Aliansce, BR Malls to create Brazil’s largest mall operator

Ruy Kameyama and Rafael Sales — Foto: Divulgação/Rafael Magalhães
Ruy Kameyama and Rafael Sales — Foto: Divulgação/Rafael Magalhães

After four busy months, Aliansce Sonae and BR Malls finally agreed to merge operations and create the largest shopping mall company in Latin America. The company is born with 69 malls and R$38.5 billion in sales.

The deal has yet to be confirmed in shareholders’ meetings of both companies, but the signs are favorable. Stocks rose almost 3% on Friday before losing steam. BR Malls rose 0.96% and is up 18.77% this year. Aliansce climbed 0.14% and is up 2.33% this year. The companies’ combined market capitalization is R$13.4 billion – still behind rival Multiplan in this respect.

BR Malls CEO Ruy Kameyama and Aliansce CEO Rafael Sales spoke to Pipeline, Valor’s business website, after a conference call with analysts. The frictions of the last months turned into a harmony even in the color of their shirts.

“We have always said that this combination had strategic merits, but there were divergences regarding price perception. After Aliansce presented the third bid, the deal started to make sense for BR Malls’ shareholders,” Mr. Kameyama said.

Aliansce gave in on some points, increasing the share paid in stocks – BR Malls will own 55.1% of the new company and receive R$1.25 billion in cash. BR Malls also gave in: Aliansce will have the number of seats it wanted on the board of directors, a condition that generated resistance at first.

The decision was not unanimous within BR Malls. Director Mauro Cunha voted against the merger, citing governance issues yet to be resolved – such as the revision of a shareholders’ agreement of Aliansce’s controlling stockholders –, the timeline for the operation, which will depend on the next elected board, and the high risks of execution. For the majority of board members, however, the alignments in this item were sufficient to vote for the merger.

There will be nine board members – four appointed by Aliansce, two by BR Malls and three independent ones. “Since BR Malls has no defined controlling shareholder, in practice there are five independent directors,” Mr. Sales said.

There was a change in the clause to avoid a shareholder or block from increasing its stake. “There was a change in the poison pill to 25% from 30% and this, with the majority of board members independent, preserves the new company as a corporation but recognizes the importance of Aliansce’s long-term shareholders as well,” Mr. Kameyama said.

The control block of Aliansce, which currently holds 48.8% of the company, will hold 23% of the combined company. This group is formed by the Canada Pension Plan Investments (CPPIB), businessman Renato Rique, Germany’s Cura Brazil and Portugal’s Sonae.

The bid is 17% higher than the first one, from January, but is similar in current financial terms to the second bid, from March. The difference is in the currency: less cash, more stocks. “Since we see a potential appreciation in the share value of the new company, this creates a better opportunity for shareholders,” the BR Malls CEO said.

“In addition, the exchange ratio means a spread of almost 30% in the companies’ EBITDA multiples on the stock exchange, which was an important recognition by Aliansce of BR Malls’s value,” he added.

The synergies are initially estimated at R$210 million per year. Aliansce worked with McKinsey, while BR Malls hired Bain&Company to assess economies of scale and cost efficiency gains, reaching similar figures for the combined company.

“We will have synergies on all fronts. In the commercial one, the fact that we will become a great partner of storeowners, of entertainment, will give us the opportunity to draw and strengthen the contracts we already have. And, as much as the two companies already have efficiency, costs are lowered as the combined company is almost twice as big as the two were individually,” Mr. Sales said.

He also cites the access to capital markets of the more robust company. The merger can also unlock value in digital initiatives and integration with the brick-and-mortar network, which has demanded investments from both companies.

Aliansce and BR Malls do not expect problems from a market concentration standpoint, for competition purposes and also for portfolio strategy. “The overlap is relatively low. Our market is very little concentrated, we are going to have 17% to 20% market share just in malls, without considering retail as a whole,” Mr. Sales said.

“That is why we expect the divestment required to bring the deal into line with antitrust rules to be small, in three or four regions,” the CEO of Aliansce said

On Friday afternoon, BR Malls elected a new board of directors – with the announced agreement, it was clear that the board will lead the integration of the companies.

The merger may be confirmed in about 40 days by the shareholders. The companies will call extraordinary meetings by May 10, so that they can take place by June 9. If approved, the deal will still depend on antitrust regulator CADE’s evaluation period, between the end of the year and the beginning of 2023. The executive management will be defined by the board of the new company.

Aliansce was advised by bank BTG Pactual and law firm Barbosa Mussnich e Aragão. Itaú BBA and Spinelli Advogados are advising BR Malls.

