and firing and reduced costs for businesses. On the other hand, the relative price of wages compared to investments shows that today it is more beneficial to hire.”

“If we take, for example, FGV’s level of capacity utilization indicator Nuci, we see that it is above 80%, which should drive investments. But businesses have preferred to hire, and this has not only to do with the overhaul. Salaries are close to the levels seen in 2012,” he said. In July, the industry’s Nuci hit 82.3%, the highest since March 2014.

If the first and second quarters surprised to the upside, the following period is surrounded by uncertainties. This is because the effects of the Central Bank’s monetary tightening are expected to become more intense, while the push given by the post-Covid reopening ends and the uncertainties regarding the elections slows investments. Not coincidentally, the median of the 67 projections suggest a 0.2% GDP growth in the third quarter.

What complicates the reading is that, in the opposite direction of these factors, there are issues such as the higher cash transfers through the social program Auxílio Brasil, of R$600 as of August, tax exemptions, and the deceleration of inflation, which is likely to give an additional boost to activity. On the external front, the tightening of global monetary conditions that was taking shape at the end of the first half of the year was also attenuated — at least for the time being — by a slightly more dovish stance by the Federal Reserve, the U.S. central bank. Because of this, some economists believe in a bullish bias for the numbers for the period.

4Intelligence’s current estimate is for a 1% contraction in GDP in the third quarter, but the figures do not account for possible cross effects from Auxílio Brasil, said analyst Wellington Nobrega. “With falling inflation, a heated labor market, and the government’s countercyclical policies, household consumption may do better than projected today.”

Fernando Rocha, the chief economist at the asset management JGP, also disagrees with the thesis of a “sudden blackout” in the second half of the year. In his calculations, the GDP grew 0.6% in the second quarter, seasonally adjusted. Considering the result of the first quarter, this generates a statistical effect of 1.9% for the second half, he said.

In his view, the deceleration will be more gradual than imagined. Job generation has been strong, surprising month after month, and this increases the total wage bill and props up demand for services, he said. Mr. Rocha expects GDP growth of 0.4% in each one of the next quarters. Thus, JGP’s official projection for 2022 is 2.2%, but the rate could reach 2.5%.

Another factor that could support activity in the third and fourth quarters is local government investment, which saw a boost earlier this year, said Stephan Kautz, the chief economist at EQI Asset. “Spending by municipalities was very strong. It could generate a statistical effect for the second half of the year and make Gross Fixed Capital Formation surprise this year.” That said, the asset management company expects that this set of factors will not be enough to offset downside factors. Considering negative data and reports that are already emerging in retail and construction, the company projects a 0.1% expansion in the third quarter.

Looking ahead to 2023, estimates have also deteriorated. The median of the 78 projections showed a 0.4% expansion, compared with 0.7% in the previous survey.

In addition to the contractionary effect of monetary policy, which will reach its maximum effect in early 2023, the uncertainty about the economic policy of the next administration is weighing on estimates, said Mr. Honorato, with Bradesco. In his opinion, question marks about what lies ahead will not be solved with the election results.

“We still don’t have details about this new arrangement, and I believe that the uncertainty will remain until the first half of 2023. The new administration could build an enormous market confidence, so that the exchange rate appreciates, inflation falls faster and so does the [policy interest rate] Selic. It might not,” said Mr. Honorato, who sees zero growth in 2023. “The point is that, with fixed interest rates at 7.5% and long rates at 6%, it is undeniable that uncertainty is there and will affect the economy.”

Santander estimates a 0.6% contraction, but with an upward bias. Among the factors playing against next year’s GDP growth are the exhaustion of the effects of the reopening of the economy and the still unfavorable situation abroad, Mr. Maynard said.

EQI is more optimistic, with a forecast of a 0.9% GDP growth. “We believe that agriculture will again have a good year in 2023, growing close to 3.5%. The high interest rates are less relevant for the segment, which has directed credit. Besides this, the global slowdown affects more metallic commodities. The agricultural ones are better isolated,” he said. “Agribusiness has a smaller relative participation in the economy, but it generates positive, indirect effects as well.”

*By Marcelo Osakabe, Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Government said to maintain fuel tax relief in next year’s budget

Tax benefit ends officially on December 31, but President Bolsonaro has already signaled he would seek its extension

08/30/2022

Jair Bolsonaro — Foto: Cristiano Mariz/Agência O Globo

Jair Bolsonaro — Foto: Cristiano Mariz/Agência O Globo

The fuel tax relief, a trump card of President Jair Bolsonaro’s (PL) in the election campaign, is expected to be maintained next year. The tax benefit ends officially on December 31, but the president has already signaled that he would seek its extension.

The 2023 budget bill, which will be sent to Congress by Wednesday, provides for tax breaks of R$50 billion due to the fuel tax relief, officials say, including R$18 billion for diesel alone.

Another important campaign promise, however, will not be included in the budget bill. According to the budget blueprint, Auxílio Brasil, the social program created to replace Bolsa Família, will only distribute R$400 a month, compared with R$600 now. A legal provision – that currently does not exist – is needed to keep the current value next year, as promised by President Bolsonaro, who is running for re-election, and some of his opponents, including former President Luiz Inácio Lula da Silva (Workers’ Party, PT) and Senator Simone Tebet (Brazilian Democratic Movement, MDB).

Mr. Bolsonaro will include the forecast of paying R$600 in 2023 in the message that accompanies the budget bill to Congress. The idea faced some resistance from officials because it is not a usual step. However, it was the way found to reinforce the promise. In the debate held by a pool of news outlets led by TV network Band, Mr. Lula da Silva criticized him for failing to include the higher Auxílio Brasil cash transfers in the 2023 budget bill.

