Surging oil prices put pressure on Petrobras

Possible government interference is seen as “acceptable” amid volatility caused by war in Ukraine

10/03/2022

The strong rise in oil prices in the international market in recent days as a consequence of the Russia-Ukraine war has put pressure back on the pricing policy of Petrobras. As a result, the discussion about how government interference drives stocks down has re-emerged as the state-owned oil company’s share prices are traded at levels very distant from those of its main international peers.

Even as Petrobras has surged around 13% in 2022 and almost 100% in 12 months, the multiples most used by the market, such as the price-earnings ratio, are still quite lagging when compared to the major U.S.-based and European oil companies. Taking into account Petrobras’s price in dollar terms, the P/E is around 4.4 times, while peers like TotalEnergies (8.3 times), Shell (10.4 times) and Chevron (19.9 times) boast higher multiples.

Petrobras’s stocks are historically traded at a discount compared with its peers due to the uncertainty caused by potential government interference. However, the new possibility of a potential price freeze or subsidy is seen as acceptable by the market, given the exceptional moment.

Since 2016, Petrobras has adopted the international parity method to sell fuels, matching prices with what it pays to import the oil used in production as a way of not taking losses. Since January 11, the state-owned company has not made any adjustments and the disparity between the sale price at refineries and the import price has widened to around 30%. Nicolas Borsoi, the chief economist of Nova Futura Investimentos, recalled that the lack of clarity of the mechanism is even more evident in a moment of crisis like the current one.

“Since the policy was put in place, there has always been controversy about the intervals between adjustments and whether it should include currency hedging. The market has always seen it as a cushion, despite being a reasonable one, and now controversies are in the spotlight because of the international market volatility,” he said.

Ilan Albertman — Foto: Leo Pinheiro/Valor

Ilan Albertman — Foto: Leo Pinheiro/Valor

Petrobras investors price in factors that have already been overcome by foreign peers, such as the fact that it is a semi-public company, the political risk and the lack of a real sustainability agenda, which justifies the divergence, said Ilan Arbertman, an analyst at Ativa Investimentos.

“Everyone involved needs to calm down, understand that we are in an exceptional moment, that oil prices that high are not a normal thing but a consequence of what is happening between Russia and Ukraine,” said Pedro Galdi, an analyst at Mirae Asset. There is no way Petrobras can pass on surging oil prices all at once, he added.

“They will have to pass on part of it and create some escape valve for prices, especially if the conflict continues. Petrobras’s refining unit can’t take such a big loss if oil remains at these levels for the next few months,” he said. “Everyone needs to work together.”

Mr. Arbertman believes that any solution that does not substantially change Petrobras’s economic and pricing policy fundamentals would be well accepted by the market. “Petrobras must be more transparent to the market, show how far it can handle this difference, and reiterate its support for parity.”

The analyst points out that a freeze on fuel prices, as has been suggested by the federal government, would generate destruction of Petrobras’s market cap, which would cause discomfort to investors, who would remember what happened in the last crisis involving the company.

“Some solutions discussed, such as using dividends owed to the government to subsidize fuel or creating a reserve fund as a way to ease the pressure on the pricing policy, without changing it, would be ideal,” he said. Avoiding an impact on the finances of Petrobras, he said, which have improved in recent years, would help investor confidence.

Goldman Sachs says that the creation of a new fuel subsidy program tends to be positive for Petrobras because it reduces risks to the profitability of the company’s operations in the short term. For the U.S.-based bank, the state-owned company would be reimbursed for the difference between domestic and international prices.

The government is discussing the recreation of a subsidy program similar to the one put in place in 2018 after the truckers’ strike. The topic emerged after the rise in the price of a barrel of oil in the international market with the crisis between Russia and Ukraine in recent weeks.

In a report, BTG Pactual points out that even in a situation of price controls, the good momentum of the Petrobras’s upstream business, which benefits from the rise in oil prices, would mitigate the effects of the deterioration of margins in refining.

Analysts Pedro Soares, Thiago Duarte and Daniel Guardiola wrote that Petrobras is today a much more structured, less leveraged company with lower production costs, which reduces the pressure for an immediate price adjustment.

Mr. Arbetman acknowledged that Petrobras is more structured now, but recalled that the company would not reap benefits with upstream is doing well and refining is not. “The market analyzes Petrobras as a whole. There is no point in looking at the segments separately because invariably, in terms of valuation, the asset ends up losing value.”

