Transfer pricing change expected to raise taxes on multinationals

Pascal Saint-Aman — Foto: Leo Pinheiro/Valor
Pascal Saint-Aman — Foto: Leo Pinheiro/Valor

The alignment of Brazil to the transfer pricing standard of the Organization for Economic Cooperation and Development (OECD) will prevent the country from facing revenue losses totaling billions of reais per year, Pascal Saint-Amans, director of the Center for Tax Policy and Administration at the OECD, told Valor.

Brazilian authorities and Mr. Saint-Amans will detail the new Brazilian system on Tuesday in Brasília, the result of convergence between the OECD and the Secretariat of Federal Revenue. According to him, the final phase of the studies started in February 2018 found a surprising extent of losses for Brazil because of the current system.

“If we say that Brazil loses revenue today, and that by changing the rules it will lose less, it means that companies will pay more tax,” Mr. Saint-Amans said. “Someone can argue that this is not good for investments. In reality, since the situation is complex, it is not incompatible with an improvement of the corporate tax regime in Brazil.”

Transfer pricing is an issue that all multinationals face. It can be used to move profits from one country to another. It concerns the amount charged when goods or services are sold between two companies in the same group in different countries. It can allow them to legally reduce their tax liability, for example, by accounting for low or overpriced transactions or by moving profits to low-tax jurisdictions such as tax havens. For some transactions, it may be relatively easy to set transfer prices and for tax authorities to control them. But there are more complex transactions, involving, for example, intangible assets and certain financial transactions, which are more challenging for tax authorities to control.

The Brazilian system, with a fixed margin, was originally designed to be simple and easy. But the OECD assessment is that it is detached from commercial reality and has resulted in multi-billion revenue losses and double taxation problems.

To join the OECD, Brazil will adopt a new system fully aligned to the organization’s standard, which seeks to determine the appropriate market price in the transaction. At the same time, simplification measures will be developed to achieve the objectives of the old system, but based on economic reality. Brazilian authorities are to determine when a bill will be presented to Congress and how the system will be gradually put into practice.

Mr. Saint-Amans is one of the world’s leading experts on taxation. He is at the center of the fight against tax evasion. And he was a key player in the creation of the global minimum tax of 15% on multinationals, the biggest overhaul of the international tax system in decades. Read below excerpts from the interview before his trip to Brasília:

Valor: Does the Brazilian transfer pricing system pose detrimental effects on Brazil?

Pascal Saint-Amans: Yes, it does. We identified quite a while ago that the Brazilian transfer pricing policy was atypical, very different and not in line with the OECD standard. To facilitate a change, we decided with the Ministry of Economy and the Secretariat of Federal Revenue to do an analysis. This work is now being finished and has led to some very surprising findings. We thought that the Brazilian system was quite different but a very robust one, which protected Brazil’s tax base. The reputation of Brazil was of a “tough guy,” very strict. The study showed that the Brazilian system had many flaws and led to many revenue losses. The main lesson of this work is that, in a constructive, relaxed way, we were able to make a common analysis of the situation between the OECD, on one hand, and the Federal Revenue, on the other, and realize the deficiencies and some advantages, but that are limited, in order to reach these common findings that will facilitate Brazil’s approximation and alignment to international standards.

Valor: How does this loss of revenue by Brazil happen, in practice?

Mr. Saint-Amans: Multinationals are currently able to legally transfer profits generated by operations in Brazil to low or no tax foreign jurisdictions by exploiting some of the divergences between the Brazilian transfer pricing structure compared to the international standard. A concrete example is the case of a company with high-value products that benefit from cheap production factors. Due to the Brazilian system of fixed margins, the company can legally leave only a small amount of profit in Brazil, say 15% of the production cost, while the real added value is close to 100%! The product will be sold to another company in the group in a low tax country and resold from there to other countries. Because of the fixed margin, the profit will have been transferred out of Brazil. This is just one example. Many other situations arise in relation to other transactions that affect all sectors of the Brazilian economy, including transfers of valuable assets, including intangible assets, as well as financial transactions.

Valor: How much tax revenue does Brazil lose per year in this case?

Mr. Saint-Amans: I don’t have precise figures, but we are talking about quite large amounts, billions of reais, no doubt. This study is based on the country-by-country reporting adopted in the BEPS (Base Erosion and Profit Shifting) case. Examining this study, Brazil realized that a good part of the tax base that should have remained in the country was transferred to countries that offered advantages. The Brazilian transfer pricing, which gave the impression of being solid, with a fixed price in the transaction depending on the activity, in practice was easily circumvented or even used to transfer profits abroad. The system favors transfer abroad, with loss of revenue, as it is also rigid in some fields, which is an obstacle to better integration of Brazil in the value chains.

Valor: How much would Brazil lose, then?

Mr. Saint-Amans: These are large amounts, not secondary values on a company.

Valor: Many multinationals use this practice, of avoiding paying taxes in Brazil?