In campaign advertising, the president has said that the aid will be paid in line with “fiscal responsibility” principles. Behind the scenes, Economy Minister Paulo Guedes has advocated that the source of funding for the additional expense of R$50 billion to R$60 billion should be the collection of individual income tax on dividends. Government estimates suggest that the collection would be similar to that.

This taxation is part of a bill in Congress, which has already been passed by the Chamber of Deputies but faced resistance from senators. During the debate on Sunday, Mr. Bolsonaro said he would seek the means to raise and finance the aid in dialogue with Congress after the elections.

The adjustment of the income tax rates, a promise of Mr. Bolsonaro’s 2018 campaign, is not expected to be included in the budget bill, sources say. One reason is the requirement of an alternative source of revenue.

The budget bill is likely to include R$10.5 billion to adjust the salaries of civil servants next year.

Although the federal accounts tend to end the year in the black, the budget bill is likely to project a R$65 billion deficit.

As Valor reported last week, R$430 billion would be needed to foot all the promises speculated that require spending and tax breaks next year. Officials specializing in the budget, both from the Executive and the Legislative branches, expect the 2023 budget bill to be modified after the elections, in October.

*By Lu Aiko Otta — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Companies intensify talks to renegotiate debts

Out-of-court agreements gain ground as businesses focus on changing their debt profiles

08/30/2022

Cemig’s building — Foto: Divulgação

Cemig’s building — Foto: Divulgação

Companies are intensifying talks with financial consultants and law firms specializing in restructuring to renegotiate their debts with creditors, sources say. With the increase in the cost of capital due to the high interest rates and limited supply of funds in the market, negotiations for out-of-court agreements are gaining ground with a focus on changing the debt profile of these companies. One negotiation involves Pif Paf, a well-known food brand in Brazil, which has analyzed going public in 2021, but currently faces a difficult financial situation.

Companies from sectors as diverse as food, textile, civil construction, energy, retail, and services are seeking mediation with creditors. The negotiations gained more strength especially after the second quarter, with the pandemic under control, but in a scenario of escalating interest rates, exchange rate still at high levels and increased financial expenses.

“The crisis scenario generated at the beginning of the pandemic mitigated the problem for many companies, with creditors willing to renegotiate longer terms. But this scenario has been changing in recent months, with the environment of higher interest rates, inflation, and possible recession,” said Luiz Galeazzi, with the financial restructuring company Galeazzi Associados.

According to Eduardo Wanderley, a partner with the restructuring and insolvency team of BMA Advogados, many creditors gave “a break” of one to two years in collections. “This is because at that time, if you tried to offer the debt security in the market, there wouldn’t even be a buyer. And there was a scenario of banks with more liquidity, with the measures taken by the Central Bank in 2020. We even thought that renegotiations would see a boom, but it didn’t work out that way,” he said. “There are signs that the market may be entering at this moment. We feel was that this would come back between this year and the next, especially.”

“Last week we were approached by a large service company in search for restructuring. Those who failed to do so before are suffering now. Those who restructured their debts and now need to go back to the market to roll over [debt] face very expensive credit. And this will create a more difficult scenario,” he said.

Eduardo Gallardo, a lawyer with professional services firm Alvarez & Marsal, says inquiries from companies seeking restructuring have increased. “With escalating interest rates, inflation and the risk of recession ahead, the bill starts to arrive and affects companies that can’t increase revenue.”

Fish producer GeneSeas, controlled by private-equity fund Aqua Capital, is in intense talks with creditors to avoid filing for protection from creditors, sources say. From January to June, the company’s revenue reached R$210 million, while the debt in the same period totals R$220 million. At this moment, the group is negotiating with creditors, a stage that expires at the end of September.

Power companies Cemig and Santo Antonio are also in talks with banks to change their debt profiles, sources familiar with the matter say. Both companies have invested to expand in recent years, but their complex shareholder structures involving several shareholders delay negotiations.

As for meatpacker Pif Paf, the company’s lawyers informed the courts in July that the group had opened mediation with creditors. Last month, the company, with R$2.7 billion in sales in 2020, filed an injunction to prevent the blockage of R$30 million from its accounts by China Construction Bank. The group says that access to those funds is key and, “as the injunction is granted and depending on the success with the Chinese bank and any other creditors, [Pif Paf] may, after 60 working days, and if necessary, file for judicial recovery,” says the request.

In a note, the group said that it made acquisitions through loans, in a structured way, but due to the current economic scenario of “sudden and accentuated rise in interest rates,” it hired G5 Partners “to develop a strategic plan focused on reducing the debt and thus ensure the maintenance of the company’s financial health.” The company also said it “maintains a constructive and transparent relationship” with the banks.

On the subject of judicial reorganization, cited in the injunction, the company said there is no ongoing process or intention to do so.

Ronaldo Vasconcelos, a partner at VH Advogados law firm and a professor at Mackenzie, sees an increase since March in collective out-of-court settlements, those closed through mediations with companies and creditors. “We saw [this movement] very clearly in the real estate industry, and, to a certain extent, in textiles,” he said. “In the construction sector, it even looks contradictory to see construction works in capital cities like São Paulo. That happens because these guys are building now based on past, low interest rates, and some of them renegotiated the terms in 2020. But now they must foot this indebtedness without getting new lines in more reasonable conditions.”

