Pátria Investimentos fund closed an agreement to purchase the hydroelectric plants of British company ContourGlobal in Brazil for $313 million, including debt – Pátria will pay $162 million. The assets traded have an installed capacity of 168 megawatts (MW).
The deal, expected to be completed in the second quarter, was a first step in ContourGlobal’s plan to monetize its renewable energy assets in the Brazilian market. The divestment of assets is part of the company’s strategy to increase its market capitalization and unlock shareholder value.
In this line, the British company also intends to sell, in the first half of the year, its wind farms in Brazil. Pátria has exclusivity in the transaction. In all, according to information on the company’s institutional website, ContourGlobal operates 598 MW of wind power, including the Asa Branca farm (160 MW), in Rio Grande do Norte, and the Chapada complex (438 MW), in Piauí.
With the acquisition of ContourGlobal’s assets, the fund expands its portfolio of renewables. Pátria is an investor partner of Essentia, which operates in the Brazilian solar and wind energy market, and in Chile’s Latin America Power (LAP).
Pátria declined to comment on the new investment. With $25 billion in assets under management, the fund also operates in the power generation sector through Arke — a joint venture with Shell and Mitsubishi Power, responsible for the construction of the Marlim Azul gas thermal plant (565 MW), in Macaé, Rio de Janeiro.
ContourGlobal said it would still decide whether to use the proceeds from the sale of the hydroelectric to reinvest in new business opportunities or to increase shareholder remuneration. The company, listed on the London Stock Exchange, has a global portfolio of 6.3 gigawatts.
The agreement with Pátria includes nine small plants: Goiandira (27.7 MW), Nova Aurora (21.6 MW), São Domingos (25 MW) and Galheiros (12 MW), in Goiás; Presidente Goulart and Alto Fêmeas (18.7 MW) and Sítio Grande (23 MW), in Bahia; Pirapetinga (19.8 MW) and Pedra do Garrafão (20.3 MW), in Rio. The plants were purchased in 2016 by British company Neoenergia and account for less than 3% of ContourGlobal’s global revenues.
Commenting on the sale, ContourGlobal’s chief executive Joseph Brandt said, in a statement, that the deal is consistent with efforts to “unlock the value of undervalued assets in the portfolio.” The negotiation with Pátria does not include ContourGlobal’s portfolio of cogeneration thermoelectric plants in Brazil, which totals 76.1 MW.
For the coordinator of the Electric Sector Study Group (Gesel), at the Federal University of Rio de Janeiro (UFRJ), Nivalde de Castro, the acquisition reinforces Pátria’s interest in renewables and shows the liquidity of the domestic market. According to him, the country is well positioned to attract investors because it has a “consistent regulatory framework.”
The sector’s revenue predictability also contributes to providing liquidity to assets. Mr. Castro believes that purchases and sales of renewable assets tend to grow, as companies define strategies in the energy transition. “Renewables are gaining great importance in the energy transition, assets have increased in value, so movements of this type become natural.”
As a child, Juliana Coelho liked numbers. For this reason, she decided to study engineering. She chose a specialization in chemistry because she knew that an engineer’s chances of launching a career in the state of Pernambuco were limited to the petrochemical complex. But when she reached the end of her penultimate year of college, in 2010, a new event emerged, which would later diversify the region’s economic activity and completely change the professional trajectory imagined by the young woman. In December of that year, Fiat announced the construction of a factory in Pernambuco.
Today, the 32-year-old engineer is traveling through Europe to visit some of the 92 factories that make up Stellantis, a company that was born a year ago from the merger between the brands of the Fiat, Chrysler, Peugeot, and Citroën groups. Ms. Coelho just took over one of the most important positions in the manufacturing area of the new super automaker. She is the new world head of the so-called Stellantis production way, which will extract the best from the methods that each of these brands has developed to manufacture vehicles throughout centuries-old histories.
The executive is in Paris and had just finished a French class (a language she is learning during her trip) when she gave an online interview to Valor. The French capital could be one of the alternatives for the new address of the engineer born in Olinda. She is still studying the best housing location for her and her husband, a fitness trainer also from Pernambuco, to whom she has been married for two and a half years.
Europe tends to be a strategic point both for traveling between the assembly lines spread across the continents and for the proximity to the company’s global management, which is currently working intensively to fine-tune the synergies between the brands. The housing issue does not seem to concern her at a time when the pandemic has taught us lessons about, as she cites, working in the “nowhere office”.
Nine years have passed since the engineer, then recently graduated from the Catholic University of Pernambuco, was selected as a trainee to work at the factory that Fiat was starting to build in Goiana, 64 kilometers from Recife and a little less from Olinda. In the last three years, her professional career took a turn, in parallel with the revolution that involved the company that hired her.