Mr. Saint-Amans: The answer is yes. It is something that is systematically used, which is logical. There is a tax system with its advantages and its disadvantages, and companies deal with it. The advantage of this system, and this is why we wanted to build a common answer with the Federal Revenue, is that it is simple to handle. It doesn’t need many tax auditors or many controls, because there is a fixed margin determined beforehand and companies have no choice. With the OECD transfer pricing, on the other hand, you have to examine it transaction by transaction. We acknowledge that it is complicated, sophisticated and needs more resources in tax administration. That said, we try to understand how the OECD itself could simplify things. Brazil is going to align itself with the OECD rules, and in turn the OECD moves in the direction a little on the positive side of the Brazilian system.

Valor: For example?

Mr. Saint Amans: What we have done in recent years at the OECD is to modify the transfer pricing standard. In the BEPS project, we have three measures on transfer pricing. First, we say that if [the company] wants to locate intellectual property in a country it has to have substance. Second, we can simplify the benchmarks for the price of raw materials, such as oil, and look at the market price as Brazil and Argentina do. So we acknowledge that this so-called “sixth method” is not incompatible with the OECD standard. We also developed the global agreement announced in October 2021 with two pillars: Pillar 2 introduces a minimum global tax of 15% on multinationals – and Brazil should ask itself if it will put this tax in place; we will work closely with Brazil to see if it is possible. And Pillar 1 includes two things: the biggest multinationals – notably U.S. and European ones, with a combined profit of $700 billion a year – will leave a 25% share of profits in the countries of markets according to some criteria when this political agreement is legally in place, whether the company has a physical presence in the country or not. We will have $125 billion to $ 200 billion a year redirected to these markets. Brazil is a big market. Therefore, it is a fundamental change. In addition, when a company has distribution activity in a country, which is underpaid, we will also simplify rules, as Brazil does, for the company and the country to have more legal security. It will be an approach that respects the principle of full competition, only more simplified. Brazil has two reasons to align itself with the OECD rules: they are more robust, and the Brazilian rules are quite fragile.

Valor: What legal changes will Brazil have to make, then, to align itself with the OECD system?

Mr. Saint Amans: Brazil needs to pass a law that will call into question its fixed margin principles and acknowledge the relevance of a transactional approach. I understand that this bill is well advanced, but the political question now, which does not belong to us, is about the timing for this legislative change. We understand that Brazil will hold elections this year. But these are technical and bipartisan works. We are confident that this work will result in a possible majority in Brazil after the elections.

Valor: In other words, will Brazil need to join the Arm’s Length Principle at the heart of the OECD standard?

Mr. Saint Amans: Yes. This means we should transact as if we were not in a family. In family, we embrace each other. When we are foreigners, we are at arm’s length. The principle forces a company, when doing internal transactions, to put the market price, which would be as with an independent entity and not as with someone in the family. It is a rule that dates back to 1928. Every internal transaction must be done at market price. This system has its weaknesses, because in an open world, with tax havens, companies are interested in locating their profits in countries where there is little taxation. That is why we introduced the BEPS.

Valor: With the change in transfer pricing in Brazil, will the multinationals pay more taxes?

Mr. Saint Amans: Yes, If we say that Brazil loses revenue today, and that by changing the rules it will lose less, it means that companies will pay more tax. Someone can argue that this is not good for investments. In reality, since the situation is complex, it is not incompatible with an improvement of the corporate tax regime in Brazil. It is just that the current system has many drawbacks. I am not saying that Brazil was very bad and the rest of the world was very good, no. But the simplicity of the Brazilian system runs into the problem of double taxation.

Valor: The OECD says that the change will help Brazil in global value chains. How?

Mr. Saint Amans: It has to do with what we just talked about. Brazil has its own rules, which fundamentally integrate poorly with the rest of the world. We found that companies were not necessarily making all the investments that they could make in Brazil. We think that it is not only the fiscal obstacle, but there is a fiscal obstacle that is substantial. And if it is solved, it could facilitate better integration.

Valor: Is the transfer pricing change key for Brazil to join the OECD?

Mr. Saint Amans: Of course. To join the OECD, Brazil needs to be in compliance with OECD standards.

Valor: In other words, the country must do this in two, three years?

Mr. Saint Amans: It has to do this before it can join the OECD. There is a tight schedule. It depends on how fast Brazil wants to get in, but clearly it is one of the important points of the country’s accession to the OECD. But, I insist, it is not a pressure imposed by the OECD, we built this together.

Valor: Economy Minister Paulo Guedes recently went to the OECD and talked to you about a tax overhaul in Brazil. Is this a factor for accession?

Mr. Saint Amans: The question of tax policy in general is not a matter of accession. We have standards like tax information exchange with Brazil, the country applies BEPS and has engaged in providing reliable information for our statistics. In contrast, the OECD has recommendations in this field, which countries are not obliged to apply. What we see from Brazil is that its tax burden is high (33.9% of GDP in 2021) and with a VAT (value-added tax) system that is not good, because of the federal structure and the way it is shared between the federal government and the states. The work that has begun on simplifying and improving the effectiveness of VAT is very important, and ensures revenue without economic distortion. VAT is a very good tax that can be a little regressive, and we need to pay attention to this. And in Brazil it is not so effective.

Valor: In Brazil, do you pay a lot of tax?