Law firm Moraes Jr. Advogados saw an increase from six months ago and is currently negotiating mediations with creditors of two meatpackers from Minas Gerais and Pernambuco, as well as food makers. “We are trying to reach an agreement, but it is very difficult because when you approach creditors for a negotiation, the creditor often asks to block stocks or something along these lines, which complicates the talks,” said lawyer Odair de Moraes Júnior.

According to him, the meat industry has revenues in dollars, which is a “natural hedge.” Yet, meatpackers made high investments to meet an export demand that did not materialize at the expected pace.

Another case involving his law firm is that of Pantera Alimentos, an Itu-based food company that owns five brands. The company had been seeking new lines since 2019 before it managed to close credits with banks and credit rights funds in the following year. Despite that, the leverage ratio grew fast, and the company now faces a R$97 million debt pile. “We started a mediation, but there was no agreement, so we had to file for protection from creditors,” he said.

“We expect this to grow in the second half of the year because election years translate into a worse economic scenario, and the Selic [Brazil’s key interest rate] will still be high in 2023. Also, a snowball has formed in many businesses, and it must be solved.”

This happens in parallel with the need for companies to put certain assets up for sale in an attempt to reduce their leverage ratios. “These are negotiations less for matters of opportunity and more because of collections,” said Thiago Giantomassi, head of banking and finance at law firm Demarest Advogados.

According to the law firm, the search of advisers in restructurings exceeds the numbers for 2020 and 2021, but is lower than that seen in the 2015 recession. “The difference to 2020 is that questions were more theoretical back then. Now companies include more practical background aspects, and they think they will not be able to solve the situation without mediation,” said Guilherme Bechara, a partner with Demarest.

Diogo Berger, head of debt restructuring at Santander, said that the current scenario is similar to the period 2014 and 2016 in terms of rising interest rates. At that time, default was more widespread. However, he now sees a benign scenario for companies, especially the large ones, as they raised funds in the capital markets. “The past crisis was very severe, with banks creating internal structures to serve these companies.”

Mr. Berger said banks’ teams grew. “Since then, the financial system has a way to work preemptively on the most complicated cases and they are able to better organize disputes [between creditors], who want to receive first.”

GeneSeas said in a note that it “faces a challenging situation, common to the entire animal protein market, amid a complex macroeconomic scenario impacted by a large increase in interest rates, high energy and commodity prices and increased likelihood of a global recession.”

Also according to the company’s note, “GeneSeas has been working on a friendly renegotiation plan with its entire production chain, through a process focused on cost reduction and the implementation of management measures that promote operational efficiency and help strengthen cash flow. The company’s goal is to maintain its operating capacity, offering quality products to customers and seeking to preserve as many jobs as possible.” Aqua Capital declined to comment.

Cemig and Santo Antonio also declined to comment.

*By Adriana Mattos, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Most fintechs are in search for capital

Global crisis and local factors reduced investor appetite, survey by PwC and ABFintechs shows

08/29/2022

At a time of scarce IPOs and fewer, smaller checks from venture-capital funds, 80% of fintechs are seeking capital or intend to do so in the next 12 months, according to data by Fintech Deep Dive 2022, a survey held by PwC in partnership with the Brazilian Association of Fintechs (ABFintechs). The study found that 69% of fintechs finance their activities with their own funds.

“The crisis has reduced investors’ appetite for risk. Currently, there is little availability of venture capital to finance startup innovation due to some investments being frozen because of elections in Brazil and uncertainties related to prices and interest rates around the world, which were aggravated with the invasion of Ukraine by Russia in early 2022,” the study says. A 56% share of the 156 fintechs heard say they have never participated in an investment round.

Among the fintechs that managed to raise funds in the last year, 49% raised between R$1 million and R$10 million. Among those seeking funds, 60% intend to receive between R$1 million and R$30 million.

Diego Perez, head of ABFintechs, said that the interviews were conducted in March and April, but with data referring to 2021. In other words, they do not yet capture the effects of the war in Ukraine and monetary tightening in the United States. Investments in fintechs are expected to drop even further this year. “I don’t understand the movement of previous years as a bubble, but perhaps more adverse scenarios, such as the pandemic and geopolitical tensions, have been underestimated or even ignored,” he said.

According to him, the current moment is one of the more selective investors, but with the capacity to make investments. “These investments are being held back at the moment, but there is always recovery after a storm. Investments are expected to decrease this year, but they are not going to disappear. They are waiting for the right moment to come.”

Luís Ruivo, a partner and financial services consulting leader at PwC in Brazil, said that the segment has consolidated in recent years. The boom of new companies seen five years ago is in the past, but those fintechs that managed to stand alone often did so supported by a large customer base, but still without cutting a profit. “They all have in common the pioneering spirit of entering underserved markets using the right recipe. Today, however, the spaces are occupied even by fintechs, and the challenge is to grow and generate profitability against a backdrop of scarce investment capital.”

Currently, 31% of fintechs invoice up to R$350,000 per year. In the previous edition, 38% said they had no revenue. Those with revenues over R$10 million total 16%. Although 65% expect to double their revenues this year, only 35% were able to break even. Breaking companies down by segments, 21% operate in credit, 16% in means of payment, 13% as digital banks, 8% in financial management, and 8% in investment management.

According to Mr. Perez, with ABFintechs, many startups began with payment means because of the regulatory opening promoted by the Central Bank in 2013. In 2018, credit fintechs were created, and now this segment is starting to mature. “In the macro scenario, we are at a time when there is high demand for credit and many micro and small businesses, which are not served by banks, are starting to turn to alternative sources, such as digital lenders,” he said.