In 2018, Fiat announced the acquisition of Chrysler. With the union, Goiana, a city selected by the Italians after the federal government extended tax incentives in the Northeast and Central-West regions, would be chosen to house a modern factory of the Jeep line. And more recently, the union with Peugeot gave rise to Stellantis.
Aware of the dream that her granddaughter began to cherish since it became known that an automaker would go to Pernambuco, Miriam, maternal grandmother of the recent graduate, kept an eye on the news widely publicized in the local press about hiring. “Looks like they’ve already called a group. Are you not on the list?” Yes, she was. She and 39 other newly graduated engineers formed the first group of trainees at the first vehicle factory in Pernambuco.
But there was no factory to train in the immense land, where there was once a sugarcane plantation, which was turned into a construction site when the engineers arrived. The trainee group was then sent to Italy and Serbia to learn in the factories there. The dream of the young woman who always liked cars came true. The interest in automobiles arose because an uncle had a rental company and offered the fleet for relatives to ride. In the Coelho family, there are no other engineers. Her father, now deceased, worked in administration. Her mother is a physical therapist. One of the two brothers – both younger than her – is studying business administration in Portugal and the other, a nutritionist, lives in Olinda.
Upon returning from the European factories, Ms. Coelho was ready to start work. Her training in chemistry directed her to the area of car painting. She started in the technical area. But curiosity, willingness to learn, and also to pass on lessons learned ended up involving her in the area of hiring personnel. Naturally, she became an area leader and a supervisor.
At that moment, she began to realize that other Pernambuco workers, candidates who, like her, would have their first job in a factory there, and that none, like her, knew what it was like to produce cars, could learn quickly. “Opportunities can arise not only for those who have experience, but for those who are willing to learn”, she highlights.
Those who knocked on Fiat’s door came from very different backgrounds. They were shellfish gatherers, fishermen, sugar-cane cutters. And, among them, some even with skills that, curiously, are useful in an automaker. Ms. Coelho cites the example of those who had already worked as artisans. “Just like in crafts, controlling the seals of a bodywork also requires skill with the hands”, she says.
Over time, the Goiana factory needed to be expanded. At the same time, Ms. Coelho was building an ascending career in the company. From painting, where she rose to the position of supervisor, she moved on to the assembly line, where she took over management four years after she started working for the company. With the industrial expansion, the engineer also continued to be involved in people management, the hiring process and, as she says, “learning and passing on” acquired knowledge.
In March 2018, the company where Ms. Coelho works, which at the time was just Fiat Chrysler, announced that the Goiana plant would start operating 24 hours a day, with three production shifts. The news was received with celebration, with the presence of the then-president Michel Temer, who brought the company even better news: the extension, for five years, of the special tax regime for factories in the automotive sector installed in the Northeast region. The benefit had already been extended in 2009.
Since then, the controversy that has always existed around tax incentives for automakers in the North, Northeast, and Central-West regions has intensified. Companies with factories outside these regions have bolstered lobbying with politicians, with complaints that they would lose out in competition with companies enjoying tax breaks. On the other hand, the groups installed in these regions have always argued the need for incentives to offset the cost of logistics that involves transporting parts from the South and Southeast and, on the other hand, cars ready for these markets.
Ms. Coelho defends ways to guarantee development for these regions. She says that other countries stimulate, through incentives, regions where the industry is not so present. “Decentralization is fundamental. We need to get rid of the geographic map that boils down to three or four states,” she highlights.
“See what that factory was (in Goiana) and what it will be; it is necessary to invest not only where there is already development,” says the engineer who declares – and in fact, proves – to be very calm. The new professional challenge has taken more time, which she finds natural. “At work, I tend to do my best,” she says. But, in general, the executive manages to balance professional and personal life. “On Sundays, I usually go to my grandmother’s house, stay with my husband and the whole family, go to church.”
The first experience away from home, from her grandmother, mother, brother, and Olinda, was in November 2018. Ms. Coelho was transferred to Betim, in the state of Minas Gerais, to assume the position of chief engineer for Fiat Chrysler manufacturing throughout Latin America. She and her husband moved to Belo Horizonte, where they lived until July 2020. The new position helped her not only see the cars produced but the entire company.
A new promotion, however, took her back to her homeland. Ms. Coelho was assigned to direct the entire factory, which at that time was practically the same size as it is today, with 13,500 employees and 16 suppliers within the industrial park. She was the first woman to assume this role in the company.
But, when she arrived, there was no one. It was at the beginning of the pandemic. A period when virtually all automakers had laid off employees, who would only return to work after companies organized factories to ensure distancing and safeguard measures to prevent the spread of Covid-19.
