Brazil- U.S. trade grows to new record

Abrão Árabe Neto — Foto: Sergio Dutti/Valor
Abrão Árabe Neto — Foto: Sergio Dutti/Valor

After the record of Brazil-United States bilateral trade in 2021, the expectation of the American Chamber of Commerce (Amcham Brasil) was for lower growth in 2022, but the surprisingly positive data from the first quarter affirmed the view that, despite the uncertainties, new records can be achieved this year.

Between January and March 2022, the two-way trade reached $19 billion, up 40.2% year over year and the highest value for a first quarter since the records began, in 1989.

“We expected the bilateral trade to continue to grow in 2022, but at a relatively lower level, because the uncertainties are considerable, due to global inflation, the pandemic, the potential slowdown in China and geopolitical and climatic events that affect the world economy. But the first-quarter results were strong,” said Abrão Árabe Neto, executive vice-president of Amcham Brasil.

The most positive aspect, according to him, is that there was growth both in exports from Brazil to the U.S. and in Brazilian imports from the North American country. “On both counts, we saw, for the first quarter, the best values ever.”

Brazilian exports to the U.S. grew 35.9% year over year in the first three months of 2022, to $7.6 billion. The Brazilian purchases from the U.S. totaled $11.4 billion, up 43.2%.

On the export side, the growth was widespread, seen in nine of the 10 main products. In absolute terms, the biggest contribution was from crude oil as sales, which represent more than 10% of total exports to the U.S., grew by almost 167% in the period. The gain was partly due to higher prices (48.5%), but mainly by the increase in volumes (79.5%), Mr. Árabe Neto said. Semifinished products of iron and steel still dominate with a share of almost 14%, but saw a smaller growth in the first quarter, of 4.4%.

Another highlight is the export of beef, which still accounts for only 3% of Brazilian sales to the U.S., but saw growth of 725.5% in the first quarter. As a result, Brazil was the main supplier of the product to the U.S., ahead of Canada, Mexico and Australia, Amcham said.

“There was an interruption in 2017, when sanitary issues arose and the U.S. market closed. In 2020, it was reopened, and it had already been growing at the end of last year,” Mr. Árabe Neto said. “Our production capacity in this industry is very high, and so is our competitiveness. We are very well positioned, and we start to see this good news shaping in the bilateral trade.”

As for the imports of U.S. products in Brazil, the growth was also widespread, with gains in eight of the 10 main items. Some broader factors that contributed to last year’s record persist, such as the purchase of natural gas to feed thermoelectric plants, which grew 263.9% in the first quarter of 2022, totaling $2.1 billion. In this case, growth has more to do with the increase in prices (232.5%) than with the higher volume imported (9.4%).

Even though Brazil’s national grid operator ONS has already signaled that electricity bills will be cheaper this year, suggesting that it will not be necessary to turn thermoelectric plants on as much as last year, Amcham’s view is that the demand for natural gas from the U.S. will remain heated in the first half of the year. “We may see a slowdown in the second half. But if there is a reduction in volume, values could potentially remain high,” Mr. Árabe Neto said.

The Brazilian demand for other energy products from the U.S. – such as fuel oils, crude oil and coal – remained high at the beginning of 2022. And Mr. Árabe Neto also highlighted the growth of more than 90% in purchases of fertilizers as a result of difficulties to buy agricultural inputs from Russia because of the war in Ukraine.

Amcham rejected the notion that the conflict in Eastern Europe can be a commercial opportunity for the Brazil-U.S. relationship because the net consequences for the global economy and world trade are negative, Mr. Árabe Neto said. But he acknowledged that the energy (oil, gas, coal), steel and agricultural inputs industries could see more trade, either by the price factor or by the higher volume.

Source: Valor International

https://valorinternational.globo.com

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Benchmark rate at 14% not impossible, J.P. Morgan says

Cassiana Fernandez — Foto: Ana Paula Paiva/Valor
Cassiana Fernandez — Foto: Ana Paula Paiva/Valor

If the Central Bank is willing to put inflation again at the center of the target range in 2023, the Selic, Brazil’s benchmark interest rate, must be raised above the expected 13.25%, said Cassiana Fernandez, J.P. Morgan’s chief economist for Brazil. For her, in a moment of high uncertainty, it is important that the monetary authority leave the door open for the coming steps in its statements. While the executive emphasizes the risks of high inflation in the short term, she also sees a more balanced scenario in the medium and long term given the stronger real against the dollar.