Mr. Borsoi, with Nova Futura Investimentos, recalled that besides the current volatility, Petrobras’s investors are also already considering the presidential elections, in October, which may mean a turning point in Petrobras’s pricing policy. “It remains to be seen whether the commitment will be maintained,” he said.

He believes that if the market considers that the government seeks solutions in order to solve social problems with the company, as was done in 2016, shares may drop as a result. “Today, the market still sees it as an exceptional situation, of war, but it is wary because of Petrobras’s history.”

Source: Valor International

https://valorinternational.globo.com
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Citrosuco sets ESG targets for 2030

World’s largest exporter of orange juice vows to have 100% of its supply chain sustainable

10/03/2022

Mario Bavaresco — Foto: Divulgação

Mario Bavaresco — Foto: Divulgação

Citrosuco, the world’s largest exporter of orange juice, has just defined its commitments in the environmental, social and governance (ESG) fields by 2030.

The Matão-based company controlled by the Fischer and Votorantim groups confirmed that, by the end of the decade, 100% of its supply chain will have to adopt measurable and certified sustainable socio-environmental practices, and now projects that, with efforts in this and other fronts, it will reduce its gas emissions by almost 30% in scopes 1 (related to the direct operations of the company itself) and 2 (involving the consumption of electric power).

CEO Mario Bavaresco said that the commitments unveiled now are in line with practices already in place for more than a decade.

Currently, 100% of the company’s own orange production follows the necessary sustainable agriculture parameters, and the same happens with about 65% of the independent fruit suppliers. There are about a thousand suppliers in total, and those that have not yet reached the required standards (usually the smaller ones) are moving in this direction with the company’s guidance.

With revenues estimated by the market at between R$3 billion and R$4 billion per year, Citrosuco has already certified 1.9 million hectares of its own orange production, spread over 25 farms in São Paulo and Minas Gerais states.

The company estimates that its orchards already capture more than 500,000 tonnes of carbon dioxide. With the goal of reducing emissions in scopes 1 and 2 by 28% by 2030, the volume removed could reach 1.6 million tonnes by 2030. For the reduction of scope 3 emissions, for which the company’s responsibility is indirect, the international criteria are still being refined and the targets, likewise.

Besides pursuing 100% socio-environmental compliance in its orange supply chain, with a focus on legal reserves, permanent protection areas, soil erosion, waste management, use and disposal of agrochemical packaging, and agronomic and labor issues in the agricultural areas under its influence, Citrosuco also wants to foster biodiversity.

Clauber Andrade, the company’s head of sustainability, points out that more than 19,000 hectares of conservation areas are already being managed. Besides, advances will continue to be made with increased production of bees and honey, expansion of native seedling nurseries, and monitoring of fauna and flora. As it uses irrigation on several farms, the company invests in the management of water resources.

With about 400 employees, besides those hired during harvests, the world’s largest exporter of orange juice also states that it has among its pledges the promotion of diversity, equality and inclusion. “We want to provide greater representation of women and blacks in our leadership. By 2030, we have committed to expand opportunities and access to leadership positions by women and blacks, reaching at least 30% representation,” Citrosuco said.

“All the commitments we have established represent a great challenge, and when we manage to achieve them, we will have others. But we will have a 100% sustainable production, more efficient and with higher productivity,” Mr. Bavaresco said. Over the past four years, Citrosuco has invested more than $400 million in the development of new projects, technologies, innovation, modernization and increasing capacity and productivity.

Source: Valor International

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Tension mounts as fertilizer prices surge

The weight of fertilizers in production costs continues to rise and already accounts for 35% to 40% of a crop

10/03/2022

Although negotiations have been slow in the Brazilian fertilizer market since the Russian invasion in Ukraine and many uncertainties are still on the radar, one thing is for sure: the price increase has made nutrients more expensive – they had already been rising sharply last year –, will raise the cost of agricultural production in the country, will help put more pressure on inflation and may affect crop yields, although the areas planted with crops such as grains and sugarcane are not expected to decrease.

In a scenario of “prices oscillating at every phone call,” according to one buyer, tension grew this week after a new package of sanctions on Russia was released on Tuesday by the U.S. and the European Union, and which involved everything from a reduction to a ban on the consumption of Russian natural gas. The move brought more turbulence to the nitrogen fertilizer segment, which has natural gas as a raw material. Brazil’s dependence on international suppliers exceeds 96% in nitrogen and potash fertilizers.