Of course, she already knew she wouldn’t find workers. But, after seven years of direct work on assembly lines, the feeling of emptiness was unsettling. However, the pandemic also left good lessons for those who always live in the crowd. “We learn to connect with people, to listen to them in a moment of learning and a lot of responsibility. It is in difficult times that we see the qualities of people.”
A little over two months ago, she began to undergo discreet interviews at the company. Questions suggested that she was undergoing a secret selection. “I imagined that all of that was for a new job opportunity at the company, but I wasn’t sure what it was”, she says. She does not know which or how many candidates were in the running. Upon being asked to take charge of Stellantis’s new production system, she understood why she had been interviewed.
Each of the automaker’s brands has, over decades, developed its own means of producing vehicles. From the best each one offers, Stellantis’ own model will be built. The Brazilian executive will lead this process, which also involves the synergies the company’s global management has pursued since the first day of the company’s creation. In her new position, Ms. Coelho says she will always be very close to the group’s factories around the world, establishing a new methodology based on the application of the best methods adopted until today by the two groups.
Stellantis’ global meetings are usually conducted in English, a language she speaks. But in conversations with Carlos Tavares, the company’s global CEO, she will always have the chance to practice her native language. Mr. Tavares was born in Portugal.
Being part of the improvement of gender diversity in an industry that has historically been an essentially male environment is something that delights the engineer. She says she has never felt prejudice. She believes that it is necessary to encourage women to work in sectors where, sometimes, they themselves do not believe they will adapt. “This opportunity is fantastic; the diverse, the portrait of society, already appears in our meetings”, she says.
Ms. Coelho is also interested in monitoring studies and research that point out global trends in mobility. She recognizes that a lot has changed since owning a car was one of the most important achievements for a young person. Even so, she believes that interest in cars persists and will continue. On this trip to France, the changes in mobility and the offer of means of transport, in Paris especially, caught her attention. But, not for that reason, to her delight, the cars lost prominence. “In Paris, you take a car if you want and the city is still full of them,” she says.
For her, “the plurality of mobility”, on the other hand, gains importance. This is the case, for example, of the shared use of vehicles, as a service. “People will continue to like the cars, even if not just through owning them,” she says. What matters in this context, she says, is that the industry continues to pursue environmental goals. “The zero-carbon challenge is fundamental”, she emphasizes.
The return of the new Stellantis global executive to Brazil is scheduled for next Monday. This time, probably for a little while. The new role will certainly require continental travel. But Olinda and Goiana will remain there, as witnesses that the automobile industry can always be surprised to find hidden talents in lands where until a few years ago no one knew how to manufacture a car.
The government of Minas Gerais unveils this Friday the public notice of the public-private partnership of the so-called Rodoanel de Belo Horizonte. It is an ambitious project to build from scratch a 100-kilometer beltway around the state’s capital city. The project will require investments of R$5 billion, of which R$3 billion will come from the public coffers.
The auction is scheduled to take place on April 28. The group that asks for the lowest contribution from public resources wins. The tariff was set at R$0.35 per kilometer, and the collection system will be “free flow” – without toll booths and payment according to the distance traveled.
The idea of the beltway is old, but it became economically viable after the multi-billion indemnity paid by mining giant Vale as reparation to the state for damages caused by the Brumadinho tragedy, a dam failure that claimed 270 lives three years ago. The government’s R$3 billion contribution to the project will come from this agreement, signed in early last year.
“As the construction work is carried out, the measurements will be made, and the company will receive the payments. The project has this advantage. The company will have funds available, money earmarked for this. The funds will be deposited by Vale and allocated to a specific account for the project. It is a very firm guarantee,” said Fernando Marcato, secretary of infrastructure and mobility of Minas Gerais.
The construction work will be carried out in stages, starting with the two busiest stretches, North and West, which pass through cities like Santa Luzia, Contagem and Betim. These two parts, which account for 70% of the traffic, are expected to be ready within four years, when toll collection will begin. The other stretches, Southwest and South, are expected to be delivered in up to six years.
As the route does not exist yet and, therefore, the traffic is unknown, the government created an additional risk sharing mechanism: in the first three years of toll collection, in each stretch, there will be the payment of a consideration to cover operating costs. “It is a way to mitigate the demand risk,” Mr. Marcato said. After this period, the private-sector company will be fully responsible for traffic variation.
The project is expected to draw the interest of several groups in the sector despite being a challenging undertaking, with a large volume of property expropriations, complex environmental permits procedures and resistance from cities cut by the beltway.
Since last year, the mayors of Contagem and Betim have been asking for a change in the route, so that the cities are not cut by the road. The mayor of Belo Horizonte also criticized the project and said mayors are not being heard.
Mr. Marcato says that there was a broad dialogue with all involved, during the two public consultations held in January and November 2021. He says that, after the contributions, changes were made to the southern stretch to reduce environmental impacts. However, the claims of Contagem and Betim were not met, as they proved to be unfeasible, he said.