(Felipe Laurence and Raquel Brandão contributed to this story.)

Source: Valor International

https://valorinternational.globo.com

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Exchange rate keeps inflation under pressure

Despite the higher foreign exchange rate in the last few days, it’s still down more than 10% this year. The lower level takes time to be seen in inflation, as the Central Bank has stressed recently, including in recent private meetings in Washington. With commodity prices still high and the prospect of weak economic growth in Brazil this year, however, economists estimate a very limited contribution.

Considering commodities prices in reais – a barometer for imported inflation –, the higher exchange rate and the state of the economy (measured by the output gap), Alexandre Teixeira, an economist at MCM Consultores, calculates that the exchange rate will ease Brazil’s official inflation index IPCA by only 0.13 to 0.15 percentage point in four quarters.

“The exchange rate pass-through to domestic inflation depends on the combination between it and the prices of commodities in dollars. When commodity prices rise, the real typically appreciates, driven by a better perception of external accounts and growth conditions,” Mr. Teixeira said.

Bradesco estimates that the recent drop of about 6% in commodities in reais would bring IPCA down by 0.18 pp over the next three months. That help could be even greater. “Taking into account only the recent drop in commodities in reais, and considering a linear pass-through to inflation, it would be down 0.33 pp,” Felipe Wajskop, Marcelo Gazzano and Myriã Bast wrote in a report.

However, as the pass-through to domestic prices tends to be smaller with a stronger real or when the variations of commodities in reais are lower than 8.4%, the impact on inflation would be closer to 0.22 percentage points, the economists wrote. In addition, Brazil’s slow economic growth may encourage companies to try and rebuild their margins instead of passing on cost reductions to consumers, they say. “Thus, the 6% drop in commodities prices in reais would result in a 0.18 pp relief for the IPCA.”

The study by MCM also sought to find “nonlinearities” in the exchange rate pass-through. Mr. Teixeira concluded that the pass-through depends on the output gap (a measure of economic slack), and is more intense when it is positive – in other words, when activity is above the potential GDP. Using data from 2002 to 2019, he estimated 0.44 pp of relief on the IPCA in case of an exchange rate 10% lower. The impact would be 0.75 percentage points if the economy was overheating, and 0.22 points in the opposite case.

Another nonlinearity seen is related to the exchange rate. When the real loses ground against the dollar, the pass-through is stronger. If the opposite occurs, the relief on prices is smaller. According to MCM’s calculations, a 10% depreciation of the exchange rate results in a 0.66 percentage point pass-through, while the opposite reduces inflation by only 0.16 pp.

“All this suggests that the current exchange rate appreciation is expected to have a limited impact on inflation, especially because the prices of commodities in reais have not fluctuated so much,” Mr. Teixeira said. In the same vein, Bradesco economists say that “global inflation remains under considerable pressure, and as long as there is no greater relief from commodities in reais, the effect of the appreciation will be limited.”

Marco Maciel — Foto: Silvia Zamboni/Valor
Marco Maciel — Foto: Silvia Zamboni/Valor

In last December’s Inflation Report, the Central Bank calculated that an exchange rate variation of 10% causes an effect of up to 1.1 percentage point on the IPCA, recalled economist Marco Maciel, a partner at Kairós. Using as parameters an exchange rate that went to R$4.9 to the dollar from R$5.3 – a variation of almost 8% – and the pass-through modeled by the monetary authority, he estimated that the relief on the IPCA in 12 months totals 0.83 percentage point. “I think that a good part of the economists underestimates the effect calculated by the Central Bank,” he said.

This range is explained, Mr. Maciel said, by the fact that exchange rates at R$5.70 to or R$4.60 to the dollar, as seen this year, are likely to be outliers. All other things being equal, the economist calculates a pass-through of around 0.7 percentage points, which, considering the same range of exchange rate variation, brings the IPCA down by 0.53 points.

The point is that, as the exchange rate appreciates during the year, the price of commodities rises. “When I put these effects together, an exchange rate variation of 10% would have an impact of 0.4 percentage points on inflation. So that 8% drop in the exchange rate means 0.3 pp on the IPCA,” Mr. Maciel said. With that in mind, he projected 2022 inflation at 7.8% rather than 8.1%. “But the impact of the exchange rate appreciation is relatively small in my projection.”

Besides the level of activity, the volatility of the exchange rate itself – which Mr. Maciel says is high – is a complicating factor for pass-through. “There was a strong devaluation [of the real] in the last two years. Then it suddenly appreciated, and now it has started to depreciate again. Volatility matters and tends to impact inflation. If you passed on to the chain an exchange rate increase to R$5.2 to the dollar and the rate went back to R$5, you will pass it on again, but not the whole difference,” said Lucas Godoi, an economist at GO Associados.