Mr. Saint Amans: The VAT in Brazil is not effective, it generates income but also causes obstacles to the fluidity of exchanges, it makes life more complicated. In corporate tax, the revenue could be even higher while making life easier for companies. An OECD recommendation could make tax overhaul to be more effective, less penalizing for the fluidity of business. Today, the Brazilian system compared to other Latin American countries has a level of mandatory taxation that is higher, but it goes with a level of state development that is higher than other countries in the region.

Source: Valor International

https://valorinternational.globo.com

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Chilean JetSmart plans operation in Brazil

Por falta de incentivo, JetSmart pode encerrar voos em Foz do Iguaçu

The president of the Chilean low cost airline JetSmart, Estuardo Ortiz, pointed out that the company continues with its plan to start a domestic operation in Brazil, but that it will wait until demand picks up before taking new steps. In a separate development, the company announced Thursday the authorization from the Peruvian government to operate domestic flights. This is the third country in South America where the airline will have local flights, besides Chile and Argentina. At the same time, the executive pointed out that the company expects to resume flights to Brazil in the second half of the year, as the Chilean government signaled today that it will loosen health restrictions on international travelers.

“Operating the domestic market in Brazil is a project we’ve always considered and we’ve worked very closely with National Agency of Civil Aviation (Anac) on it. It is not going to be so soon, we are still very early in the recovery of the air market. We will see how the market behaves to decide later”, said the executive, talking to journalists after a panel at Wings of Change, an International Air Transport Association (Iata) event that discusses the sustainable future of aviation.

Before the pandemic shook the global air market, several companies sought Brazilian regulators to start the certification process to operate in the domestic market — among them were Air Europa and Norwegian. Intentions gained momentum when Brazilian regulators allowed, in 2019, international groups to set up a company to operate in the domestic market — with the release of 100% foreign capital. The pandemic, however, has caused many of plans to be postponed.

On the JetSmart side, Mr. Ortiz said the focus now is on starting operations in Peru in the second half of the year. JetSmart arrived in Peru in 2017 on international routes connecting the capital Santiago to Lima, Arequipa and Trujillo. The operation will be with Airbus A320neo.

On the side of international flights to Brazil, the company recently closed down the operation it was performing connecting Santiago and Foz do Iguaçu — the only route to the country. The flights, he said, were focused only for the summer season.

The executive said that the company tried to negotiate with the government of Paraná a reduction in the taxes on fuel, but it failed — Brazil is known for having one of the highest rates on the oil product in the world. Talks with the government continue.

* Cristian Favaro traveled at the invitation of the International Air Transport Association (IATA)

Source: Valor International

https://valorinternational.globo.com

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Companies find better environment to raise funds abroad

Brazilian companies are likely to find room to raise funds abroad again in the coming months despite several risks in the international landscape. The cost of operations is up following the recent rise in the yields of U.S. Treasuries, but there are signs that global investors are once again looking at this model as an alternative for companies that need to raise higher volumes of funds with longer terms.

Samy Podlubny, head of debt capital markets and structured debt at UBS in São Paulo, believes that there is a potential for 10 to 15 companies to make external issues in the next window, which typically opens between April and May. Of these, six are discussing the operation with the bank, and two or three have already submitted documents.

“Of course, not all of them will actually raise funds, but it is a fact that, at the current level of volatility, deals are likely,” he said.

VIX, an index that measures the volatility of options on S&P stocks and is seen as a barometer of the appetite for risk in the global market, is around 20% this week after exceeding 36% earlier this month. This relief has already paved the way for some Latin American companies to tap the market. “They are companies from countries with an investment grade, which come out ahead, which shows that the market is buying again,” he said.

Bank of America’s monitoring of the secondary bond market shows that after rising strongly for months, the total cost of these securities has slowed down in recent weeks. The average rate of a basket of securities is now close to 5.6% after peaking at 5.8% in mid-March. In June last year, when the market still did not anticipate any interest rate hike by the U.S. Federal Reserve, this rate was close to 3.7%.

“There is still volatility, with good days and bad days, but the environment is constructive,” said Caio de Luca Simões, head of fixed income at Bank of America. The market is going through a peculiar moment in which assets from Latin American emerging markets are performing better than those in Eastern Europe because of the war in Ukraine.

Besides the fact that it is now clearer which countries, companies and industries will be most affected by the Russia-Ukraine war, Mr. Simões links this improvement in the environment for external funding to the fact that it has already become clearer what the Federal Reserve is expected to do regarding monetary policy. “The Fed has already signaled that it is going to raise interest rates, that it is not going to stay behind the curve,” he said. Thus, the so-called “price shift” may have already occurred.

Another factor that may help boost this market is the fact that there have been few offerings this year. According to Mr. Simões, so far Latin American issuers have issued 49% less than the volume seen in the same period of 2021. This means that funds have room and interest in absorbing primary issues.

Rodrigo Fittipaldi, head of fixed-income issues at Credit Suisse in Brazil, the dominant variable at the moment is the behavior of interest rates in the United States. The behavior of the U.S. curve, which underwent a major correction in the last few months, has caused a lot of uncertainty and impacted the global debt market, he said. At the same time, higher commodity prices ended up providing a counterpoint and bringing support to assets of emerging markets. “The level of the spread [rate paid above the 10-year U.S. interest rate] has now settled down. If the interest rate scenario in the United States stabilizes, then this spread may close even more,” he said.