“There was a request to put the track completely outside urban regions. As the cities requested, we studied this possibility, but we couldn’t do that. This change would have increased the project by 30 kilometers, and would have made it R$1 billion more expensive. Besides, it would lose a lot of demand, the beltway would lose its function,” he said.
Two other major challenges of the enterprise are the environmental permit and the high volume of expropriations required for the construction work. To reduce the uncertainties for the private sector, the state capped compensation costs. “If this is exceeded, the government steps in.”
Part of these eventual additional expenses are expected to be covered by Vale’s funds, since the interested parties will probably offer a discount in relation to the R$3 billion set aside for the road. In this case, the “remaining” funds will cushion additional expenses, including unexpected environmental compensations.
The companies that tapped the capital markets to issue debt in 2021 taking advantage of the very low Selic rate will see their costs with interest expenses almost double in 2022. This is because, of the R$250 billion of funds raised last year through bond issues, 76% are pegged to the interbank deposit rate (CDI).
This higher cost does not yet bring to the fore a solvency risk for those companies that, in most cases, still require low leverage. But it will certainly affect profitability, with a direct effect on profit and, consequently, on growth capacity in the medium term.
“The higher interest rate causes a redistribution of results, which used to go to shareholders and now also go to creditors,” said Alexandre Muller, JGP’s managing partner. In order to estimate the impact of the higher Selic policy interest rate, which started 2021 at 2%, the analyst looked at the evolution of the debt of the companies that make up IDEX-CDI, an index created by JGP that includes CDI-linked, liquid bonds. Considering an average CDI of 4.46% last year, the effective interest cost of these companies will be R$6.68 billion in 2021. If the Selic increases to 12%, as predicted by the market, the average CDI this year would increase to 12.31%, raising the cost of this group of companies by 84% in 2022, to R$12.31 billion.
Mr. Muller explains that one indicator tracked by JGP is the return on invested capital (ROIC). A given company whose operations generate an 8.9% ROIC creates value when the cost of capital is 6.5%. The point is that when the cost of capital goes up, smaller, less profitable companies suffer. “Interest rate changes cause more market concentration, because larger companies, which have the power to adjust prices, can survive, while smaller ones have a harder time.”
But higher interest rates are not the only factor making companies’ debt more expensive. Vivian Lee, a partner at Ibiúna Investimentos, recalled that the spread, which is the rate paid above the CDI for the bonds, can also go up again in the coming months. She recalled that in 2021, as investors migrated to fixed income assets from the stock market, there was a strong flow to corporate debt funds, which reduced the spread substantially, to nearly 1.4%. The companies took advantage of the favorable moment and accelerated issuance between October and November. At the same time, faced with a more uncertain environment of rising interest rates, corporate debt funds became more selective at the end of the year.
With a more balanced demand and a flood of offerings, the spread rose to around 1.8%. “The market was busy at the end of the year, showing that even with the migration to fixed income, investors will not support such low spreads,” he said. The point, he said, is that issuers who need to roll over their doubts or even strengthen their cash reserve this year have to do so in the first half of the year, because from then on investors’ willingness to take risk is likely to decrease due to the presidential election. In other words, there may be a new concentration of offerings in the coming months and, therefore, a repricing of securities. “Whoever needs to go back to the market may have to pay a higher spread, besides a much higher CDI,” he said.
For Laurence Mello, head of corporate debt strategy at AZ Quest, the landscape for companies will worsen with the interest rate hike, “but won’t necessarily be bad,” especially when looking at the “high grade” companies, those with good risk ratings. These are companies that have already made adjustments and are now in good liquidity conditions. “Looking at the structure of their balance sheets, the companies are able to pay debts,” he said. Even so, financial costs will rise, impacting profitability and these companies’ performance in the stock market.
The consequence will be, in his view, a setback in the dynamics of the debt market, which went through a period of lengthening terms and reducing spreads. “Companies will need more leverage, more equity, and will make shorter term issues,” Mr. Mello said, adding that this dynamic may affect the speed of growth of these companies.
The impact of the increased cost of debt is likely to be different depending on the company’s profile, said Artur Nehmi, head of fixed income at Sparta. Sectors that offer basic public services, whose capital has natural protection from the rise in inflation, will have fewer problems, he said. This is the case of companies in the energy, infrastructure or sanitation industries, which are important issuers of bonds. But cyclical companies will have a harder time, as their revenues will drop due to the economic slowdown, while financial expenses will increase with higher interest rates.
Another company profile that may be more affected by the increase in interest rates are those that exchanged IPOs for debt offerings as a way of strengthening cash reserve. “Some of these companies had room on their balance sheets to issue equity, but not necessarily to issue debt,” he said.