In addition to credit supply, one area that fintechs are strongly turning to is open banking. A 43% share says they develop solutions for both open banking and Pix (Central Bank’s instant-payment system); 15% do so only for Pix; 13% do so only for open banking, and 28% are serving neither. “Most fintechs say they are already reaping or about to reap benefits from their investments in solutions related to open banking and Pix. After the mass adoption of Pix by Brazilians, companies still see opportunities to explore the new payment method to diversify their product and service offerings and draw customers. Likewise, open banking has not yet fully shown its potential to transform the market,” the study says.

Among the greatest difficulties cited by fintechs are drawing qualified human resources (56%), obtaining investment for the business (51%), achieving scale (41%), having brand recognition (38%), and generating revenues (29%). For the head of ABFintechs, there tends to be an improvement in the first item, either by the crisis in the cryptocurrency segment and the wave of layoffs it has been causing or by the devaluation of the euro against the dollar, which makes European IT professionals cheaper to hire – which will possibly reduce the pressure of U.S. companies on human resources in Latin America.

*By Álvaro Campos — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Twitter tests live-stream shopping model in Brazil

“Live commerce” is aimed at drawing advertisers and increasing revenues in the second half of the year, when major events such as the FIFA World Cup take place

08/28/2022

Fiamma Zarife — Foto: Silvia Zamboni/Valor

Fiamma Zarife — Foto: Silvia Zamboni/Valor

Twitter, one of the most popular social media among Brazilians, began testing the live-stream shopping model in the country. The so-called “live commerce” is one pillar to attract advertisers and increase revenue in this second half of the year, when major events such as the FIFA World Cup in Qatar, Black Friday, and year-end holidays take place.

“We are sharing a lot with brands the increase in conversations about the World Cup on the platform because it will definitely be one of the biggest events within Twitter this year,” Fiamma Zarife, Twitter’s country manager for Brazil, told Valor.

Twitter launched live-streamed product sales last year in the United States. “We had a simultaneous audience of 2 million people in a Walmart live commerce,” the executive said.

Although Twitter is not a short video-centric platform like TikTok, Kwai, and Instagram, Ms. Zarife says that video content generates conversations on the platform and accounts for 50% of the audience, currently. “We have a symbiotic relationship with TV in content like reality shows, soap operas, and soccer, which are passions of Brazilians,” she said.

But she also considers that the economic situation is complex. “Today we have a difficult macroeconomic scenario for the whole world, not only in Brazil, which leads companies to be more cautious and assertive with marketing investments,” she said. “We know that media investment is a reflection of the economy, but we take a very positive look at how Twitter can join these major events with an influential audience, which is much more opinionated.” In the political field, in particular, Twitter is considered an important social media and is used by politicians and their followers.

This year’s Brazilian elections, with the first round of voting scheduled for October 2, are stirring up the social networks. But it is during the soccer World Cup and Black Friday that Twitter and its competitors see more opportunities to make money with video advertising, live sales, and content produced by influencers.

Meta, the parent company of WhatsApp, Instagram, and Facebook, had the largest share (26%) among digital networks in advertising investments between January and the end of July, according to Nielsen, followed by Google’s YouTube, with 22%.

Meta’s strategy to draw advertisers – the company says there are 200 million worldwide – is to turn advertising into a natural part of users’ navigation. “We combine our business solutions with the way people use our products naturally. That’s why we have invested in so many ways to create a personalized, seamless user journey from the moment people meet a brand to the moment they buy a product,” said Conrado Leister, Meta’s managing head for Brazil.

Video ads, especially long-form ads, are a major bet. “Video is a big part of why people like our apps — there are a lot of opportunities tied to this format on our platforms,” says Mr. Leister.

Globally, more than 2 billion people watch ad-eligible videos each month on Meta’s platforms, and 70% of video ad views on Facebook ads are seen in full.

Meta’s managing head in Brazil says that “short videos are a success. But long videos generate greater audience adherence to ads on the company’s networks.”

Videos also guarantee longer permanence of users in social networks and, consequently, greater exposure to advertising.

“With the increase in consumer dwell time on social media and more information collected about their interests, social media becomes a good channel to generate both brand creation and short-term sales,” said Sabrina Balhes, Nielsen’s measurement leader in Brazil.

Kwai, a social video network known as Kuaishou in China, saw a 200% jump in the dwell time of Brazilian users on the platform last year. Currently, more than 45.4 million monthly active Brazilian users of Kwai spend on average 60 minutes a day on the platform.

Soccer is one key topic among the platform’s content to draw audiences and advertisers. In September last year, Kwai signed a two-year sponsorship deal with the Brazilian Football Confederation (CBF), which provides exclusivity in the production of short videos for the platform on the official profiles of the men’s and women’s national teams, including backstage and training sessions.

For the World Cup, the company has begun to plan special content and filters. “We will make a strong correlation with content about the event,” said Mariana Sensini, Kwai’s country managing director in Brazil. “Our research shows that users want entertainment.”

The social-media website also seeks to foster content created by social media influencers. Between March 2021 and April this year, Kwai invested R$250 million to pay 20,000 content partners in Brazil.

On Black Friday, Kwai bets on live-streamed sales. This model was launched in October in Brazil with retailer Casas Bahia.

This year, advertisers are likely to combine campaigns for the World Cup, Black Friday, and year-end holidays, said Ms. Balhes, with Nielsen. The idea is that “instead of creating a specific advertising campaign for each event, advertisers will work with umbrella campaigns that encompass the year-end sales,” she said.