Gustavo Arruda, BNP Paribas’s head of research for Latin America, highlighted another factor. According to him, the fact that inflation expectations lost their anchors in Brazil also influences the agents’ decision on whether to pass on this improvement. “The higher exchange rate takes some pressure off the cost, but if agents are not confident about the inflation’s trajectory and about how other costs are going to move, they are less willing to pass on this relief,” Mr. Arruda said.

“Looking at Brazil today, where expectations clearly lost their anchor, impacts such as the current appreciation of the exchange rate are likely to be smaller than expected,” the economist said. That is why he still sees the IPCA at 8.5% this year, even as other risks have diminished, such as that of surging oil prices. “Any return of the exchange rate to R$4.6 to the dollar will not change our minds.”

Source: Valor International

https://valorinternational.globo.com

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Amendment ends need of “fictitious export” of Brazilian aircraft

Amendment puts Embraer’s domestic product on an equal footing to the imported product — Foto: Divulgação

Amendment puts Embraer’s domestic product on an equal footing to the imported product — Foto: Divulgação

The Chamber of Deputies approved this week a change in legislation to reduce red tape and costs faced by plane maker Embraer to benefit from a tax incentive for “fictitious” export of aircraft. The measure was approved by the government and is unlikely to cause fiscal impact, lawmakers say.

The amendment puts Embraer’s domestic product on an equal footing to the imported product. “Today, Brazilian airlines receive imported aircraft more quickly and efficiently than aircraft produced in Brazil. This asymmetry in the international logistics rules was solved with the amendment, making Brazilian aviation more efficient,” the company said.

The change was presented as an amendment by the government leader in the Chamber, Ricardo Barros (Progressive Party, PP, of Paraná), to the provisional measure to simplify airline sector rules – and which was used by the deputies to prohibit charging for checking in one piece of luggage.

The provisional measure’s rapporteur, General Peternelli (União of São Paulo), accepted the amendment in plenary and the blueprint was approved. “The project only made it easier one of Embraer’s procedures, which was to make a whole process of sending it to the subsidiary abroad and sending it back here to Embraer. This will no longer be necessary,” he said.

The legislation allows a tax reduction when the aircraft is exported, but does not provide the same benefit if the sale occurs within the Brazilian territory. Therefore, Embraer used to send the aircraft to one of its subsidiaries abroad and then “reimport” it. With the amendment, the export of aircraft without leaving the Brazilian territory will be authorized if the buyer is a company based abroad, but the vehicle is delivered to a regular air transport service provider in Brazil. This is also expected to facilitate the leasing of aircraft.

According to industry sources, however, the change will not bring benefits to the large commercial aviation companies in the country, such as Latam, Azul and Gol. The main beneficiary of the change in the law will be Embraer, Brazil’s largest manufacturer. The benefit still needs to be voted by the Senate until May 16 and signed into law by President Jair Bolsonaro (Liberal Party, PL) to be valid.

According to Mr. Peternelli, this is not expected to be a problem because the government has given its approval to the change in legislation. There will be no impact on the public accounts, since Embraer already executed this whole operation currently. In addition, the mechanism can only be used by companies with regular airlines. “If a soccer player or a businessman buys a Legacy, he will not be exempt from this tax,” he said.

Mr. Barros pointed out that aircraft were not contemplated in the legislation that allows presumed export (without the need to leave the national territory). Therefore, they needed to leave the national territory to a neighboring country and perform all the migratory and customs procedures, and then be imported back to Brazil by the buyer.

“This procedure, when coupled with the other relevant regulatory processes, takes around seven days, generating additional costs to airlines, in addition to payment of aircraft lease during the mentioned period,” said Mr. Barros. “Because of this situation, the Brazilian industry loses competitiveness against large international manufacturers,” he justified, while asking for support to approve the amendment.

Source: Valor International

https://valorinternational.globo.com

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Pressure on production chains make companies change strategy

Andre Clark — Foto: Julio Bittencourt/Valor
Andre Clark — Foto: Julio Bittencourt/Valor

The disarticulation of the productive chains is imposing new challenges to companies, which are already looking for alternatives and changing strategies to maintain the production rhythm without compromising profit margins.

The strong global demand for components, the war between Russia and Ukraine, the escalating international freight prices, the volatility of the exchange rate and commodities, and the lockdown in China have created a nebulous scenario of uncertainties.