For Ricardo Carvalho, an analyst at Fitch, higher interest rates will pressure the companies’ financial expenses. But the perverse effect for companies will come from demand. “Interest rates rise because inflation is high, and this combination impacts income and has a restrictive effect for companies,” he said. He points out that companies’ leverage ratios are still low – their net debt-to-EBITDA ratios are at 1.5%, according to Central Bank data, compared with 3.5% in 2019. This means that balance sheets are likely to remain well, even as credit cost conditions worsen. “The question mark now is how long interest rates will stay high. But companies did their homework, lengthened their liabilities and are more prepared to face this more adverse scenario,” he said. “Results will be weaker in terms of revenues and interest rates, but this is not a risk that concerns us.” Given this, Mr. Carvalho believes that there will be a smaller number of upgrades of companies’ ratings. “Yet we don’t expect a material number of downgrades either.”
For Yuri Ramos, head of investment banking at BV, the Selic and the cost of debt is likely to have an accounting impact for companies. But, according to him, most of them were already planning for a higher interest rate level, which may indicate a milder effect on these companies. Even with this interest rate increase underway, he said, the capital market is likely to remain heated this year, propped up by infrastructure companies, for example. He recalled that there were several concessions in this sector last year, such as that of Rio’s sanitation company Cedae, and companies will seek long-term financing to make the necessary investments viable.
Democratic activist Elizabeth Bagley was appointed by President Joe Biden on Wednesday as the new U.S. ambassador to Brazil. She still needs approval of the U.S. Senate to take over as head of mission.
Currently the owner of a telecommunications company in Arizona, Ms. Bagley specializes in international law and has a long history of collaboration with the Democratic Party. She is 69 years old and has served as ambassador to Portugal (1994-1997).
Although not a career diplomat, Ms. Bagley has held several important positions with the State Department. She was a senior advisor to secretaries Madeleine Albright, Hillary Clinton and John Kerry. She also served as the U.S. government’s special representative to the UN General Assembly.
In a statement released on Wednesday, the White House announced Mr. Biden’s nominations for seven posts, including four embassies – in addition to Brazil, the names are for the United Kingdom, Denmark and Chad.
The American Embassy in Brasília has been vacant since July last year, when diplomat Todd Chapman left the country after just over a year in office. Appointed by former President Donald Trump, he came to be identified with the Republican president.
Mr. Chapman retired months after Biden took over and moved to Texas. The embassy is headed on an interim basis by the chargé d’affaires Douglas Koneff.
The pandemic has not halted the trend of growth in the number of organic food consumers in Brazil. Even with all the logistical and income challenges imposed by Covid-19, more people have started to resort to pesticide-free products in the country, and most of them have either maintained or increased their purchases in the last almost two years.
This is what indicates the research conducted by Organis — the Association for the Promotion of Organics — in partnership with consulting firm Brain and the initiative UnirOrgânicos. The results of the work were compiled from 987 interviews conducted throughout the country between September 15 and October 5 last year. They confirm reports from producers, retailers and online channels.
Among those who had consumed organic foods in the 30 days prior to the survey, 66% said they had maintained the same level of consumption during the pandemic, while 23% had increased and only 11% had reduced their purchases. Of the total universe, 45% had been consuming these products for more than five years, and 19% between three and five years. But 25% started to explore this market between one and two years before, and 12% in a period below one year.
According to the survey, the most consumed organic products are vegetables (75%), grains (12%), cereals (10%), sugar (8%) and cookies (6%). For 47% of the interviewees, organics are important for improving health, and 26% consider them healthier. The fact that organics are produced without pesticides is the main motivation for 13% of consumers, and for 24% of them these products have higher quality.
Fewer people who consumed organic products during the survey period were doing so more than five times a week — there were 35% in 2019, and the percentage dropped to 27% in 2021 — but more people were consuming some organic item twice a week (up 16%, to 34%). And supermarkets were the main sales channels for 48% of respondents, followed by marketplaces (47%).
But while this market shows that it is solid during the pandemic, the survey also points out that there are challenges for the pace of consumption to continue to increase. “People report consuming organic products for individual reasons, with the collective dimension not showing up significantly,” say Organis, Brain and Unir Orgânicos.
“The numbers show the need to insist on disseminating the advantages of organics on issues that concern society, such as the preservation of the environment, the climate crisis and the reduction of socioeconomic imbalances, among others,” they continue. The unawareness of organic food brands by consumers, as well as the existence of organic non-food products, are other challenges cited by the survey’s authors.
Close to a pre-IPO private round, fintech Creditas has already started the process for listing on a stock exchange in the U.S. The company estimates in talks a debut valuation between $7 billion and $10 billion, sources say. There is a possibility that the offer will occur at the end of the second quarter – but the most likely scenario is the listing in the second half, sources say.