“Our recent revision of inflation for 2023 considers the IPCA [Brazil’s official inflation index] at 4.2% and a foreign exchange rate of R$5.3 to the dollar. With the exchange rate at R$4.7 to the dollar, I admit the downside risk to this projection,” Ms. Fernandez told Valor. She points out that the real tends to lose ground later this year in reaction to the tightening of the U.S. Federal Reserve and uncertainties about the presidential elections in Brazil, in October.

In this sense, the J.P. Morgan executive states that the high real interests in Brazil, seen in the yield curve of inflation-indexed bonds (NTN-B), reflect the risk premium over the uncertainty of Brazil’s economic policy in the coming years. “There is a risk premium regarding the credibility, not only of the Central Bank, but of the government and whether it will do what it needs to do to stabilize the debt as a proportion of GDP,” Mr. Fernandez said. Read the main excerpts from the interview below:

Valor: How far will the Central Bank tighten interest rates?

Cassiana Fernandez: We project a 13.25% Selic rate at the end of the cycle, in June, and the question mark is whether this will be enough. If the Central Bank wants to bring inflation to the center of the target range in 2023, it will probably require an even longer cycle. Our own projection [for the IPCA] is at 4.2% for 2023. The last few months have shown that there have been a lot of unexpected shocks in the global economy. Other factors have shown that the models are not matching the current scenario well. For me, it is difficult to say that a Selic of 14% is an unthinkable development, but I don’t think it is the most likely one.

Valor: What do you think of the most recent statement from the Central Bank?

Ms. Fernandez: [Central banker] Roberto Campos acknowledged the surprise of March inflation, which was significant. It was the biggest deviation in relation to the market consensus for the historical series, and 0.6 percentage points above the projection of the Central Bank. I think that a part of the market made a mistake when it considered that, with the signal that the Central Bank would stop tightening in May, it would be doing this regardless of the data. Roberto Campos’s remarks show that they are analyzing how this changes their scenario, without giving a clear sign whether they are going to maintain this guidance of stopping in May, but saying that they are open to reviewing the scenario.

Valor: But you were already predicting that the Central Bank would not be able to stop at 12.75%…

Ms. Fernandez: When the Central Bank announced that the next move would be a 100-basis-point hike and signaled that it might stop in May, just from what it projected for the March IPCA in the Inflation Report, we already had the perception that it would not be able to do this. So we forecast that it was likely to deliver another 50-basis-point hike in June. Given the uncertainties and the hikes as a whole, all this at least allows for it to pause in June to analyze other factors. I think it is even important for the Central Bank’s own communication to leave the door open for changes in the scenario because there are big risks. It is very difficult to say with conviction what is going to happen within the next two months.

Valor: Does the medium-term inflation scenario still have many upside risks?

Ms. Fernandez: In the short term, higher inflation is likely because the exchange rate appreciation is recent and commodities are a risk. But in the medium to long term, the picture is more balanced. Our recent revision of inflation for 2023 considers the IPCA at 4.2% and a foreign exchange rate of R$5.3 to the dollar. With the exchange rate at R$4.7 to the dollar, I admit the downside risk to this projection. And there are also the effects of the cut in the IPI [Industrialized Products Tax], which we are still unclear as to how it will affect the consumer, and the tightening cycle tends to be more severe. Our calculations show that it takes at least six months from the beginning of the interest rate hike cycle to have a real effect on inflation. Looking ahead, prices are likely to reflect the tighter interest rate.

Valor: How does the bank see the exchange rate trajectory?

Ms. Fernandez: We started the year very constructive about the currency, evaluating that the conditions favor the real, mainly commodity prices. High interest rates also help. In the short term, Brazil is in a comfortable position and it is difficult to find other countries to invest in. But, later in the second half and towards the end of the year, the elections and the [decisions of the] U.S. Federal Reserve could curb this appreciation. Our team started to project two consecutive 50-basis-point hikes in the United States and now projects a restrictive rate for the end of the year.

Valor: Does the scenario of activity also impacts the real?