Mr. Fittipaldi believes that there is room for a total volume of about $15 billion in issues this year, compared to $30 billion raised in 2021. A good part could materialize between April and May. “Some issues were shelved because the market was too volatile,” he said. “The best window is now, but I don’t rule out that the market will remain active in the second half of the year, even with elections, since the political noise seems to have subsided.”

Mr. Podlubny, with UBS, also notes that the local debt market has been a good option for many companies, as it offers price conditions that are often better than those seen abroad. On the other hand, terms here are shorter and there is no room for very high volumes of funding. “The local market is liquid but does not have the same depth as the international market, and companies do not always get the term they need,” he said. “But local money is cheaper.”

Source: Valor International

https://valorinternational.globo.com

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Japanese companies will develop solar farms in Brazil

West Berkshire council plans to build £10m solar farm - BBC News

Fazsol has signed a contract with Órigo Energia to build 17 solar farms with 33.4 megawatts of capacity, in the distributed power generation model, in which the consumer chooses its own supplier.

The investment in the project is about R$150 million. The contract is part of Fazsol’s growth strategy in Brazil. Fazsol is the result of a partnership between Japan’s Shizen Energy and Espaço Y, a Brazilian holding company in the home construction segment. Shizen intends to operate in the country through the joint venture to assist Japanese companies in Brazil to decarbonize their power generation mix.

According to the terms of the partnership, Fazsol will develop the solar farms, while Órigo will be the bridge with the final consumers. The farms will be built in the Federal District, Minas Gerais and Ceará, and will be able to generate enough power to meet the demand of 130,000 homes for a year.

The farms are expected to start operating in November. Bruno Suzart, Shizen Energy’s manager for Brazil, said that the contract will allow Fazsol to increase fourfold the volume of power generated in the country, in addition to tripling the team. “This will help us to find new clients,” he said.

Fazsol boasts 25 renewable power projects in operation in Brazil, with 8.6 MW of capacity. The company intends to invest R$1 billion by 2024, when it expects to have 200 MW of solar plants in operation in the country.

Shizen arrived in Brazil in 2018. The company was founded in 2011 by three Japanese entrepreneurs from the renewable power industry as discussions emerged in the country with the shutdown of nuclear power plants after the Fukushima accident. The company operates in four other countries through partnerships and Fazsol was the chosen one in Brazil.

In the last few months, the company made studies about the potential of renewable power generation in Brazil at the request of the Japanese government. “We want to repeat, with Fazsol in Brazil, Shizen’s successful experience with Japanese companies in other countries. We are able to serve these companies in their own language, and negotiations can occur according to the format they are used to,” Mr. Suzart said.

The fact that Órigo is also backed by Japanese investors helped in the negotiation, Mr. Suzart said. “There is a cultural connection between the companies. Some presentations even took place in Japan,” he said.

Japanese group Mitsui & Co has a 17% stake in Órigo. The remainder is split between investment funds TPG and MOV Investments, and part is dispersed in the Brazilian stock exchange. The company operates a solar power subscription business in which customers receives credit on their electricity bill for power generated in solar power farms.

The plants built by Fazsol will serve these Órigo customers. “The agreement will enhance the company’s mission: to democratize access to clean power in Brazil,” said Rodolfo Molinari, Órigo’s chief business officer.

Based on this contract, Fazsol intends to expand and operate in other markets in which it was not yet present in Brazil. Until then, the company had focused on the development of distributed generation plants. “This is a structuring project, which allows us to look towards expansion,” said Fazsol’s director Nélio Pereira.

The company is considering tapping the free market. “We can help transform the companies that are already in the free market into self-producers; in this case, there is a complementary cost efficiency,” Mr. Pereira said.

Source: Valor International

https://valorinternational.globo.com

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Economic crisis prompts Brazilians to move abroad

What are the benefits of moving abroad

The flight of Brazilians to other countries, especially to the United States, gained strength last year, with the worsening of the economic crisis in the country and the permission of people vaccinated against Covid-19 to go abroad.

In 2021, 17% of the Brazilians who left the country did not return, the highest number in the Federal Police survey, which began in 2010, when 7% of those who had left did not return. In 2019, that portion was 5%.

According to the Ministry of Justice’s International Migration Observatory (Obmigra), the continued negative balance of the movement of Brazilians and migrants residing in the country has proven to be “structural”.

This scenario is also confirmed by data on remittances from abroad to Brazil, deportations, and detentions at the U.S. border, which hit a record high last year.

Part of this flow continues to be people with low education who use illegal schemes to cross overland from Mexico to the U.S.

But, although more numerous, those Brazilians who pay for the services of coyotes to complete the crossing are only part of the picture of emigration. In recent years, and especially with the improvement of the pandemic, the number of professionals and families seeking American visas, to undertake or continue studies, has also increased.

Antônio Tadeu de Oliveira, Obmigra’s statistics coordinator, says that the large number of arrests of Brazilians at the U.S. border reinforces the perception of the occurrence of negative migratory balances, i.e., more Brazilians leaving the country.