Investment banks made their presentations to the fintech in the first two weeks of January and are eagerly awaiting the call securing a place in the bank syndicate this week. “It is the most disputed deal at the moment. The Nubank of 2022,” says an investment banker. That’s because, having the scale of the digital bank in mind, this is expected to be the largest initial offering by a Brazilian company in the year — with a weak economy and elections, banks expect greater volumes in secondary offerings.
In the highest range, the price expectation includes a multiple of 12 times the enterprise value (sum of equity and debt) divided by the projected revenue for 2023 (EV/revenue). The company is still to close the volume of funding, but has indicated something between $500 million and $1 billion.
Creditas business is to grant credit with property and car or payroll loans as collateral. The creation of the company is similar to what moved Nubank: a foreigner in Brazil, impressed by the high local interest rates, with the restriction of access to credit and with a desire (or without much notion of reality, as they say) to face incumbents. Sérgio Furio, born in Spain, created BankFacil, later renamed as Creditas, a year before the founding of the startup that opted for the credit card.
Creditas, now Brazil’s largest secured loans fintech, has funds such as Softbank, Kaszek, QED and Amadeus in its shareholder base. The pace of growth has been intense, which makes the company take advantage of the liquidity of the funds – its fifth round, when it raised $225 million, was closed just over a month ago.
Creditas still operates at a loss, according to the most recent earnings reports. In the first nine months of last year, net loss was R$215.8 million as it focuses on growth – in the period, total loan portfolio, new origination and revenue more than doubled in year-over-year comparison.
The scenario of uncertainty —rising inflation and interest rates, and facing the majority elections this year — leads real estate developers to adopt a more cautious stance when drawing up their plans for 2022. The famous “guidances”, that is, the goals for the year, gave way to the discourse of most companies that decisions will be taken based on a more careful monitoring of the market. “The tone is one of selectivity. During the year, launches will be evaluated on a case-by-case basis,” says Bruno Mendonça, real estate market analyst at Bradesco BBI.
Together, Cury, Cyrela, Even, EZTec, Lavvi, Melnick, Miter, Moura Dubeux, MRV&Co and Plano&Plano launched the general sales value (VGV) of R$28.7 billion in 2021, with growth of 41.3%. From October to December, there was also expansion, but at a lower level, of 22.6%, to R$9.93 billion. “Apparently, most had the courage to put projects on the street. The releases in the quarter were a sign of confidence that the sector is adjusting, but is not frozen”, says Mr. Mendonça.
Net sales had, last year, an increase of 20.8%, to R$22.4 billion. In the quarter, the total sold by the ten developers grew 5.2%, in the annual comparison, to R$6.4 billion. As in the third quarter, sales were partially affected by the fact that a portion of launches was concentrated at the end of the period. But there was also a slower pace of property purchases by consumers due to higher prices as a result of rising costs.
Developers with priority to operate for middle and high income clients are the most affected by the macroeconomic environment. Just as the increase in real estate prices hampers the ability to purchase, the rise in interest rates on real estate credit makes it more difficult, especially for the middle class, to match the installments to the client’s income, highlights Ygor Altero, chief analyst for real estate at XP.
The increase in cases of Covid-19 and influenza also contribute to the more cautious posture of developers. “We have R$2 billion in approved projects. There is room to launch at the same pace as 2021, but the company has yet to make the decision on that. The guidance will be announced at the right time,” said EZTec’s CFO and Investor Relations Officer, Emilio Fugazza, recently. The company did not meet its launch target for the 2020-2021 biennium, reaching 76.5% of the range’s floor.
In the low-income segment, developers have given priority to operations in range 3 of Green Yellow House and in the segment just above the housing program ceiling. There were adjustments in the price limit of group 3 and interest reductions. The sector awaits the government’s announcement of measures that also favor group 2. “If the government reviews the ceiling for range 2, we have products on the shelf to launch,” said this week Rafael Menin, co-president of MRV&Co. Cury will not act in groups 1 and 2 “until adjustments are made”, according to the director of real estate credit, institutional and investor relations, Ronaldo Cury.
Mr. Altero, with XP, says he prefers the performance of low-income developers precisely in range 3 and slightly above, segments in which it is possible to “preserve profitability”. MRV&Co, Cury and Plano&Plano presented record performances in 2021. At MRV&Co, the performance of the other subsidiaries surpassed that of the Brazilian developer, but the latter also grew in launches.
Direcional Engenharia ended 2021 with a record total launched VGV of R$3.14 billion, which represents an increase of 78%. The Direcional brand, with units classified in ranges 2 and 3 of Green Yellow House, had 24% more launchings, reaching R$ 1.85 billion. At Riva, aimed at the middle-income segment, there was an expansion of almost 4.7 times, to R$1.29 billion.