Ms. Fernandez: Activity is likely to slow down, and this also tends to deteriorate the exchange rate scenario. Demand is expected to suffer from monetary tightening, and we expect Brazil to enter a recession in the second half of the year, not to mention the uncertainties regarding the elections and the fiscal policy from 2023 on. Three factors are expected to hold back the appreciation of the exchange rate: the accommodation of commodity prices, the domestic dynamics and the higher interest rates in the U.S.

Valor: What does the Fed tightening means for the Brazilian central bank?

Ms. Fernandez: Fed tightening also helps the Central Bank because Brazil has been importing a lot of global inflation. Actually, if the global situation is softened, the Fed would help.

Valor: But doesn’t a hike in U.S. interest rates tend to strengthen the dollar?

Ms. Fernandez: Yes, the Fed tightening manifests itself through the exchange rate channel, but this impetus to control American inflation and slow down demand in the U.S. would also cause global inflation to fall. Just take a look at the recent behavior of commodities. The risk of China growing less because of lockdowns weakens commodities, which ends up bringing projections of lower global demand. Lower commodity prices would help global inflation to fall, but would not help the exchange rate since we are large exporters of commodities. Everything has a limit, of course.

Valor: What would this limit be?

Ms. Fernandez: If we see a strong increase in interest rates and in the yields of U.S. Treasuries, generating great aversion to risk, this would harm emerging markets and Brazil. But we do not see this scenario as the main one yet. We expect a relatively gradual increase in interest rates and in global financial conditions.

Valor: The real yield curve in Brazil implies rates around 5.5% and close to 6% in some parts. What does this mean?

Ms. Fernandez: It does draw attention. Because if you look at the real interest rate for the NTN-B 2055, for example, it is around 5.5%. It is a very difficult real interest rate to materialize, and, if it does, we will most likely have a much bigger public debt problem. If the neutral real interest rate is between 4% and 4.5%, there is a premium given the uncertainty about economic policy in Brazil over the next few years.

Valor: How do you see the sustainability of the debt in the long term?

Ms. Fernandez: There is a risk premium in the real yield curve in relation to the credibility, not only of the Central Bank, but of the government and whether it will do what it needs to do to stabilize the debt as a proportion of GDP. Today, any exercise of ours of the dynamics of the public debt with the current figures show that a convergence of the debt in the long term to lower levels is very difficult. Brazil has a very low potential growth for emerging markets standards, which we can say is around 1 to 1.5%, and a very high debt, above 80% of the GDP, a scenario compounded by the neutral real interest rate of around 4%.

Source: Valor International

https://valorinternational.globo.com

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War, weak growth slows down M&A activity

Gustavo Miranda — Foto: Silvia Zamboni/Valor
Gustavo Miranda — Foto: Silvia Zamboni/Valor

Mergers and acquisitions are down sharply this year in light of the economic instability abroad and in Brazil and the uncertainties caused by Russia’s war against Ukraine. In total, 134 deals were announced this year to April 10, down 14.6% year over year. The slowdown is greater when the combined amount involved is considered: it’s down 57% to $12.2 billion, according to a survey by Dealogic.

The partial data points to uncertainties about the trend for M&As in 2022, when Brazil holds a presidential election. “What we have seen so far shows that the year will be more difficult than the market predicted at the end of last year,” a source familiar with the market said, asking not to be named.

According to the snapshot presented by Dealogic, the market saw a lower participation of foreign groups than in 2021. Only 20%, or $2.4 billion, involved investors from abroad.

Although the flow of foreign capital has increased in the stock market, foreign groups are waiting for a clearer scenario to define where to allocate their funds. With the war, many investors have put plans for acquisitions on the back burner.

Gustavo Miranda, head of investment banking at Santander in Brazil, says that the market volatility has an impact on the price references of the assets traded. “We have a scenario of inflation and monetary tightening here and abroad. Economic uncertainties also affect multiples of listed companies.”

According to the executive, the cost of raising new money has also increased as a result of rising interest rates. This factor influences how companies finance deals.

The business environment at the beginning of this year in the country was more turbulent compared to the same period last year. At that time, although Brazil was still under the strongest effect of the pandemic, the expectation regarding the recovery of the economy was more optimistic than now. In 2021, the country saw record volumes in the capital market, as IPOs and secondary offerings totaled R$130 billion. M&A transactions ended the year at around $90 billion, the highest level in a decade.