“From 2012 to now, when the economic scenario worsens, we start to see this movement of outflows outweighing inflows,” says Mr. Oliveira. According to him, this is reinforced when we look at data from the Federal Police and the Federal Revenue (of people who stopped income to deliver their income tax returns in Brazil), as well as the number of arrests and deportations, and the increase in remittances sent from Brazilians living abroad. He notes the U.S. is the main destination for Brazilian emigration.

“With the pandemic, there were border closures and reduced flow. But what we have seen now is people here seeking opportunities in other countries. Not only Brazilians, but also foreigners,” he continues.

One of the signs of the increased flow of migrants, the number of arrests of Brazilians attempting to enter the U.S. hit a record last year. The average daily number of arrests of Brazilians at the border rose to 148.8 in 2021 in fiscal year 2021 (October 2020 to September 2021) and 18.6 in 2020 from 49.3 in 2019, according to data from the U.S. Customs and Border Protection (CBP).

In a December report, CBP said that arrests skyrocketed in fiscal year 2021 for countries that historically have not been common sources of migration at the U.S.-Mexico border, highlighting Brazilians and Ecuadorians, for example.

Brazilians ranked sixth among nationalities detained in 2021 by the CBP. The figures coincide with the number of Brazilians deported from abroad, which is the highest in a decade. In 2011 there were 2,721 Brazilians deported. In 2019 there were 2,348, slowing to 1,586 in 2020. Last year, however, the number grew to 2,449.

Sociologist Sueli Siqueira, a specialist in the migration of Brazilians to the U.S. at the Vale do Rio Doce University, says that the profile of today’s migrant is different from that of previous decades.

In the past, the most common thing was adults traveling alone and looking for ways where they could not be noticed by the police. Today, whole families migrate and want to be noticed by the authorities.

“Now they turn themselves in, as if they were falling, which gave rise to the name ‘cai cai’ [falling] for the agents or coyotes who make this crossing possible,” says Ms. Siqueira. “Since they are with children, they are detained, but no longer separated, as was the case under [former U.S. President Donald] Trump. A date is set to present themselves to U.S. immigration and they are given an ankle monitor or cell phone [by which they are monitored]. Sometimes the deadline to report is quite long and it gives them time to settle down and get a house, a job.”

She adds that not only are whole families migrating nowadays, but the intention is to go and not come back.

“They are entire families, with children, mother and mother-in-law, who close their homes and have no intention of returning. Before they migrated, earned money, and came back. There was the idea of returning and sending remittances to relatives. Today, the intention is to migrate with the whole family and not return,” she says.

Even with this change, the amount of remittances sent by Brazilians living abroad has been growing, especially those from the U.S.

According to Central Bank data, total international remittances sent from Brazilians living abroad to Brazil rose to $3.8 billion in 2021 and $3.3 billion in 2020 from $2.9 billion in 2019. Of the $500 million more sent last year, compared to 2020, over $450 million came from the U.S.

The U.S. tops the ranking of countries of origin of remittances to Brazil. In 2021, more than $2 billion left the U.S., 28.9% more than the previous year. The UK came second, followed by Portugal, Switzerland, and Spain.

Maxine Margolis, anthropologist at the University of Florida and author of the books “An Invisible Minority: Brazilians in New York City” (2009) and “Goodbye Brazil: Brazilian Emigrants in the World” (2013), says that more than the desire to enter the U.S., today there is a strong desire to leave Brazil.

“There was a feeling among many Brazilians that, with [President Jair] Bolsonaro, things would get much better. But the economy is not going well, and many have lost confidence,” she says, remembering that a Brazilian earns in one week doing cleaning in New York what he would earn in four weeks working in Brazil.

Source: Valor International

https://valorinternational.globo.com

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Project aims to restore 1m hectares of forest

Ricardo Rodrigues, Bernardo Strassburg and Thiago Picolo — Foto: Leo Pinheiro/Valor
Ricardo Rodrigues, Bernardo Strassburg and Thiago Picolo — Foto: Leo Pinheiro/Valor

A group of major investors, renowned biodiversity researchers and economists has created a company to implement the largest project to restore degraded areas in the country: re.green is born with initial capital of R$389 million and the pioneering goal of restoring 1 million hectares of Atlantic Forest and Amazon rainforest.

The initiative to regenerate tropical forests on a large scale is unprecedented in Brazil and perhaps the world. One million hectares is almost half the area of the territory of the state of Sergipe and 250 times the size of Tijuca National Park, in Rio de Janeiro. It is equivalent to the area of Suzano’s native forest, one of the largest private protected areas in the country.

“re.green is born from science, contains science, and intends to do a lot of science,” says one of the founders and partners, economist Bernardo Strassburg, a reference in global studies on priority areas for ecosystem restoration. “It will be by far the largest experiment in tropical ecology on the planet,” he says.

To get an idea of how big the ambition is, in Brazil’s climate commitment launched in 2015, one of the strategies for the country to cut its greenhouse gas emissions by 43% from 2005 levels was to restore and reforest 12 million hectares by 2030. This has not even begun.

re.green took one year and a half to mature and stimulated four heavyweight investors close to environmental agendas — BW (family office of the Moreira Salles family), the manager Lanx Capital and its private equity arm Principia, Gávea Investimentos and Dynamo.