Companies already weigh down on stocks, bet on the regionalization of value chains, on the expansion of the number of partners and on increasingly verticalized production. André Clark, senior vice president for the Siemens Energy hub in Latin America and general manager of Siemens Energy Brazil, says that there is no visibility as to when exactly this will settle down to a new level.

“Currently, international global supply chains are facing profound setbacks. This system, which was designed for decades to be ultra-efficient and integrated, is having to adapt to abrupt plant closures due to Covid, logistical challenges due to war, and many other problems,” he says.

Within this scenario, and especially when it comes to energy assets, Mr. Clark points to a trend of investment in the concept of nearshoring, that is, a regionalization of value chains.

“It’s a change in value chain strategy to reduce volatility, both in value chains and also in currencies, because when you create costs in the same currency in that you serve the market, your risks are lower. At Siemens Energy that is what we are doing, trying to bring supplies closer together and decreasing dependence on large transports, such as container transports,” he says.

The company used to import from Germany all the insulating materials for equipment aimed at the power transmission market. Now, in addition to this alternative, the manufacturer is developing partnerships with domestic companies to supply the demand. The same happens with cooling systems, for which Siemens Energy is buying locally.

Leandro Barreto, partner at Solve Shipping, speaks about the impact of congestion in Asian ports and the difficulty to move products on the Brazil-Asia route. The cost of freight is around $2,600 a container, impacting the viability of the shipment of commodities and contributing to the rise of global inflation.

“As the world has not managed to put an end to the queues and congestion in the yards of the main ports of the world, we are entering the peak cargo season with a good part of the world’s supply capacity stuck. And this should remain throughout 2022,” says Mr. Barreto.

In these situations, Ricardo Lee, modernization sales head at Voith Hydro Latin America, says the company uses the strategy of looking for goods and services in other countries that have more competitive conditions.

“We use the global sourcing strategy, relying on the team work of the Voith Group. Our intercompany planning has increased internal production between plants around the world. This way, we are able to secure deliveries to customers.

In 2021, Vestas installed about 2 gigawatts of capacity in Brazil and to maintain this pace, the wind turbine manufacturer seeks close partners. The Danish company has a manufacturing unit in the Northeast region of Brazil and has a network of direct local suppliers, integrated to the global structure.

Eduardo Ricotte, Vestas CEO in Latin America, says the company is working to duplicate suppliers in more sensitive areas, with long-term contracts and fixed capacity to prevent delays from reoccurring.

“We have inputs imported from Denmark, we have a local supply chain with more than 80 suppliers that we developed over the years, and we do all the assembly in Ceará, which is closer to the wind farms,” he says. Vestas also has a plant in Mexico for its regionalization strategy.

WEG, based in Santa Catarina, reinforced strategic stocks of raw materials and sought suppliers in several geographies since the first signs of disruption in the development chain. The verticalization of the production process also brought relief.

“In the short term, we have no concerns. We reinforced our strategic inventories throughout 2021. Obviously, this had a price, which was to put working capital into the inventory line beyond our needs, but it gives us a certain comfort at this time of uncertainty. WEG is supplied at this moment for deliveries, but if this lasts, it may cause concern down the road,” says CFO André Rodrigues.

Another point of attention for the executive is the lockdown in China, since the Asian country is one of WEG’s main markets. “And while there is this policy of zero Covid in China, the world’s global supply chain will be under pressure. On the other hand, our verticalized production model is a competitive advantage,” evaluates Mr. Rodrigues.

There is still a large imbalance in the price of commodities, which make up a significant part of the cost structure of companies, says PSR consulting company CEO Luiz Barroso.

“For the industry, there are still three complicated factors. One is the balance between supply and demand for energy, which impacts the price of commodities, and is exacerbated by the war in Ukraine. Second is that prices of raw materials and inputs for the production chain have also increased. And, in Brazil, we have all this under the impact of an exchange rate that is very volatile. This has halted some operations and brought new elements of uncertainty to the table”.

Source: Valor International

https://valorinternational.globo.com

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Passarelli aims basic sanitation works to grow

Paulo Bittar — Foto: Silvia Zamboni/Valor
Paulo Bittar — Foto: Silvia Zamboni/Valor

The engineering company Passarelli reached at the beginning of this year a backlog of R$4 billion, seven times more than 10 years ago, at the peak of the construction industry in Brazil. “Our goal is to consolidate ourselves as a strong contractor,” CEO Paulo Bittar said.