“Direcional launched R$1.1 billion in 2017. Created two years ago, Riva had a higher VGV than Direcional’s four years ago,” compares the company’s CEO, Ricardo Ribeiro. According to him, the high demand for medium-income properties results from well-located products, with a complete leisure area, sold at competitive prices as a result of the “efficiency in the execution of works”.
In the year, Direcional’s net sales grew 45%, to R$2.44 billion — R$1.65 billion from the brand that bears the developer’s name, R$776 million from Riva and R$19 million from units of old projects. In the quarter, consolidated launches, in the amount of R$ 693 million, were in line with those of the same period in 2020. From October to December, consolidated sales increased by 27.7% in the annual comparison, and by 3.9% compared to the third quarter, to R$ 668 million.
“We had a good year, with growth in our two operating segments. We enter 2022 cautious with higher interest rates and inflation and attentive to how job creation will be. We are very well prepared, with products available for sale and projects under approval to offer properties to meet the demands of Direcional and Riva,” says Mr. Ribeiro.
In the understanding of the XP analyst, real estate production for the low-income segment tends to benefit from the fact that 2022 is a year of majority elections, considering the expectation that the housing program will be maintained regardless of who is the winner.
In the last 12 months, the shares of real estate developers were strongly impacted by the hike in the interest rates, which affects both demand and the degree of indebtedness of companies. The ten most liquid shares of real estate developers listed on B3 depreciated — Cyrela (45.48%), EZTec (51.65%), MRV (41.38%), Viver (1.58%), Tenda (50.03%), Gafisa (58.64%), Direcional (16.35%), Even (41.19%), Helbor (62.33%) and Trisul (50.23%). “The drops are related to redemptions by funds, but the lack of visibility of the sector doesn’t help,” says Mr. Mendonça, with Bradesco BBI.
Improvement in the water scenario supports prospect of a stronger Ibovespa´s performance ahead — Foto: Julio Bittencourt/Valor
A relevant factor for the downfall of Ibovespa in the second half of 2021, the water crisis has given clear signs of slowing down, which opens space for a correction in several sectors of the Brazilian stock market that have not yet anticipated the new scenario. The improvement in the water scenario, therefore, supports the prospect of a stronger performance ahead of Brazil’s major stock index, by influencing not only the energy segment, but also shares linked to the national economy, which are sensitive to the yield curve and inflation and can feel the changes in the environment.
According to the last monthly bulletin released by Brazil’s national grid operator ONS, the levels of the reservoirs of the hydroelectric plants in the Southeast and Central-West regions are likely to continue to recover after heavy rains between January 8 and 14 and reach the end of the month with 40% capacity, while the North, Northeast and South regions are expected to reach 73.2%, 70.2% and 34.8%, respectively. Based on this, managers expect the situation to continue to improve at least until the end of the summer in Brazil, which may drive changes in stock portfolios.
The strongest impact can be felt both by generation and distribution companies, said Marcelo Sandri, an electrical sector analyst at Perfin Investimentos. “Hydroelectric generation companies suffered a lot last year,” he said. He explains that when the mills fail to deliver the agreed amount of energy, they need to buy it on the free market, and with high electricity prices, margins ended up being squeezed. On the other hand, thermal plants had a positive year in 2021 as the thermal complex was activated to offset low reservoirs.
With heavy rainfall in the reservoirs, the scenario for hydroelectric and thermal generation companies is expected to reverse in 2022, Mr. Sandri argues. “We believe that the electric sector on the stock exchange has not yet reacted, in terms of prices, to such positive news for the segment. The chance of a power rationing is close to zero. You have removed a very big tail risk, which was a cloud that weighed very heavily last year,” Mr. Sandri said. Cesp’s preferred stock, for example, fell 10% in the second half of 2021 and rose 6.04% this year.
The analyst still sees a difficult scenario for distributors, but sees a better situation for them than last year. “As much as there is a tranquility effect from the standpoint of power supply, we will probably see high adjustments due to the burden of inflation and high electricity costs last year due to the use of thermal plants.” As a result, according to him, the risks of default and the propensity for energy theft grow.
Besides the improvement in the water scenario in Brazil due to the characteristic of housing companies that are good payers of dividends and that have stable cash flow, Mr. Sandri said, the electric sector can bring good returns to investors this year. “It is a defensive sector and this will help a lot in a year expected to be of high volatility in local financial assets because of the elections,” he said.
In the same vein, Guto Leite, Western Asset’s equity manager, said he has found interesting metrics in some distribution and generation stocks. “Apart from the transmission companies, which have already performed well last year and are not impacted by this type of occurrence, there are companies with attractive numbers. There´s also micro factors that must be analyzed, such as Eletrobras’s privatization or Cesp’s restructuring,” he said. Mr. Leite added that some of his firm’s funds already had Equatorial securities and are likely to increase their exposure to the sector in the coming months.