With moves related to natural gas, and amid so much disconnected information, the atmosphere is of restlessness. But private-sector agents and market specialists stresses that the crisis does not put the 2022/23 harvest at stake. Mosaic Fertilizer CEO Corrine Ricards told Valor recently that many Brazilian farmers moved up purchases in February. “I saw a good movement of early purchases. With this, farmers are able to guarantee stocks.”

The biggest problem, sources agree, is still potash, since two of the three largest global suppliers, Russia and Belarus, are entangled in the disorder — but not to the point of jeopardizing the sowing of crops. There will be an effect on costs, however. Fertilizers account for 30% of the cost of grain producers, according to consulting firm StoneX. With last year’s increases, the percentage is already around 35% to 40%. This way, the less capitalized may choose to reduce the use of fertilizer on crops, even if the shortage does not deepen.

With the recent sanctions on Russian gas, the behavior of urea prices has been like that of a prancing horse, compared Marcelo Mello, head of fertilizers at StoneX. In less than two weeks, since February 24 — when Russia invaded Ukraine — the macronutrient has risen 50%. On March 8, it was close to the historical ceiling of $900 per tonne, points out the consultancy. This level has been reached before on two occasions: at the end of last year and, before that, in 2008. According to the analyst, strong movements (the high of 50%, as well as the low of more than 40% seen in January), are rare oscillations for the product.

Brazil imports annually between 8 million and 11 million tonnes of urea alone, a volume that is almost the entire consumption. The local production does not reach 2 million tonnes. Unigel, which leased two factories from Petrobras in 2020, has a capacity for 1.15 million tonnes a year — equivalent to a third of the urea production in Latin America, according to the company itself.

Mr. Mello also says that he perceives a resumption of business in the fertilizer market happening “little by little” this week. At this moment, despite the high prices, the nitrogen segment is more active than the potash and phosphate segments, he said.

In potash, the restriction is greater due to the clear picture of shortage that is building up. Russia and Belarus deliver about 24 million tonnes to the world, and Canada, among the three key players in the segment, does not cover this absence — not even adding the new projects, which will not offer minerals overnight.

StoneX points each tonne of potash at $803 and a constrained market. A source familiar with the industry says that some deals have been closed at $1,000 — and prices are expected to increase. “There is not much supply [of potash] and [Brazilian] farmers are aware that there will be a shortage and want to buy,” the executive said.

Last week, the companies that operate in Brazil, among them the three largest – Mosaic, Yara and Fertipar – held back reference price lists from the domestic market. But “a good part” of the companies released lists again. The industry informed last week through its association, Anda, that there is stock for three months, not counting ships on the way.

Meanwhile, in Congress, the rural caucus wants to approve a new general law for environmental licensing in Senate still in the first half of this year. According to the them, with the changes, the intention is to speed up licenses to exploit mineral deposits in the country, which would contribute to the advancement of the National Fertilizer Plan, to be launched by the federal government on Friday.

Sergio Souza — Foto: Billy Boss/Câmara dos Deputados

Sergio Souza — Foto: Billy Boss/Câmara dos Deputados

Deputy Sérgio Souza (Brazilian Democratic Movement, MDB, of Paraná), who chairs the Parliamentary Agricultural Front (FPA), said that Senate President Rodrigo Pacheco (Social Democratic Party, PSD, of Minas Gerais), vowed to put the proposal to a vote by the middle of the year. On Wednesday, in a press conference, Mr. Pacheco argued that Brazil must take care of the potential potassium reserves, but “without attacking forests and indigenous areas.” The senator said that the licensing project will go through the commissions and will be taken to the plenary after this stage, following an agreement with leaders in Congress.

“We are not going to make anything more flexible, but to give agility. Either you release it or you don’t. Either the deposit is explored or we will have expensive food, and the Brazilian and the world will pay for it,” Mr. Souza told Valor on Tuesday.

(Rafael Walendorff contributed to this story.)

Source: Valor International

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AES Brasil bets on diversification to return to profit

Power generation company sees better landscape after reducing losses thanks to improvement in reservoir levels

03/09/2022

AES Brasil, a subsidiary of U.S.-based AES Corp., managed to reduce losses in the fourth quarter of 2021 thanks to a substantial improvement in reservoir levels due to a more favorable rainfall regime. Now the power generation company sees a better landscape.

The company’s earnings continued to be impacted in 2021 due to the hydrological risk and the purchase of power due to the unfavorable scenario that affects the portfolio of hydroelectric assets. To move away definitively from this water exposure, AES Brasil has accelerated investments in the diversification of the power generation mix.