Consumer confidence in social media is a key point for advertisers to direct their campaigns to this audience. According to a Nielsen study conducted in September 2021, 64% of Brazilians say they trust ads on social media. In another survey, from June, 39% said they have already bought some products promoted by social media influencers.

For the social media Pinterest, the World Cup brings the opportunity to capture the desires of Brazilians who seek decoration, fashion, and style references around the event. “With a lot of competition among social media for soccer, we decided to act on the cultural side of the World Cup,” said André Loureiro, Pinterest’s managing director for Latin America.

The social-media website is also preparing the launch of a public data tool about the behavior of its users, like Google Trends, which should go live before Black Friday, providing more elements for advertising campaigns on the platform.

“Combining the seasonality of Black Friday with the World Cup, at the same moment of the year, we have a great expectation of return in the fourth quarter,” Mr. Loureiro said.

*By Daniela Braun — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Government postpones super terminal project in Santos

Auction is seen as materializing only after port privatization, which depends on presidential election

08/29/2022

BTP is one of the port’s container terminals — Foto: Ana Paula Paiva/Valor

BTP is one of the port’s container terminals — Foto: Ana Paula Paiva/Valor

The federal administration gave up on auctioning this year a new “super terminal” at the Port of Santos, which is expected to expand container handling capacity by up to 40%. Depending on the election results in October, the new terminal – also known as STS10 – will be put on the block only after the privatization of Santos Port Authority (SPA). The studies for that are expected to reach this week the Federal Court of Accounts (TCU), a public spending watchdog not related to Brazil’s Judiciary system.

The change in plans was caused by problems in the studies made by the state-owned company Empresa de Planejamento e Logística (EPL), which will have to be updated, and to competition issues, sources say.

The volume of investments initially calculated in the study, around R$2.2 billion, would have to be updated by 50% because of inflation and the higher prices of the main inputs.

Competition is another concern. Three smaller terminals currently handle vehicles and other break bulk cargoes, such as wind turbine blades and transformers, in the area where STS10 would be built. It is still unclear how cargo flow would be accommodated after the containers arrive.

The studies will be updated because of that, which puts the auction back at an earlier stage than today’s port privatization process. “The end of an administration is not the best moment for such decisions,” said an official that follows the case closely.

The outcome will also depend heavily on the election. If President Jair Bolsonaro is reelected, the privatization of the Port of Santos is likely to be concluded in the first half of 2023, and the “super terminal” would have to be auctioned by the port’s new private-sector owners.

The Ministry of Infrastructure planned to auction the terminal before privatizing the port, but the second option turned out to be the more feasible one. “It was very much reliant on the pace of one project and another. As the STS10 ended up being delayed, they made this decision,” a source within the government said.

In this new scenario, privatization may include some additional requirements, such as maintaining an area in STS10 to handle vehicles and wind power equipment.

If former President Luiz Inácio Lula da Silva wins the election, the original plan is likely to remain in place. Advisors to the Workers’ Party (PT) have already said Mr. Lula da Silva does not intend to privatize the port. In this case, the container “super terminal” would be auctioned by the government, accordingly to the current model.

Designed to revamp the port and encourage competition, the new terminal has the potential to attract R$1 billion in fixed concession payments. If the concession takes place even after Santos is privatized, the government would have to increase the fixed concession payment to offset the loss of such an asset.

STS10 will have a similar capacity to that of Brasil Terminal Portuário (BTP) and Santos Brasil terminals, which today are competing fiercely for leadership in container handling.

According to the current design of the auction, BTP could not make a bid. However, the company’s controlling shareholders – Maersk’s APM Terminals and MSC’s TIL – would be able to participate separately.

According to preliminary studies, the new terminal will have a static capacity for up to 47,500 TEUs (20-foot equivalent units of containers) at the end of the contract, in a total area of 463,800 square meters.

To offer a glimpse of what the investment foresaw in the implementation of the super terminal means, the government has called the bidding for STS08 and STS08A, two terminals for fuels, “the largest port concession ever.” Both terminals will be auctioned in November and will receive a combined capital expenditure of R$950 million.

*By Murillo Camarotto, Daniel Rittner — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Customers can pay for purchases with a smile in 6 states

Facial recognition system allows customers to pay in stores without using an electronic device or a card

08/26/2022

Eladio Isoppo — Foto: Nilani Goettems/Valor

Eladio Isoppo — Foto: Nilani Goettems/Valor

When making a purchase, consumers want to avoid queues or time-consuming bureaucracy. To solve this, startup Payface brought to the market a new means of payment that simplifies operations in retail.

The solution uses facial biometrics technology and connects the entire ecosystem of payment methods, including credit cards, private label credit cards, wallets, acquirers and sub-acquirers. Users are not required to use any device or card. Payments are approved through face recognition – it takes a simple glance at the device installed at the cashier.

Payface’s first client was São Paulo-based supermarket St Marche, which saw broad acceptance since the innovation was put in place three months ago. “We are in 500 points of sale in six states,” said Eládio Isoppo, the fintech’s CEO and co-founder. The list of clients include supermarkets Zona Sul (Rio de Janeiro), D’ Ville (Uberlândia, Minas Gerais), Frade (Ilhabela, São Paulo), and Muffato (Paraná). The solution is also in use in Santa Catarina and Bahia.

Customers like it because operations are instantaneous and do not require point-of-sale terminals, cards, or intermediaries. “The consumer can go for a walk and stop at the supermarket to shop, without having to present any document, card, or cell phone,” Mr. Isoppo said. Payface’s next move is to expand to pharmacy chains and smaller stores. To do so, it is seeking partnerships with issuing and acquiring banks to reach small and medium retailers.