The basic sanitation market, which accounts for 70% of the company’s operations, will remain the focus of the expansion plan. For now, there is no plan to compete for water and sewage concessions, as other engineering companies have been studying to do. But the idea is on the radar, the executive said.

“In the future, there will be more room for us to compete for concessions, especially in smaller cities. We believe that opportunities will open up for a new wave of auctions when this whole process of proving the economic and financial capacity of sanitation contracts is over. We will analyze, but we are not considering the projects for real now. Our focus is on engineering,” he said.

The construction company has already worked with concessions, including those of Centrovias (operator of São Paulo highways) and PEC Energia, in partnership with Engeform – which bought Passarelli’s stake in the joint venture later.

Besides basic sanitation, the airport market has been an important source of work, especially those under concession agreements.

The company is now prospecting opportunities in new segments, Mr. Bittar said. “Looking at the long term, we will no longer have large airport projects, for example, but we will have basic sanitation [works]. We will have to study other markets to continue expanding,” he said. One target is the oil and gas industry. “With privatizations, we seek to resume engineering contracts in the industry.”

In 2021, Passarelli grossed R$530.2 million, up 61% year over year, according to the company, which does not report earnings. In 2022, revenues are expected to reach R$1 billion, considering new contracts.

The company has substantially increased the share of the private sector in its portfolio, reaching 65% of the total. In 2012, the public sector represented 90%.

The family business founded 90 years ago already sees itself as a major construction company, considering the current market size. “We were one of the [medium-sized] companies that occupied part of the void left by Operation Car Wash,” Mr. Bittar said, citing the anti-corruption task force that uncovered wrongdoings involving construction companies before falling into disrepute.

For comparison purposes, at the end of 2021, OEC (Odebrecht) boasted a backlog of $3 billion, while Queiroz Galvão had R$3 billion. In the middle of last year, Andrade Gutierrez’s backlog totaled R$9 billion.

Source: Valor International

https://valorinternational.globo.com

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Benchmark interest rate expected to increase to 12.75%

There is unanimous expectation that this week the Central Bank’s Monetary Policy Committee (Copom) will raise the Selic, Brazil’s benchmark interest rate, by 100 basis points, to 12.75%. However, if the decision itself gives signs of predictability, the communication to be adopted by the monetary authority has been widely discussed among market agents, as well as Copom’s next steps, considering that interest rates are already at high levels, but also that current inflation remain relentless and that medium term inflationary expectations continue to move away from the targets.

A survey carried out by Valor between April 27 and 29 shows that, of the 99 institutions surveyed, all of them project that the Selic rate will be raised to 12.75% next Wednesday. The unanimity seen in the expectations for May, however, opens space for division in the market as to the end of the cycle. Of the total, 25 institutions believe that the cycle will already come to an end this week, while 74 see further action ahead, with the basic interest rate entering the 13% range. As for the end of the year, the median of the projections indicates the Selic at 13.25%, but 23 institutions project a higher rate.

To most of the market, a residual adjustment of 50 basis points in the Selic in June is necessary, as the de-anchoring in the medium-term inflation expectations has become more accentuated. If, before the March meeting, the survey carried out by Valor indicated inflation at 6.5% this year and 3.8% in 2023, now the scenario is even more challenging. The midpoint of the expectations collected last week, after the release of the April reading of mid-month reading for inflation index IPCA-15, shows inflation at 7.72% at the end of the year and 4% at the end of 2023.

Thus, the communication from the monetary authority about the way ahead is key for market participants at this moment. Since the beginning of the cycle of Selic hikes in March 2021, Copom has opted to give guidance to market participants on what it foresees for the next meeting. In the last meeting, in March, and in subsequent events, the committee reinforced that it saw the Selic at 12.75% as adequate at the end of the cycle. However, the market has moved to higher numbers as inflationary pressures have continued to escalate.

Thus, in this meeting, a good part of the market believes the Copom is expected to change its communication strategy and leave its next steps open, without committing to a decision in June. “This is a Central Bank that traditionally opts for greater assertiveness in its communication, but considering the stage of the cycle, we think that this statement can be less emphatic in relation to future steps, leaving open the possibility of an additional hike in June, even if of a smaller magnitude,” says Roberto Secemski, CFO for Brazil at Barclays.

Elisa Machado — Foto: Leo Pinheiro/Valor
Elisa Machado — Foto: Leo Pinheiro/Valor

A similar scenario is defended by ARX Investimentos CFO, Elisa Machado, when reminding that the inflationary process shows contamination of the entire dynamic part of inflation, especially the nuclei linked to services, which continue to grow. It is worth pointing out that the IPCA-15 of April had a diffusion growth to 78.7%, which scared market participants, even with the indicator below the consensus expectations of players.