Another sector that could change along with the rainfall rates is the mining sector and, consequently, the steel industry. Rainfalls reduce the productivity of the sector, which is higher in the second half of the year, says Isabel Lemos, manager at Fator Ações. Thus, what investors usually monitor are possible supply bottlenecks and operational problems, such as dam failures. “A possible reduction in supply can put pressure on prices in the very short term and, in case of drastic drops, require a new evaluation of the asset,” Ms. Lemos said.
After halting activities for a few days in mines located in Minas Gerais, Vale and Usiminas have already resumed production, although gradually. But the return also depends on their logistical partners’ capacity, since part of the road and rail networks in the state also suffered from strong rains.
Considering this factor, William Leite, manager at Helius Capital, made moves to mitigate potential short-term impacts. “We believe that the developments of the last few days will not be so relevant for the companies in the sector in corporate terms, but we have made some changes to avoid these possible low probability events,” he said. Mr. Leite explained that he exchanged part of the exposure to local mining companies for Australian rivals and set up a hedging structure with derivatives.
There is also, in a more indirect way, a possible impact on securities linked to the national economy, sensitive to the yield curve and inflation. Analysts disagree about when this will occur, but a likely change in tariff flags in the coming months, which would lower electricity bills, may help to reduce the impact on prices.
Rafael Cota Maciel, the equity manager at Inter Asset, believes that the scenario is still one of inflationary pressure on a global level, but the rains and a less deadly variant of the coronavirus may help to somewhat calm the local market in the coming months.
Renan Vieira, Taruá Capital’s manager, feels the same way but says that the search for low-priced securities has been increasingly dynamic. “We see many securities selling at a discount, but the environment is still challenging. With funds still suffering from withdrawals and in need for selling assets, the situation requires active management and a close look at the companies’ fundamentals,” he said.
Renova Energia, the embattled power generation company under protection from creditors, is trying to get back on its feet with Alto Sertão III, a wind farm about to go online. The 432-megawatt complex, with a capacity to supply 1 million homes, is expected to start commercial operation in the coming days and generate an EBTIDA of R$250 million per year with electricity sales, allowing the company to honor its debts.
Marcello Milliet, from the financial restructuring consultancy Integra Associados, took over as CEO of the company in 2019 with the mission of putting the house in order. With the company virtually broke and a debt pile of R$3 billion, the executive needed to raise R$360 million to resume construction works halted almost five years before.
To get Renova out of the hole, Mr. Milliet had to follow a strict schedule of recovery that included the sale of a stake in Brasil PCH and the Serra da Prata hydroelectric complex, which generated R$1.36 billion, to reduce the company’s indebtedness and pay off the loan for the works in the wind farm.
In the meantime, the generation company also resumed investments, ended the arbitration dispute with GE over the supply of wind turbines and signed a partnership with Vestas for the operation and maintenance of Alto Sertão III. “We took over the company with R$3 billion in debt and took more R$360 million. We ended the year with about R$2 billion of debt,” he said.
Since two thirds of the original debt still remain, the executive considers that Alto Sertão III is the hope to settle the rest of the debt in the market, since before Renova could only count on limited funds from dividends from Brasil PCH and with financial support from Cemig, a former partner that injected money in the judicial reorganization.
“With the sale of the assets, the resumption of work on Alto Sertão III and compliance with the execution schedule, the company will be generating resources again by the end of this year, and when the farm is ready, at the end of the first half of 2022, it will generate about R$250 million per year, which is enough for us to meet our commitments,” he said.
In January, 38 wind turbines will start operating, which will inject 113.1 MW into the National Interconnected System (SIN). And by the end of the first half of the year, 155 will be operating with energy directed to the regulated market and to the free market. Part of the Alto Sertão III funds will be used to pay off the company’s debt, and another part will be used for operations.
The company plans to pay the debt with creditors within ten years but expects to shorten this period thanks to 12 preliminary permits from state environmental agencies to build new wind farms in Bahia, Paraíba, Pernambuco and Piauí, totaling 3.62 GW.
“We will sell some of these projects because we don’t have the financial capacity to build all of them. We intend to dispose of about 2 GW,” he said. “Part of the funds will be set aside for debt amortization and part will be injected into the company.”
In November, Angra Partners bought Cemig Geração e Transmissão’s stake in Renova and now holds 30.3% of the company’s voting capital and is part of the control block with the other shareholders. With the entry of the new partner, Mr. Milliet believes that Renova will have more financial capacity to invest in new projects since the fund is specialized in raising resources.
“Angra Partners brings not the expectation of profitability, but also of resuming the capacity to tap the financial market,” the executive said.
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