The security of the new payment method is in the technology behind the solution, Mr. Isoppo said. Payface holds a PCI Compliance certificate, which attests that the company follows the necessary security rules in processing card data. The consumer’s registration on the Payface platform gathers data such as the tax ID, payment method, and facial biometrics, and is integrated with the software installed in the retail chain. The insertion of the means of payment uses tokenization (the process of replacing real data with equivalent data, with the same format and protected by cryptography).

The development of technologies to reduce reliance on passwords and improve the experience by eliminating friction in data validation has advanced. The process, called passwordless authentication, is also being adopted by the financial system.

A survey by consultancy Netbr, conducted with the support of its global partner Ping Identity, showed that 77% of the lenders already execute – or are about to do so – some kind of passwordless electronic operation. “We are talking about the same standards used by big techs, now being adopted by the financial industry,” said André Facciolli, CEO of Netbr. According to him, four of the six largest Brazilian banks use the technology in authentication and authorization processes.

Another advance was the use of benefits for employees, such as food and meal vouchers. Bee Vale’s application, with multiple wallets, allows contactless payments by mobile phones. Daniel Oliveira, CEO of paySmart, a fintech that processes payments for companies and has Bee Vale as a client, said that the near field communication (NFC) technology is present in most cell phones and is an option for electronic payments.

*By Fatima Fonseca — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Bamaq unveils R$700m investments by 2025

Group with interests in heavy construction equipment, luxury cars expects to reach R$2.2bn in revenues this year

08/26/2022

Clemente Faria Junior — Foto: Maria Tereza Correia/Valor

Clemente Faria Junior — Foto: Maria Tereza Correia/Valor

Bamaq, a group with interests in heavy construction equipment, luxury cars, financing, and car insurance, plans to invest R$700 million by 2025 to expand current businesses and enter new services. The group ended 2021 with revenues of R$1.6 billion and expects to reach R$2.2 billion this year, up 37.5%. The expected profit for this year is R$108 million.

The largest investment will be made in a new business focused on leasing of heavy equipment (such as backhoe loaders and motor graders), trucks, and utility vehicles for construction. The group represents the brands Iveco, New Holland Construction, FPT Powertrain Technologies, and Continental in 14 states.

The group will also invest in opening a fintech, expanding a new tire sales business, opening new heavy equipment and luxury car dealerships, expanding a remote equipment management service, and expanding insurance services.

The CEO of the Bamaq Group, Clemente Faria Junior, said that by 2023 an investment of R$134 million will be made with own funds in the structuring of the heavy equipment and truck rental business. “From the second year of operation on, the intention is to finance half of the amount to be invested,” he said. The executive’s forecast is to make investments of R$160 million in 2024 and R$204 million in 2025, totaling R$498 million in three years. Mr. Faria added that most funds will be invested in the acquisition of a fleet for rental.

“Customers used to want to buy heavy equipment, but today there is growing demand for the use as a service model,” the executive said. He noted that the heavy machinery sales business now has 40,000 customers. For each heavy machine purchased, the same customer uses, on average, three trucks on the construction sites. And a portion of customers do not have funds available to acquire the entire fleet but are interested in the rental model.

Mr. Faria said that even the demand for the purchase of heavy equipment in Brazil is heated, mainly because of the demand from large agribusiness producers located in the region known as Matopiba — named after the four bordering states of Maranhão, Tocantins, Piauí, and Bahia. “Agribusiness accounts for 30% of our sales,” the CEO said. Besides equipment sales, the group sells auto parts, tires, and lubricants. It also does equipment maintenance and remote fleet management.

The area of heavy machinery and trucks operates today with 14 business units and revenues of R$672 million in 2021. This year, Bamaq foresees the opening of Iveco and New Holland Construction units, two of them in Marabá (Pará), one in Sinop (Mato Grosso) and one in Luís Eduardo Magalhães (Bahia).

Another bet in the heavy machinery area is the sale of Koneq, a remote telemetry service that allows the remote management of equipment. The service controls engine temperature, the hydraulic system, fuel level, machines in operation, and the electric fence. Currently, there are 940 pieces of heavy equipment in the field in the country monitored by this system. The goal, according to Mr. Faria, is to reach 3,000 systems installed within 12 months. Bamaq invested R$5 million to develop the technology and will invest more R$5 million in 2023 in the service.

In the area of luxury cars, which accounts for 25% of the group’s revenue, there are plans to open a Porsche store in Salvador this year. Bamaq is also investing in the expansion of the consortium for luxury vehicles. The group has Mercedes-Benz and Porsche dealerships and represents both brands in Minas Gerais. “We have just been appointed to represent Porsche in Bahia. The store in Salvador, expected to be opened in the fourth quarter, will be the first in the state,” said Mr. Faria.

The CEO said that vehicle sales grew 22% in the 12 months through June. “Today we have 1,200 people waiting in line for a Porsche, 400 waiting for a Mercedes-Benz, and 550 waiting for the delivery of heavy equipment,” said Mr. Faria. According to the executive, industries face difficulties to meet the heated demand of consumers in the post-pandemic due to lack of parts.

In this scenario, the group sees as an alternative to help control customer anxiety a successful Brazilian institution, the so-called “consórcio”. It’s a kind of buyer’s club, a purchasing pool through which a group of people pays monthly installments on a certain item, such as a car or a house so that every month the group can afford to buy one. In 2021, said Mr. Faria, the “consórcio” business grew 180% compared to the quotas sold. The volume of commercialized credits grew 89% and the portfolio increased 82%, surpassing 20,000 active clients.