“We have a war going on, which can still have an impact on commodity prices; an inflationary process that still shows contamination; besides the whole issue of bottlenecks and the ‘zero Covid’ policy in China, which does not contribute to diminish this situation,” emphasizes Ms. Machado, whose baseline scenario points to Brazil´s benchmark inflation index IPCA at 4.5% in 2023. So, although she emphasizes that the interest rate hike was “significant”, since the Selic went to 11.75% from 2%, the economist points out that the monetary authority needs to gain degrees of freedom in its communication.

“Given all this degree of uncertainty, the choice is likely to be for flexibility. This is not the time to lose degrees of freedom, but rather to gain it. It would be the most appropriate”, she argues. Ms. Machado also notes that the external scenario requires concern, since, even with the monetary tightening cycles announced in developed markets, the projected real interest rates are still negative or close to zero, which would require attention to possible adjustments ahead. On Friday, the 10-year U.S. real interest rate closed the trading session at just 0.01%.

“At this moment, facing so much uncertainty regarding the inflationary process abroad and in Brazil, doubts about the geopolitical impact, Fed raising interest rates and the Covid outbreak in China, it makes sense for the Central Bank to keep at least a gap open [for additional adjustments in the Selic],” argues the superintendent of macroeconomic research at Santander, Maurício Oreng. “The door is closing, but I believe they will keep a gap open for some eventuality.”

Mr. Oreng believes that Copom should use the statement to reinforce the idea that the cycle is nearing its end. Thus, for him, it is possible that the committee will indicate what it foresees for the June meeting. “Historically, the pattern of the Central Bank has been to give more signals about the next decision. I tend to think that they are going to signal a 50 bp hike and say that [the cycle] is nearing the end, perhaps placing more emphasis, but I don´t expect they will set in stone the last hike will be in June,” he says.

With the increase in inflation expectations since the March meeting, to 4% from 3.7%, Mr. Oreng says that by incorporating this movement in the preliminary calculations made by Santander, even with a slightly more appreciated exchange rate, the tendency is to have an increase in the Central Bank’s projection for the IPCA in 2023, given the important weight of expectations in the authority’s model.

“With that, the trend is not to follow the plan of stopping interest rate hikes now. We are expecting the Central Bank to adjust this plan for the June meeting,” says Mr. Oreng, “And if we are correct in our estimate, it might signal something like a 50 bp hike in June.”

Vinland Capital CFO Aurélio Bicalho follows the same line, also expecting Copom to signal a rise in interest rates in June. “Being coherent with the conditions that the Central Bank itself has set, my understanding is that it should come with a communication that there will be an additional gradual or smaller adjustment,” he points out.

In trying to summarize the evolution of the macroeconomic scenario since March, Mr. Bicalho notes that expectations have risen; current inflation has evolved in a worse way; the international scenario has demanded caution in the face of Fed tightening; and the fiscal side, although with no major news, continues to present risks.

He also believes that Copom’s inflation projections will rise, in a scenario of a still asymmetric balance of risks. “And in paragraph 18 of the minutes [of the March meeting], the Copom says that if the scenario was closer to 3.4% inflation in 2023, the assessment was that the cycle should be even more contractionary,” he says.

The economist emphasizes that the evolution of inflation expectations is an even more important factor than if there were a worsening in the Central Bank’s projection due to oil prices. “It is a warning sign that inflation may become more persistent and more detached from the target,” he argues. And it is based on this scenario that Mr. Bicalho evaluates that Copom will signal an interest rate hike in June.

At GAP Asset, the fact that the Central Bank has had a posture of giving guidance on the next steps gives support to the possibility of maintaining this strategy in this week’s meeting. “I think the Central Bank is expected to signal something and the most likely is to actually stop the cycle or give another 50 bp hike. I think delivering another 50 bp increase is the most likely scenario,” says Anna Reis, partner and economist at GAP Asset.

(Gabriel Roca contributed to this story)

Source: Valor International

https://valorinternational.globo.com

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Suzano buys forestry assets in four states

Suzano vai montar megafábrica no MS

Pulp and paper manufacturer Suzano announced Thursday the purchase of a package of forestry assets with a total area of 206,000 hectares, in four Brazilian states, for $667 million. Those assets originally belonged to Fibria, a merger between Aracruz and Votorantim, which was incorporated by Suzano in 2019.

The operation is strategic and ensures the world’s largest producer of eucalyptus pulp access to wood at lower costs, in addition to ownership of land in São Paulo, Mato Grosso do Sul, Bahia and Espírito Santo states, that could be of interest of other pulp producers or investors — and will serve the company’s own projects in the long term.