The return on investment will come with the sale, in a few years, of premium carbon credits — because they will include, at the same time, benefits in climate, communities, and biodiversity — and timber and non-timber products from the regenerated forests. The plan is to capture 15 million tonnes of CO2 per year.

re.green’s board is chaired by Marcelo Medeiros (former partner at Banco Garantia and executive at Credit Suisse) and its members include João Moreira Salles, Fábio Barbosa (ex-Santander and Grupo Abril, and partner at Gávea), Arminio Fraga (Gávea), Marcelo Barbará (founding partner at Lanx and Cambuhy), and Ana Luiza Squadri (partner at Principia Capital Partners).

The intention of re.green’s founders and partners is to restore a large part of Brazil’s environmental liabilities by turning degraded and abandoned pastures, for example, into forests again. Or to establish partnerships to restore large areas on private and corporate properties. The third front is to restore areas in conservation units.

One of the strategies is to buy areas and form biodiversity corridors. “We will plan the space to expand the habitats of native species, preferably near conservation units,” says Ricardo Rodrigues, one of re.green’s partners.

He is a professor of Restoration Ecology at the University of São Paulo and a reference in the field of restoration in the Tropics, with more than 30,000 hectares of Atlantic forest restoration. He founded in Piracicaba (state of São Paulo) the Bioflora nursery, the most symbolic of native seedlings of the Atlantic forest, with almost 30 years.

In the case of partnerships, re.green provides the seedlings, the seeds, and the implementation of the forests, and keeps the carbon credits, explains economist Thiago Picolo, CEO of the new company. “The purchase of properties is a possibility, mainly because of the permanence of the projects and the carbon credits. It is essential that we can guarantee that the restoration will last forever,” explains Mr. Picolo, who was CEO of Hortifruti Natural da Terra, a food retail chain focused on fresh and organic products that was sold in 2021 to Americanas S.A.

The choice of priority areas to be regenerated is one of the distinguishing features of Mr. Strassburg’s new company and study area.

“We are using science to prioritize where we will regenerate forests. Where it will have the most impact for biodiversity, for carbon capture, and where it will be financially viable,” he says.

It is not a random choice, but areas that, if regenerated, can have ten times more impact on climate and biodiversity than others, explains Mr. Strassburg, a professor of sustainability science at the department of Geography and Environment at the Catholic University of Rio de Janeiro (PUC-RJ).

The first place of interest for re.green is in the South of the Bahia state, a region that is a biodiversity hotspot with great impact also for carbon sequestration. Another priority region is in the state of Pará. In the case of the purchase of areas, the promise is to return to society the land restored and as a conservation unit.

Mr. Rodrigues reminds that a current trend in restoration projects and carbon sales is concentrating on “easier situations”. These are areas with potential for natural regeneration. “If we only have this option we will leave a trail of degraded areas that no longer have the potential for natural regeneration because they have been so exhausted. re.green has not shied away from this. It’s a huge challenge,” he says.

In the case of carbon credit sales, re.green’s project is to qualify for the sale of carbon removal credits, which have, on average, a price five times higher than avoided deforestation credits. They are at a premium because they seek Verra CCB certification (which certifies projects with simultaneous climate, community, and biodiversity benefits).

“The restoration economy is a complex ‘business case’. It requires a lot of initial investment and returns over time. You have to wait for the forest to come back. It’s a patient capital,” says Mr. Strassburg.

The initial strategy is to divide the regeneration efforts equally between the two forest biomes. “The beauty of this project is also the fact that it generates an entire restoration chain, with social impact in the generation of jobs for seed collectors and in the seedling nurseries,” says Mr. Rodrigues.

Source: Valor International

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Pix gains ground as payment method among online stores

Para especialistas, exclusividade do BC no Pix aumenta vulnerabilidade

Brazil’s largest online stores are increasingly adding Pix as a payment method, with a record share in March, while debt cards are losing ground since the launch of Central Bank’s instant-payment system, the latest edition of the payment study Gmattos found.

Last month, 69.5% of the analyzed stores offered the option of payment via Pix, compared with 16.9% in early 2021, when the survey was held for the first time. The method is behind credit cards (accepted by 98.3% of stores) and banking bar-coded bills known as boletos (accepted in 76.3% of them). The study included 59 online stores, which account for 85% of e-commerce in the country.

According to the survey, the availability of debit card payment, which has never been very high, has been dropping substantially. In the January 2021 edition, it was 37.3%; two months later, it peaked at 42.3%; last month, it dropped to 27.1%.

Gastão Mattos, co-founder and CEO of Gmattos, believes that debit cards are close to the floor, but sees no sign of recovery. Rogério Panca, head of the Brazilian Association of Credit Card Companies and Services (Abecs), told Valor this week that the expansion of payments with debt cards in e-commerce is a priority of the trade group.

Mr. Mattos believes that Pix may reach 90% of stores by the end of this year or early next year. He recalled that 72% of stores that don’t work with Pix are making some kind of cash payment available, including boletos and debit cards. In other words, they have some propensity, in terms of business strategy, to also offer the Pix.

“In these stores, the option is not offered yet probably due to technological difficulties, such as integration,” Mr. Mattos said. Companies that do not offer any cash payment alternative typically work with higher average ticket sales.