Another bet of Bamaq is in the financial industry. The group has filed a request with the Central Bank to open a fintech, which will offer financial products and services by digital means, including vehicle and heavy equipment financing, loans, credit cards, and acquisition of receivables. The fintech will be composed of a direct credit company (SCD) and a credit rights investment fund (FIDC). The portfolio is expected to reach R$100 million in the first year, R$500 million in the second year and R$1.7 billion in five years.

Bamaq was founded in 1974 by Clemente Faria, grandson of the banker who founded Banco da Lavoura, in 1925, also named Clemente Faria. In 1971, his sons Gilberto and Aloísio Faria split Banco da Lavoura into Banco Bandeirantes and Banco Real, which were later sold to Caixa Geral de Depósitos (today Itaú-Unibanco), and ABN (today Santander). In 1974, the banker’s grandson, Clemente Faria, founded Bamaq, which started as a Fiatallis dealership (today New Holland Construction). The group operates in 16 states in the Northeast, North, Central-West, and Minas Gerais, employs 770 people, and has just over 70,000 active customers.

*By Cibelle Bouças — Contagem, Minas Gerais

https://valorinternational.globo.com/
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Bradesco expands investments in Mexico

Bank seeks to double its 3 million-user base and multiply its portfolio by four in five years

08/26/2022

Octavio de Lazari Junior — Foto: Leo Pinheiro/Valor

Octavio de Lazari Junior — Foto: Leo Pinheiro/Valor

Bradesco has announced the acquisition of Ictineo Plataforma, a popular financial institution (sofipo) that operates with individuals in Mexico, strengthening its first and only international retail operation. The deal will give access to regulatory authorization to distribute new products in the country.

The bank has been operating for 12 years in the Mexican market and has about 3 million clients of white label and branded cards. The acquisition was made through subsidiary Bradescard México.

The goal is to, at least, double this user base and multiply the portfolio by four in five years — although the bank does not reveal how large the portfolio is now. The value of the transaction was not disclosed.

According to Bradesco, Bradescard México is one of the leading consumer finance companies in the retail chain segment but does not have a license to work in other financial business fronts because it operates as a limited liability company in Mexico.

“The acquisition of the Ictineo Plataforma institution will open a new financial business front for us with high growth potential in Mexico, a country with several attributes, such as being the second largest GDP in Latin America,” Bradesco CEO Octavio de Lazari Junior said in a statement. “We will have the possibility of expanding our operations to be similar to a digital bank to gain a more robust presence in a relevant market such as the Mexican one,” he adds.

Recently, Mr. Lazari had already suggested that he intended to expand the operation in Mexico, which has a market similar to the Brazilian one. He even said that the movement could include the creation of a digital bank, stating that it could take one of the brands used here in Brazil there: “There is no digital bank called Digio in Mexico,” he said.

Alexandre Monteiro, head of Bradescard México, said that the goal with the purchase of Ictineo is to focus on a digital strategy. “The first step will be to offer digital accounts, payroll-deduction loans, and investment accounts,” he said in the note. “It is a relevant move to consolidate Bradescard in the Mexican financial market.”

Bradescard México has plans to carry out the distribution of other products, such as car financing and housing credit. In the credit card segment, in five years Bradescard intends to be among the largest card issuers in Mexico, expanding the number of trade agreements with new retailers and strengthening the digital distribution channel with important investments in technology.

Ictineo has a portfolio of only about R$4 million and less than 3,000 clients. That is, Bradesco is basically buying the license. The bank has no branches there and does not intend to have any. The idea is to strengthen distribution in the stores of partner retailers — one of the most important is Walmart’s chain Bodega Aurrerá — and invest heavily in digital channels, which will include a marketing campaign. For now, the name of the digital bank is likely to be Bradescard, but a change in the future is possible. There could even be an agreement to use the Digio brand, or another Bradesco digital initiative, but this has not been decided yet.

In the cards’ operation, with a focus on low-income clients, Bradescard has a significant market share, close to 24%, and competes with names such as Coppel and Azteca. By creating a digital bank, it will compete with the operations of the large traditional banks and also with new entrants such as Nubank and Rappicard, a partnership between the delivery app Rappi and Banorte.

“We have an important banking role. We are the first card for many of our users. We’re going to maintain that focus, but also increase the number of products and have a broader relationship with our clients. We are going to move up a little from the base of the pyramid and compete with Nubank, which, in my view, targets a slightly more middle-class audience,” the executive said.

Mr. Monteiro points out that another positive aspect brought by the new license has to do with funding. Until then, the card operation was basically financed by accrued profits. Now Bradescard will be able to capture deposits. According to him, the popular financial society license (sofipo) meets all the bank’s needs and there is no plan, at least for the time being, to seek a bank license.

The conclusion of the deal is subject to approval by the authorities in Mexico (Comisión Nacional Bancaria y de Valores, CNBV) and Brazil (Central Bank).

*By Álvaro Campos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Large retailers project R$7.8bn in losses from defaults

Payments in arrears surged in Brazil amid a widespread deterioration in income and rising inflation

08/26/2022

Economists do not believe retailers are at risk and see the current situation as very different from that of the late 90s thanks to better internal controls and available cash — Foto: Ana Paula Paiva/Valor

Economists do not believe retailers are at risk and see the current situation as very different from that of the late 90s thanks to better internal controls and available cash — Foto: Ana Paula Paiva/Valor

Brazil’s large retailers increased projections of loss from defaults as payments in arrears surged amid a widespread deterioration in income and rising inflation.