Almost all of the operations purchased had already been exploited since 2003, through forest partnership contracts signed by the former Fibria. That year, pressured by high indebtedness, Fibria sold 210,000 hectares of land and forests to Parkia Participações and secured wood purchasing contracts, inherited by Suzano.

In the evaluation of analyst Daniel Sasson, with Itaú BBA, the financial statement position of Suzano is comfortable and the company’s debt cost is lower than Fibria’s 7.5%, which was paying around $50 million per year to purchase wood.

In addition, Mr. Sasson says, Suzano has interest in the regions where these areas are and there is a defensive aspect to the operation: “206,000 hectares are enough for a competitor to install a new pulp mill in the country with a capacity of more than 2 million tonnes per year,” he wrote.

In a statement, Suzano said the operation aims to expand operational efficiency, “as well as improve the use and cost of forest base in strategic regions to its operations in the long term.”

“Suzano currently has a very competitive cost of debt and cash availability to acquire these assets and thus ensure greater operational efficiency and less dependence on third-party wood in the long term,” said the CEO Walter Schalka, in a statement.

The forestry assets were sold to Suzano by the investment fund Investimentos Florestais (FIP) and Arapar Participações. The payment will be made in two installments, the first paid in the closing of the operation and the second 12 months after the closing. The deal still depends on approval by the Cade, the antitrust regulator.

Source: Valor International

https://valorinternational.globo.com

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PetroRio agrees to buy Albacora Leste field from Petrobras

PetroRio (PRIO3) faz "compra transformacional" e ação fecha em alta, enquanto analistas esperam por próxima aquisição - InfoMoney

PetroRio agreed to buy a 90% stake in the Albacora Leste field, in the Campos Basin (Rio de Janeiro), from Petrobras. The company will dirburse $1.91 billion, of which $293 million have been already paid upon signing, and up to $250 million more depending on Brent prices in 2023 and 2024.

The company estimates a proven economically recoverable reserve close to 280 million barrels for the field, with a net reserve of over 240 million barrels, expected to be abandoned after 2050.

In the first 18 months of operation, PetroRio plans to invest about $150 million to increase the operational efficiency of the FPSO P-50 rig, and reap $90 million a year in synergies.

Subsequently, the field redevelopment will begin, involving the drilling or connection of 17 producing wells and five injection wells over five years, with estimated investments from $70 million to $75 million per year.

The development will be carried out in two stages. The first is the connection of three producing wells already drilled, eight new producing wells, and one injection well, increasing the field’s production to above 50,000 barrels per day.

After that, six new producing wells and four injection wells will be drilled. The company is also expected to carry out the anticipated decommissioning, until 2027, of five producing wells and one injector, with an investment of $15 million per well.

Besides the Albacoa Leste field, PetroRio is still in negotiations with Petrobras for the purchase of the Albacora field, also in the Campos Basin.

PetroRio CEO Roberto Monteiro said the sale is taking longer because of the discovery of the Forno reservoir, located in the pre-salt within the field. The area is currently undergoing a long-term test for estimates of production potential, which showed better-than-expected results, according to the executive.

“We still have a while to reach an agreement, especially regarding the amount. It is taking a little more time because this reservoir is larger than expected,” he said.

The sale of the asset is part of Petrobras’s divestment plan and began in September 2020. According to Mr. Monteiro, a binding proposal was delivered around September 2021, but in November Petrobras asked the bidders to revisit the estimates for the size of the reservoir. In addition to PetroRio, there are other companies competing for the area.

Source: Valor International

https://valorinternational.globo.com

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Mercado Pago, Órama team up in investment platform

Mercado Pago e Órama vão criar plataforma de investimentos em parceria | Serviços Financeiros | Valor Investe

Mercado Pago — the digital wallet that was born in Mercado Libre and is now a big provider of several types of financial services — has teamed up with investment manager Órama to create an investment platform. The commercial agreement — there is no equity participation involved — has a minimum term of five years and provides for exclusivity. The offering will start for a small slice of the 34.5 million user base next week, but the idea is to scale up quickly, replicating the success that Mercado Pago had when it offered the option to buy cryptocurrencies late last year.

Known for working with classes C, D and E, Mercado Pago says there was demand from its customers for investment products. The offer will start with simpler options, and then will be expanded. The debut product is a certificate of bank deposit (CDB) from the group’s financial institution, with investments starting at R$1, which delivers yields of 150% of the CDI (the interbank short-term rate), in a promotional yield valid for those who make the investment in May and limited to R$5,000. The strategy is very similar to what other investment platforms are doing, such as XP, Toro and Genial, which advertise on social networks CDBs with eye-popping returns.