By 2026, R$3.8 billion are planned, considering the construction of the Tucano (322 MW) and Cajuína (1.3 GW) wind farms, in addition to the modernization and maintenance of assets in operation. The focus for now is on wind operations, since the solar source has been losing competitiveness in the face of pressure from production chains.

The company has 4.7 GW of operational installed capacity and the goal is to reach 6 GW when all greenfield projects – those built from scratch – are finished. Today AES has 57% of its portfolio in hydroelectric plants and this balance is likely to avoid new exposures. Chief Financial Officer Alessandro Gregori told Valor that the margins were affected by the water risk factor, but he is already feeling the compensation among the sources.

“As a strategy, we are diversifying the portfolio. Last year, we signed almost 900 MW of new PPAs [contracts] and created new business fronts with almost 30 MW of PPAs in dollars that we signed in 2021,” Mr. Gregori said.

This bet by the company in new PPAs in foreign currency can pave the way for new deals and serves as a hedge against exchange rate volatilities. This is expected to be made available to the customers of the power generation company since many of them have revenue in dollars and are also interested in having costs in the foreign currency.

“Despite the worst year ever, in which we brought forward the portfolio management, we managed to profit R$516.5 million, clearly lower than in 2020, when we profited R$848 million, but a reasonable and important volume in view of the worst year of hydrology,” the executive said.

According to him, the “lean times” are over and the dynamics of diversification has added important wind power projects. Considering the contracts delivered, wind and solar now account for most of the portfolio mix.

“The diversification has this result at a time. When we have sources with worse results, other sources compensate.”

Source: Valor International

https://valorinternational.globo.com
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Samarco’s creditors rejects new plan on eve of meeting

Bondholders say that “in practice” the discount on the debt is 96.8%.

03/09/2022

On the eve of the general meeting of creditors, scheduled for Thursday, Samarco’s bondholders reacted against the new version of the judicial recovery plan, indicating that the result may be a bit further from what the mining company expected. In a document to the judicial recovery’s judge, funds such as Moneda, Golden Tree, Silver Point and Solus claim that the proposal brings “even more beneficial” conditions to parent companies BHP and Vale than the previous plan, which they had already questioned.

Eight months and 14 days have passed between the first and second draft of the plan, a period that the creditors argue was not used for effective negotiation. Instead, it was used only by Samarco in the drafting of the proposal. The company, in turn, has already indicated at previous times that there was resistance from creditors in negotiating the terms, in an attempt to impose a strategy on the company.

The company’s latest proposal says that unsecured credits will be paid in a single installment in 2041, taking into account a discount of 75% on face value and interest of 1% per year — inflation-adjusted only on credits in the Brazilian currency. In the creditors’ account (considering the almost 20-year grace period, the haircut, inflation and interests), what the company is proposing is that they accept the payment of the credits with a total discount, implicit and explicit, of 96.8%.

“The alternative to debt forgiveness is to force the creditors to become Samarco’s shareholders, without any political rights,” wrote the lawyers from the four law firms representing the bondholders. They also insist on maintaining the shareholders’ claims on the judicial recovery.

The group that objects the plan proposed by the company represents 82.5% of the judicial recovery claims, when excluding Samarco’s debt to BHP and Vale.

People close to the company argue that the extension of the debate on the judicial recovery case makes it difficult for Samarco to resume its focus on its operations and, consequently, its future ability to pay. The company’s legal administrators had scheduled the meeting to deliberate on the plan for February 23rd and, due to lack of quorum, rescheduled it for March 10.

Source: Valor International

https://valorinternational.globo.com
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Banks raise inflation projection driven by Russia invasion

For Bradesco, the country is experiencing a supply shock and monetary policy has low effectiveness to control prices

09/03/2022

Fernando Honorato Barbosa — Foto: Leo Pinheiro/Valor

Fernando Honorato Barbosa — Foto: Leo Pinheiro/Valor

The banks Bradesco and BNP Paribas raised their projections for inflation in 2022 due to the global price shock. Bradesco revised its forecast to 6% from 5.4% due to the global price shock. For 2023, still counting on a certain reversal of these shocks, the projection went to 3.5% from 3.3%. BNP raised to 7% from 6% the IPCA (Brazil’s benchmark inflation index) for this year but maintained the 4% projected for 2023.

Bradesco’s team, led by Fernando Honorato Barbosa, also says it now believes that the Central Bank will take the Selic — Brazil’s benchmark interest rate — to 12.75%, and no longer 11.75%, and postpone the beginning of interest rate cuts.