The acceptance of boletos, on the other hand, has remained relatively stable. With the growth of Pix, the spread between both has shrunk, and the instant-payment system could soon reach the second position in the ranking, although there is no direct competition between payment methods.

According to Mr. Mattos, the number of online stores that offer some kind of discount for consumers who pay with Pix has been increasing. In addition to the fact that payment is instantaneous, the method also increases the cart conversion rate, or the number of purchases actually completed after the items are added to the online shopping cart. This rate is around 30% with debit cards and 80% with Pix.

Credit cards, a traditional driver of e-commerce, remains in the top of the ranking. Mr. Mattos points out, however, that alternative installment plans are on the rise. “This is a strong trend for the year. The existing options are clearly not meeting everyone’s needs,” he said, citing installment plans via boleto and direct financing with large banks. “I think smaller, digital banks will also offer more such options.”

Wallets were accepted by 44.1% of the stores analyzed in March, up from 54.2% in the same month of 2021, Gmattos said.

Source: Valor International

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Apollo wants Novonor shares in Braskem

Odebrecht diz que vai vender a Braskem. Falta combinar com a Petrobras | Brazil Journal

The sale of Braskem became competitive again. U.S.-based asset management company Apollo Capital made a non-binding offer of R$44.57 per share for the stake that is in the hands of Novonor (ex-Odebrecht), Valor has learned. Three sources familiar with the matter confirmed the interest of Apollo, which in the past had a relevant stake in the petrochemical company Lyondellbasell.

At the price offered by Apollo, the Odebrecht holding company would raise R$13.6 billion with the sale of 38.8% of the total capital of the petrochemical company. The amount is higher than the price of the company’s PNA share at Wednesday’s closing on the B3, of R$43.36.

Apollo has resumed talks and is interested in Braskem’s assets, a source familiar with the matter said. In Brazil, Starboard is a partner of Apollo. Although it has submitted the best offer in terms of price for Braskem, the fund is not alone in the competition for the Brazilian petrochemical company.

According to market sources, rival Unipar is still evaluating the assets, and holding J&F Investimentos, owned by the Batista family, is also in the race. J&F is being advised by CF Partners, of former Braskem CEO Carlos Fadigas, in the search for investment opportunities in energy and petrochemicals, a person familiar with the matter said. However, the holding company has not yet made a bid to Novonor.

BTG Pactual is also committed to the proposed purchase of Novonor’s debts with creditor banks, which total almost R$15 billion, as Valor reported in March. With the transaction, BTG would take over the petrochemical company shares that guarantee these debts. The talks are still at an early stage and would have to be approved by the creditors.

The buyer of Novonor shares will have to extend the offer to Petrobras, Braskem’s second largest shareholder, with 47% of the common stock and 36.1% of the total. The state-owned company has a tag-along right, which allows it to sell the shares it holds under the same conditions offered to Novonor, according to the company’s shareholders’ agreement.

For a market source, the R$44.57 per share that would have been put on the table may not convince Novonor, which together with Petrobras gave up selling part of its position in a secondary offering in January, because the price investors were willing to pay, around R$40 per share, was considered low. With the capital market stuck due to the adverse external scenario and volatility because of the elections in Brazil, there is no expectation that the secondary offering will take place in the first half of the year.

The petrochemical company’s strategy is to spin off its green plastics division to unlock market capitalization. To do so, it is seeking investors for this business.

The sale of Braskem’s assets has become a complex negotiation, full of comings and goings. Last year, Braskem was approached to sell the assets in sliced form, but the negotiations fell apart. Lyondellbasell even made an offer for the company, but dropped out of the deal.

Novonor, CF Partners, J&F and Unipar declined to comment. Apollo did not immediately reply to a request for comment.

Source: Valor International

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Pátria seeks buyer for data center company

Odata would be valued at about $1 billion — Foto: Divulgação

The asset management company Pátria Investimentos decided to put its data center division up for sale and is already in advanced talks with international M&A boutiques and foreign investment banks to define who could take over the business, sources familiar with the matter say. Odata would be valued at about $1 billion and is likely to attract the interest of foreign rivals in the sector and investment funds, sources say.

Created in 2015, the data center division of Pátria began as a startup offering infrastructure to house servers that process information with global distribution. The business has grown in recent years and has a presence in Colombia and Mexico.

Late last year, the company took a $30 million loan from the International Finance Corporation (IFC), a World Bank arm, to finance the expansion of its data center structure in Brazil and Latin America.

For 2022, Odata has investment plans of around R$1.2 billion to strengthen its expansion in the state of São Paulo and also in Rio de Janeiro, the company told Valor recently.

A good part of Odata’s revenue comes from large cloud computing service providers, with long-term contracts – the company did not reveal the exact turnover. Besides service providers, the company has clients in education, telecommunications and finance.

The data center sector has received heavy investments. The consultancy IDC Brasil estimated that the companies’ spending on public cloud services in Brazil could reach $3 billion last year.

Sources say that Pátria’s business division may attract foreign groups, which are consolidating this segment in the international market.

In a more recent move, the Rio de Janeiro-based investment group Piemonte Holding bought five data centers from telecom Oi, which is under judicial reorganization and sold several assets, for R$325 million, and committed to invest R$42 million in the operation.