“Even today we still have almost R$1 trillion invested in savings, with a very low yield, and that from all social classes. We already have the cryptocurrency offer and the interest-bearing account, but our users were asking for more investment options, with better returns and even longer terms,” says Túlio Oliveira, vice president and country manager of Mercado Pago in Brazil. “We seek to promote real democratization, with accessible investment, without fine print. It will be a simple and safe experience,” he says.

Habib Nascif, CEO of Órama, says the partnership marks the beginning of a complete and integrated investment platform. “We specialize in creating solutions so that more people have access to quality investments. But besides offering good products, we also have to democratize the distribution channels. With this in mind, the Mercado Pago marketplace puts the financial market in people’s day-to-day lives,” he says.

He says that the management company was one of the first financial institutions to be born totally in the internet cloud and that it is fully prepared, from an operational and technological point of view, to serve Mercado Pago users. “We were the first to offer zero fees, investments with no minimum values, and to adopt a less formal language in marketing campaigns. The democratization of investments, including financial education, is very important to us, and that’s why we had such a good connection with Mercado Pago,” he says. Today, the management company has more than 3,000 partners in its “white label” platform and 370,000 accounts.

Later this quarter, Mercado Pago will offer a solution to help users with financial planning. “With our investment marketplace, we will have options so that Brazilians can concentrate their lives in one place, as well as organize their finances, keep emergency reserves or have a savings account with defined life goals,” says Mr. Oliveira. For Mr. Nascif, Mercado Pago’s user base has a huge potential for investments and, with financial education and the possibility of designing specific products for them, the expectations are very positive. “They need to start investing, get into the habit. It is a short, medium and long term construction.”

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SEC says Vale misled investors over safety before dam collapse

Regulator accuses Vale of misleading investors about safety issues before the Brumadinho dam collapse — Foto: Agência Brasil
Regulator accuses Vale of misleading investors about safety issues before the Brumadinho dam collapse — Foto: Agência Brasil

Vale is in the crosshairs of the task force set up by the U.S. Securities and Exchange Commission to identify flaws or distortions in information provided by companies regarding ESG. In a document released Thursday, the regulator accuses the mining company of misleading investors about safety issues before the Brumadinho dam collapse in 2019, which killed 270 people and caused environmental damage.

According to SEC’s view, Vale manipulated safety audits and obtained fraudulent stability certificates since 2016. The regulator claims that Vale knew for years that the Brumadinho dam did not meet internationally recognized safety standards, but still ensured its stability certification in its sustainability reports.

The SEC’s complaint, filed in court in the Eastern District of New York, accuses Vale of violating antifraud and reporting provisions of the U.S. federal securities laws and seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.

“While allegedly concealing the environmental and economic risks posed by its dam, Vale misled investors and raised more than $1 billion in our debt markets while its securities actively traded on the NYSE,” said Melissa Hodgman, associate director of SEC’s Division of Enforcement. “Today’s filing shows that we will aggressively protect our markets from wrongdoers, no matter where they are in the world.”

Vale denies the allegations, including the claim that its disclosures violated the U.S. law, and said in a statement to the market that it will vigorously defend itself. “The company reiterates the commitment it made right after the rupture of the dam, and which has guided it ever since, to the remediation and compensation of the damage caused by the event.”

It is the second accusation by the SEC involving a Brazilian company in 10 days. Last week, the regulator and the U.S. Department of Justice filed suit against the former CFO of IRB, Fernando Passos. IRB is listed in Brazil, but did a road show in the United States with false information about Warren Buffett’s investment in its stocks.

The ESG task force was created by the SEC in March. In the document, the SEC thanks the collaboration of the Brazilian Federal Prosecution Service, the Prosecution Service of Minas Gerais, and the Securities and Exchange Commission of Brazil (CVM).

The accusation did not affect Vale’s stocks, as investors seem to be more interested in the large buyback program launched by the company. Vale announced a buyback of up to 500 million shares, which corresponds to 10% of the shares with the public – a program that could cost it more than R$40 billion.

The company shares are still discounted compared with international peers precisely because of the negative history in ESG – the Brumadinho disaster was preceded by the one in Mariana, also in Minas Gerais – and its consequences in financial and regulatory terms.

The original story in Portuguese was first published on Valor’s business website Pipeline.

Source: Valor International

https://valorinternational.globo.com

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