“The country is experiencing a classic supply shock in which monetary policy has low effectiveness to control prices. But given the already high level of inflation and significantly above target, the Central Bank is likely to raise interest rates a little more than we had imagined and opt for a more gradual convergence of inflation, even beyond 2023,” Bradesco wrote in a report.

Next year’s GDP will already be significantly impacted by monetary tightening and there is a probability of some reversal of the commodity shock in the next 12 to 18 months, the team says. “Therefore, we understand that the Central Bank will opt for a cautious stance at this time that will keep it alert to inflation, but without exaggerating the monetary policy dosage. This will avoid sacrificing growth more than necessary if there is a reversal, at least partial, of the global scenario,” says the report.

Bradesco ponders that it is still difficult to predict the outcome of the war between Russia and Ukraine and says that this may significantly alter the numbers of the scenario. “In any case, the global economic effects are likely to be more inflation and less growth, results that we may also see in Brazil.” Bradesco projects 0.5% growth for the Brazilian economy in 2022 and 2023. Global GDP growth in 2022 was revised from 4.3% to 4%.

The Brazilian economy shows some resilience to war, in Bradesco’s assessment, but rising inflation and interest rates may limit growth starting in the second half of the year.

“Finally, the exchange rate tends to be a little more appreciated than we imagined because of the rise in commodity prices in a context of high local interest rates and low solvency risk,” says the team. The bank reduced the projection for the exchange rate to R$5.3 to the dollar from R$5.5.

“Once supply shocks fade, we expect inflation to return to expectation levels, not the target level,” said Laiz Carvalho, Gustavo Arruda and Michelle Hwang in a BNP report.

The bank also started to project a Selic rate of 13.25% in 2022, compared with 12.25% in the last forecast. The projection for 2023 went to 10.5% from 9.5%. Now, for this year, BNP Paribas expects a rise of 100 basis points in the Selic in March, the same in May and 50 bp in June. For the team, the Central Bank is likely to start cutting the rate only in the second quarter of 2023.

“The conflict is expected to reduce global wheat production and fertilizer exports and raise oil prices, affecting grain prices and costs for the protein sector,” the team says.

This is compounded by domestic sources of inflation, which include adverse weather conditions, adjustment of service prices to compensate for pandemic losses and supply chain disruptions — the latter, globally, is expected to improve less than previously anticipated also due to the Russia-Ukraine war.

In the case of fuels, as diesel and gasoline account for about 6% of Brazilian inflation, if oil barrel prices remain at their current higher levels, the impact on the IPCA could be significant, of about 1.5 percentage points, the report indicates.

Source: Valor International

https://valorinternational.globo.com
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Private-equity firms not afraid of high interest rates

Funding totaled R$46.5bn last year, and several initiatives are now testing investor’s appetite for illiquid classes

09/03/2022

Patrick Cannel, Caio Costa, Guillaume Sagez, with Fors Capital — Foto: Silvia Zamboni/Valor

Patrick Cannel, Caio Costa, Guillaume Sagez, with Fors Capital — Foto: Silvia Zamboni/Valor

The cycle of high-interest rates in Brazil has not been enough to stop private-equity companies. Last year was a busy one, especially in the venture capital segment, as funding totaled R$46.5 billion – out of R$53.8 billion, according to data from Abvcap and KPMG. And this year began with several initiatives testing the investor’s appetite for illiquid classes even as the Selic, Brazil’s benchmark interest rate, is back to double-digit levels.

SPX has unveiled the intention to raise up to R$2.5 billion in its first private-equity fund after taking over Carlyle’s portfolio and team in Brazil. Romero Rodrigues, with Headline Global, now part of XP Asset, envisions a new vehicle to invest in VC newcomers, with plans to hold R$5.5 billion in the sector in five years. Daemon Investimentos will launch a renewable power private-equity investment fund, while Fors Capital and Blustone have sought capital and selected businesses with an impact bias.

Fors Capital, which emerged from the split of Performa Investimentos, one of the first venture capital managers with an emphasis on environmental, social and corporate governance (ESG) in Brazil, intends to raise up to R$500 million for a new fund. Caio Costa, Banco Nomura’s CEO for Brazil in the past four years, has joined the company as a partner.

With a long career in investment banking – including stints in BI&P, Nomura Securities, Deutsche, ING and UBS – the executive took part in the privatization of the electricity and telecommunications industries in Brazil, and since 2018 he had been studying a change to the venture capital segment but wanted a focus on sustainability. “Since the cycles are seven to ten years – raise, invest, divest – it was important to find the right people to set this up,” he said. “We discussed an agreement, a real [corporate] partnership, everyone participates in the exact same proportion.”