The 10 largest public companies in the industry set aside R$7.79 billion in provisions for bad debts between January and June, up 22% from the end of 2021, and also 42.2% above the first half of 2021. The figure is as high as last year’s sales of Leroy Merlin and Riachuelo.

The weight of the provisions for bad loans in relation to the companies’ net revenue rose to 4.92% this year from 4% in the first half of 2021. In December, it was 3.9%, which means that the ratio was stable until this curve started to grow this year.

Economists do not believe retailers are at risk and see the current situation as very different from that of the late 90s thanks to better internal controls and available cash. They also see small and medium-sized retailers, those off the radar of the market, as companies more exposed to such an effect.

The provisions for bad loans work are deducted from an asset account because it affects the accounts receivables, and also has a direct effect on the cash flow and the net result of the retailer. This is because, in accounting, it is considered a commercial expense. When the retailer considers that it will not receive a certain amount, it provisions this loss, and follows its own criteria for this, but tries to collect the money. A debt that is more than 180 days delinquent enters the “default” stage and is already considered a loss.

Retailers also reported more new losses than loans in arrears being paid. This is a changing line in financial statements because of constant inflows and outflows of funds. From January to June, the 10 companies expanded provisions by R$1.59 billion, but R$1.1 billion left this pool in the same period.

According to a former chief financial officer of an electronics retailer, the increase in loss additions reflects the scenario of lower real income and difficulty in renegotiating with customers. “Many times, the retailer renegotiates the debt with the customer, and the agreed value is already accounted as 100% recovered. This eases the provision, but is a questionable practice since the retailer will still receive the payments in the future. Even this renegotiation, which helps in the recovery, may be difficult,” the source said.

Pressure from new losses is mounting as retailers need to increase credit granting to encourage sales because electronics sales are growing slowly and fashion retailers need to consolidate recovery. In order to curb the increase in payments in arrears, however, the companies have been reviewing their policies for buy now, pay later options, and store credit cards.

“They face a dilemma. Retailers are forced to offer more lines of credit, despite very high interest rates [up to 8% a month], as they have to set aside even more money for payments in arrears,” said Claudio Felisoni, a professor at the University of São Paulo (USP) and head of the institute of retail executives (Ibevar). “There is only one solution: betting on data, on profile analysis tools, to sell more to good payers,” he said.

Fashion retailer Marisa is among those that started to make some moves and has been more rigorous in granting credit since late 2021, while rival Renner has reduced limits for purchases by higher-risk customers and expanded debt collection offices since March. “The more challenging credit and default backdrop hit the industry across the board, and we reacted to that. We already have now better quality [in the portfolio],” Renner CEO Fabio Faccio said in a conference call weeks ago. The retailer reported R$821 million in credit losses up to June, 40% above December.

An analysis by Valor shows that retailers are calculating more losses linked to payments in arrears — Foto: Valor

An analysis by Valor shows that retailers are calculating more losses linked to payments in arrears — Foto: Valor

The problem is also seen in food retail, a segment that typically faces fewer delays due to the client’s need to use credit lines for purchases of staples. Carrefour reported a rate of nonperforming loans – those 90 days in arrears – of 13.2% in the January-June period, compared with 8.1% a year earlier. The company has restricted credit granting since December. “We are working on it, and although this rate is still growing, we saw a lower expansion rate in the default rate since March,” Chief Financial Officer David Murciano told Valor in July.

Central Bank data show that the default rate in the credit portfolio for goods was at 3.42% in April 2021, then rose to 4% in December. Four months later, it was already at 4.71%, according to the latest data available.

Another interesting piece of data in the financial statements is the profile of payments in arrears. The percentage of debts less than 90 days in arrears grew. These are the new debtors, who had been paying on time until the first months of 2022 but stopped doing so from March on.

In December, this group represented on average 53.5% of total nonperforming loans and increased to 56.6% in June. Old debtors, with loans more than 90 days in arrears, accounted for the remaining percentage.

According to the former chief financial officer heard, this entry of new payments in arrears occurred because the companies “opened the tap for credit” last year to stimulate demand. “Now, they are closing it again, because they felt the delays, but that’s the way it is. It’s about continuously adjusting credit-granting policies. We are talking about large companies with better criteria and controls, so it is a temporary situation,” he said.

Since these are forecasts, each retailer can project in a more or less conservative way how much loss they expect. Therefore, retailers do not always change this at the same time, as is the case now. This time, the prevailing assessment is that the worsening of the macroeconomic scenario forced them to set aside more money for losses.

“Default rates are not growing because of uncontrolled spending or accelerated consumption. Instead, it reflects the resilience of inflation,” said Fabio Bentes, an economist at the national trade confederation (CNC). “We have even seen prices deflate recently, but inflation is still high. That’s why we believe that this increase in provisions is here to stay for a while, despite the increase in Auxílio Brasil, because we saw a deep deterioration in income and inflation will slow down gradually,” he added, citing Brazil’s main federal social program, which is now giving higher handouts for more people.

Analysts with banks like XP expect that this greater pressure will gradually ease next year. Marisa, Riachuelo, and Renner believe that default rates will improve in the third and fourth quarters, especially after September. The retailers also pointed out that, since there was a drop in provisions a year ago, the basis of comparison is low. According to the companies’ financial statements, companies focused on electronics – both through websites and brick-and-mortar stores – and fashion retailers increased their provisions the most as they are highly dependent on buy now, pay later options.

*By Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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