The Digital Colony group, owner of Highline in Brazil and which bought the towers auctioned by Oi, also has plans for multimillion investments to build new data centers in Brazil, Chile and Mexico through its company, Scala Data Centers.

With about $24 billion in assets under management at the end of last year, Pátria has heavy investments in companies in the country through funds in the infrastructure and real estate industries, as well as relevant stakes in the healthcare, agribusiness, food, and financial services industries.

Last year, the asset management company tried to draw investors for part of its businesses. However, the adverse international backdrop since last year and the political uncertainties due to the presidential elections in Brazil left the plans frozen for the end of this year or 2023.

Among the fund’s assets that may go public are the health companies Athena and Elfa. Another Pátria’s company that may go public is Lavoro, of agricultural inputs distribution, with presence in Latin America.

In January last year, Pátria’s private equity firm made its debut on the Nasdaq after raising $588 million. A good part of the proceeds will be used for acquisitions.

Pátria and Odata declined to comment.

Source: Valor International

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Government picks Ferreira Coelho to run Petrobras

José Mauro Ferreira Coelho — Foto: Leo Pinheiro/Valor
José Mauro Ferreira Coelho — Foto: Leo Pinheiro/Valor

After setbacks in the last few days, the government managed to appoint José Mauro Ferreira Coelho as Petrobras’s CEO and Márcio Andrade Weber as chair of the state-owned oil company.

The two positions were open after Adriano Pires and Rodolfo Landim gave up, this week, to run for these positions, respectively. The new names were seen by sources familiar with Petrobras as a victory for Mines and Energy Minister Bento Albuquerque, to whom the company is subordinated. “Bento has succeeded,” a source said.

Mr. Coelho is supported by his technical background in the industry – he chairs the state-owned company PPSA –, while Márcio Weber, the new candidate to be Petrobras’s chair, was an “internal solution” since he is a member of the current board of the oil company. He has experience in the oil market and enjoys the respect of the board members.

Coelho has a military background, having been an officer in the Army between 1983 and 1991, and a researcher at the Military Institute of Engineering. He also held the board of the Energy Research Company (EPE) and was secretary of oil and gas at the MME before joining the PPSA board. He has defended the practice of parity to international prices, a policy that Petrobras has followed since the Temer administration and that has been a frequent reason for the company’s wear and tear with President Jair Bolsonaro. The last two presidents: Roberto Castello Branco and Joaquim Silva e Luna were fired for readjusting fuel prices in the domestic market following oil variations in the international market. Silva e Luna remains in the presidency of the company until next week.

After the frictions caused by the nomination of Adriano Pires, Mr. Coelho’s announcement was seen as a new demonstration of strength by Mr. Albuquerque. Mr. Coelho was seen as his right-hand man in the ministry and, with this appointment, the minister will have two names of his trust in strategic state-owned companies in the sector: Itaipu and, now, Petrobras.

The two nominations pave the way for Petrobras shareholders to elect the company’s new board of directors at the Annual and Extraordinary General Meeting (AGOE) scheduled for next Wednesday. Since the retreat of Messrs. Pires and Landim, the federal government’s ticket was incomplete. From the original eight names, six were left. On Tuesday night, the ministry said that it had filled out the list of the federal government, the company’s controlling shareholder, for the board.

The ticket is now composed by Márcio Weber, José Mauro Ferreira Coelho, Sônia Villalobos, Ruy Schneider, Luiz Henrique Caroli, Murilo Marroquim, Carlos Eduardo Lessa Brandão and Eduardo Karrer. There are also seven candidates of suggested by minority shareholders for the board.

There are, therefore, 15 candidates for ten seats. The federal government’s candidates must face two minority shareholders’ candidates in a multiple-choice system in which the individual candidates with the most votes win. The remaining minority shareholders’ candidates will face each other in two elections in which the federal government does not vote.

One is in the separate election of the controlling shareholder related to the common shares (three names for one seat) and the other related to the preferred shares (two candidates for one seat). Petrobras’s board has 11 members, but the 11th person is elected by the employees. The name is Rosangela Buzanelli Torres, who is also already on the board. The mandate is for two years, until the 2024 general meeting, but with presidential elections ahead, chances are the board will be changed again next year.

It is not clear yet if there will be enough time until next week’s meeting for the names of Messrs. Coelho and Weber to be evaluated by Petrobras’s corporate governance bodies, responsible for analyzing if the names fit the company’s rules and the Law of State-Owned Companies. The eligibility committee (Celeg), linked to the people committee (COPE), can make this analysis in time for the meeting. “I believe they will try to do it,” a source said. If it is not possible, this check can be left for after the meeting. Mr. Weber’s name has already been checked, since he was on the first federal government list and is a candidate for reelection.

On Wednesday, Celeg concluded that Mr. Weber meets the necessary requirements and has no restrictions to run for the board. The committee said, however, that Mr. Weber will need to “adopt the necessary measures so that the company in which he has a stake formally abstains from providing services to Petrobras and its equity stakes, as well as relevant suppliers and competitors in the oil and gas sector”. Mr. Weber advises the PMI group that operates four deepwater drilling rigs that have Shell and ENI as clients.

Source: Valor International

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