If recent history is any guide, corporate divergences often split teams, a sore point in an industry where human capital is worth as much as money. Fors itself has faced changes in the original team. The first cleantech fund, with R$175 million, was created in 2013 by Guillaume Sagez, a Frenchman living in Brazil, alongside Eduardo Grytz, who joined Carlos Miranda’s BR Opportunities to found X-8 Investments in 2019. Patrick Cannel arrived in 2015 and now with Mr. Costa, the three make up this new stage under the Fors Capital brand.

The new structure is already born with three invested assets, Mr. Sagez said. The target return is around 25% per year, a multiple of 3 to 5 times throughout the investment. The focus is on the “growth” segment, entering series C and D rounds onwards, in companies with revenues between R$50 million and R$500 million. Mr. Costa added that he prefers “B2B” businesses that directly serve the consumer, in sectors linked to agribusiness, energy, logistics, health and financial products.

In the portfolio are Unicoba (Led lighting), Contech (solutions for the pulp and paper industry) and Globalyeast (biotechnology). The firm left Intelipost (freight management through technology), Tecverde (efficient construction) and Mandaê (logistics), the latter sold to Nuvemshop, an e-commerce unicorn.

Another asset manager that proposes to make impact investments and is trying to raise up to R$100 million is Blustone, founded by Colombian-American Marlon Ramirez – who co-founded Azul Linhas Aéreas, Azul Cargo and Azul Viagens. Next to him is Carlos Lopes, who worked at Pátria Investimentos between 2014 and 2020 and has also been vice president of Standard Bank in Brazil, had a stint at TowerBrook Capital (spin-off of George Soros’s asset-management firm) and was an analyst at Goldman Sachs.

Mr. Ramirez is based in Miami, while Mr. Lopes is looking for deals in Brazil. The goal is to make investments in Latin American companies at different stages, from seed capital to series A and B rounds, taking part in the several stages of growth of the selected companies. The firm has just closed an investment in the freight platform Goflux, a kind of “Uber” of cargo transport, which operates in the agribusiness chain, including multinational shippers.

Blustone has already invested in the Mexican logistics company Cubbo and in the Brazilian Canal Dstak, a wholesale application.

The idea is to raise the first tranche by the third quarter and then reach R$300 million in a secondary offering. In the prospecting effort are both U.S.-based institutional investors and clients served by wealth managers and funds of funds in Brazil, who like to get in on the initial rounds.

The goal is to have a pulverized portfolio with 25 to 30 companies in different sectors of logistics and commerce in Brazil and other Latin American countries, such as Mexico, Colombia and Chile. “This class of ‘growth capital’ showed the best returns in the last 10 years,” Mr. Lopes said. The Blustone fund targets a return of 25% per year.

Mr. Ramirez says that the ESG bias enters the evaluation of the investments as the technology has the potential to bring efficiency to the business. He cites the reduction of carbon emissions in the logistics chain and the cheapening of products in the wholesale-retail flow, a segment that usually employs women who are heads of families and that is dominated by large online marketplaces.

“Startups, because they are growing, don’t focus on creating ESG processes. But some can be adopted on a daily basis, following the World Bank standards, such as issues related to diversity and sustainability,” Mr. Ramirez said. On the advisory board, Blustone is supported by Tariq Fancy, founder of the Rumie Initiative and former sustainable investing CIO at BlackRock.

The newest target of investments, Goflux, was founded by Rodrigo Gonçalvez, an entrepreneur who made a career in the logistics sector, including stints at Log-in, Vale and Algar Agro. He seeks a round of R$15 million after having received, in a previous stage, support from Banco Rendimento and SP Ventures, which is focused on startups in the agricultural segment.

One objective with the proceeds is to strengthen the financial operation, one of the biggest difficulties in the cargo transport chain, Mr. Gonçalvez said. “Traditional banks don’t look so favorably on the sector. They consider it risky and have little knowledge about it. In addition, with the pandemic, credit availability got worse.”

With more than R$2.5 billion in freight transacted through the platform last year and expectations of reaching R$6.5 billion by 2022, Mr. Golçalvez says that Goflux is able to have a unique view of credit risk and can offer funds to carriers even before a receivable is created tied to the payment of the service.

The company also intends to offer factoring of receivables and digital custody of documentation such as invoices, transportation contracts and inventory. The funding comes from some financial partners, but a credit-receivable fund (FIDC) is already in the final stages to supply this capital demand.

Source: Valor International

https://valorinternational.globo.com
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Brazilian carmakers concerned about war impact

Industry fears conflict may worsen current crisis, but says it is too early to make forecasts

09/03/2022

Luiz Carlos Moraes — Foto: Silvia Costanti/Valor

Luiz Carlos Moraes — Foto: Silvia Costanti/Valor

After two years of pandemic, the automotive industry has not yet managed to fully overcome the impacts on the supply chain and already sees a new wave of potential problems with the war in Ukraine. For the National Association of Vehicle Manufacturers (Anfavea), it is still too early to measure the consequences of the conflict, but there are a number of concerns.

The first is the price of commodities (such as oil, steel, aluminum, etc.). Another fear is the supply of semiconductors — an item that has already been a limiting factor for the sector’s production. “Certain raw materials for the production of semiconductors are produced in Russia and Ukraine [such as palladium and neon gas],” says Luiz Carlos Moraes, president of the association.

There are also doubts about the impact of the war on agribusiness, which is an important buyer for automakers, since Russia is also an important supplier of fertilizers. The effects of the conflict on the global logistics chain, which is already experiencing a chaotic situation since the beginning of the pandemic, is another concern. “These are problems that we expected to see equated over the course of this year. With the war, they should continue to put pressure on sea freight and air freight, which the sector has been using to move up deliveries,” he says.

Finally, there is the fear of how the crisis may increase inflationary pressure and generate an increase in interest rates in Brazil. “We already have economists signaling that the Selic can go to 13%, 14%. We hope that the Central Bank will be careful in calibrating the interest rate, because it is not demand inflation, it is structural inflation, brought about by elements from outside. We are very concerned, because this may negatively impact economic activity, especially in the second half of the year”, he stated.

The sector started 2022 in decline, both in production and sales. In February, the industry produced 165,900 units, which represents a decline of 15.8% compared to the previous year, according to data from Anfavea released Tuesday. In the accumulated first two months of the year, the reduction is 21.7%. Sales in the month fell 22.8%. There were 129,300 vehicles licensed in February. In the first two months of the year, the drop is 24.4%. Only exports presented growth this year, 25.4% in February and 17.3% in the first two months of the year.

Even with the negative results and the concerns about the war in Ukraine, the association believes that it is too early to review its projections for 2022. Earlier this year, the association released an estimate of a 9.4% increase in production, compared to 2021. There was also a projection of an advance of 8.5% in domestic sales and 3.6% in exports.

For Mr. Moraes, there are still not enough elements to review the year’s forecasts, which were already made with a relatively conservative view, according to him.

“We have already planned a lower first semester due to the semiconductor restriction, supposing that there could be a lower restriction in the second semester. We have also considered an interest rate at a high level. So we still don’t have elements for a revision. Nobody does. Everybody is trying to understand the dimension of the crisis, the effects on the supply chain. Let’s wait a little longer,” he said.

To compensate for the series of crises, the automotive industry had an important victory in February, with the announcement of the 18.5% reduction in the Industrialized Products Tax (IPI), announced by the federal government.

The association calculates a potential impact on the final price of vehicles of -1.4% to -4.1%. Mr. Moraes points out that the transfer of this discount depends on the individual strategies of the companies, which have also suffered from rising costs. Some companies, such as Ford, Toyota, and Kia, have already announced new tariffs.

Source: Valor International

https://valorinternational.globo.com
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Analysis: How should Brazil’s Central Bank react to oil, food shock?

Prevailing view is still that monetary authority will maintain course of monetary policy

08/03/2022

The new rounds of oil, grain and metal price hikes are expected to add even more pressure on inflation. But the prevailing view in the financial market is still that Brazil’s Central Bank is likely to maintain the course of monetary policy, without intensifying the pace of interest rate hikes in relation to what is forecast.

The Focus bulletin released on Monday morning indicates that the Central Bank’s Monetary Policy Committee (Copom) will rise the Selic, Brazil’s benchmark interest rate, by 100 basis points next week, to 11.75% per year.

The Copom options traded on the B3 indicate a 63% chance of a 100 bp increase, while the probabilities of higher hikes are just over 30%. The future interest rates were at a high level on Monday.

Analysts, including some with stints in the Central Bank, told Valor that the Copom’s most likely response to the shock is a little more monetary tightening over time. But, in general, they argue that the monetary authority is likely to move cautiously in the face of uncertainty because it is not yet certain at what level the commodity prices will stabilize.

One economist says that there is no way to escape the handbook of the inflation-targeting regime: the Central Bank must accommodate the primary effect of the shock within the tolerance range, but firmly fight the so-called secondary effects.

A key point is that price hikes in food, metals and oil hit inflation fast, so it tends to be concentrated this year in particular. As for food and metals, there is little left over for inflation two years ahead. In the case of oil, the effect is longer, but much of it is concentrated in the first year.

Thus, most of the primary effect of this shock is likely to impact inflation in 2022, a year that is already moving out of the Central Bank’s focus of action. The Central Bank is working with a longer horizon, with an eye mainly on the 2023 target. Since for the coming year there are basically the secondary effects left, there will be little alternative but to fight them with greater firmness.

The good news is that, for now, the impact of the war on inflation expectations for 2023 has been contained. The variation of Brazil’s benchmark inflation index IPCA expected by the market for next year was stable at 3.51% last week. It is precisely in inflation expectations that the bulk of the secondary effects is concentrated.

In part, this has to do with the Central Bank’s credibility. The market believes that whatever interest rate is needed to combat the new price shock, the Copom will act. Hence, the slightly longer rates traded in the market have moved more, pricing in the chance of a bigger squeeze at the end of the interest rate hike cycle.

The stability of expectations, on the other hand, allows for the Central Bank to follow the script in the short term: raise the Selic by 100 bp next week and leave some room for maneuver to define its next steps when the inflationary impact of the war becomes clearer.

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Uber still battling with iFood after leaving meal delivery

Multinational told Brazil’s antitrust watchdog that exclusivity model was main reason for exit

08/03/2022

Uber ended on Monday meal delivery service through Uber Eats app — Foto: Pixabay

Uber ended on Monday meal delivery service through Uber Eats app

Uber left the meal delivery market in Brazil, but continues to fight against exclusive contracts with restaurants established by iFood in the country.

The multinational, which ended on Monday the food delivery service through the Uber Eats app, filed a complaint against iFood with the General Superintendence (SG) of the Administrative Council for Economic Defense (CADE) on Friday

The company made clear that the exclusivity model maintained by iFood, the market leader with 80% market share, was the main reason for Uber to leave the Brazilian restaurant delivery market.

“Unfortunately, the artificial barriers imposed by iFood with its exclusionary conduct, which are the focus of the present Administrative Inquiry by this SG, contributed to Uber’s decision to terminate the operations of the Uber Eats meal delivery intermediation application,” said the Uber lawyers in the document filed on Friday.

Uber announced its decision to leave the Brazilian meal delivery market on January 7. The company was the second largest. Rappi was the third, according to data from the Brazilian Association of Bars and Restaurants (Abrasel).

In mid-February, Rappi filed a new petition with CADE asking the antitrust watchdog to review a provisional measure from March last year that determines the blocking of new exclusive iFood contracts with restaurants, preserving the agreements prior to the determination.

The exit of Uber Eats from the Brazilian market, as well as the end of the operations of the Delivery Center, an application by BR Malls and Multiplan, in November, were cited as arguments against exclusive contracts with restaurants by iFood, especially for anchor establishments, such as large fast food chains.

“In fact, the evident focus of the exclusionary strategy adopted by iFood with the most popular restaurants, responsible for a significant volume of orders on its platform, reduces the ability of competitors, such as Uber Eats, to compete with iFood,” says the company in its manifestation. “Even if Uber Eats develops business relationships with smaller restaurants and more stores, that would not be enough to exert effective competitive pressure on iFood.”

Uber stressed that it will continue to cooperate with CADE’s investigation into iFood practices, which began in September 2020 by Rappi and which it entered as a third party in January 2021.

In December 2020, Abrasel filed a parallel representation against the market leader in which it defends the end of exclusivity contracts for all companies in the sector.

“Any serious company interested in continuing to operate in the country must adopt the posture that Uber has adopted,” said Paulo Solmucci, president of Abrasel. “Regardless of direct competition, the company must make a contribution so that the market remains competitive,” he said.

Uber concludes its manifestation by stating that it understands “that the practice of exclusivity by iFood constitutes an artificial barrier to entry and expansion in the market of meal delivery services.”

For Victor Rufino, a lawyer at Mudrovish Advogados, which represents Rappi, Uber’s statement “leaves latent the need for continuous monitoring of the market by the CADE, in order to guarantee its timely and effective action in defense of free competition.”

IFood declined to comment.

Source: Valor International

https://valorinternational.globo.com
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