At the beginning of last year, key deals were closed – the merger of Intermédica and Hapvida created a new company valued at R$110 billion at the time the deal was unveiled, in early March last year. Another important deal in early 2021 was the spin-off of Itaú Unibanco’s stake in XP, which helped boost the value of the business. “This is not exactly classic M&A, but it was computed by Dealogic in the first quarter,” Mr. Miranda said.

According to another source in the financial market, a good part of the M&A deals, especially in the technology industry, face lower reference prices than those seen last year due to the devaluation of some stocks in the U.S. “There is a substantial correction in the valuation of technology companies,” he said.

This source also points out that the definition of asset prices in mergers and acquisitions also occurs in companies from other sectors in Brazil. With the fall of shares of Brazilian companies listed on the stock exchange, the difference between what the seller asks and what the buyer is willing to pay has increased this year. This factor also helps explain the drop in volumes of deals announced in the first months of this year. Assets linked to commodities (mainly minerals), agriculture and metals, as well as oil and gas companies, are the exceptions.

One of the largest transactions unveiled in 2022 was Rede D’Or’s transaction with healthcare group SulAmérica. The hospital network valued the insurer at R$15 billion. Another important deal underway in the healthcare field is the sale of a stake in Hospital Care, which has Crescera and Abaporu funds, owned by the family of businessman Elie Horn, as shareholders. Bradesco Saúde and private-equity funds are among the interested parties.

Major deals may be closed in the coming months, especially in the power industry. Among them is the sale of Quantum, which gathers Brookfield’s assets in this field, evaluated in R$7 billion. Dommo Energia, resulting from the restructuring of OGX, was also put up for sale, as reported by Pipeline, Valor’s business website.

The sale of the petrochemical company Braskem is also among the most expected by the market. However, the negotiation is considered more complex but may total R$40 billion.

According to Mr. Miranda, with Santander, many private investments, especially from private-equity funds, can be made in companies that failed to go public last year.

If, on the one hand, it is more difficult to draw a scenario for M&A at the beginning of this year, the picture is clearer for the capital market. Given the uncertainties in Brazil and abroad, and the volatility caused by the presidential elections, the market is unlikely to see any IPO in the first half. The projections are more focused on secondary offerings. The market awaits the Eletrobras deal, which may total R$30 billion.

Source: Valor International

https://valorinternational.globo.com

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With no competition, Integrasul wins highways auction

Integrasul - Home | Facebook

In an auction without competition, the Integrasul Consortium won Block 3 of the Rio Grande do Sul’s state highways. The group is formed by two companies: Silva & Bertoli (of Neovia Engenharia) and Gregor Participações (Greca Asfaltos). The only bidder, the consortium offered a discount of 1.3% on the toll value.

The group will need to invest at least R$3.4 billion throughout the concession, which will last 30 years. The block of roads totals 271.5 km, which connect the mountainous region of the state to the metropolitan region of the capital, Porto Alegre. The duplication of 116.4 km of roads is planned.

This is the Integrasul consortium’s third attempt to win a highway concession in the state. The first was in 2018, in the auction of the Rodovia de Integração do Sul (RIS), won by CCR. The second took place in 2020, with the auction of the RSC-287, won by the Spanish group Sacyr. “In this third attempt, we finally managed to succeed,” said Silva & Bertoli’s technical director, Ricardo Perez.

In his speech after the victory, the executive highlighted that the companies have the capacity to execute the contract. Gregor, of the Greca Asfaltos group, has already been part of the MGO concessionaire, composed of several medium-sized construction companies, which later sold the asset to Ecorodovias.

When asked about the project’s financing, Mr. Perez stated that, in the first two years, no external resources will be necessary, and that the paid-in capital will be sufficient for the initial period. Afterwards, the plan is to seek the Brazilian Development Bank (BNDES) and the capital market.

The group also signaled interest in disputing new highway auctions. He said they should study the other blocks being structured by Rio Grande do Sul, as well as state and federal concessions in Central-West, in states such as Mato Grosso, Mato Grosso do Sul and Goiás.

In addition to Block 3, the Rio Grande do Sul government plans to hold two other highway auctions this year. The public note for Block 2, which foresees at least R$3.8 billion in construction, is expected to be published in April. Block 1, which foresees R$4 billion in investments, should be announced by the end of May, according to Leonardo Busatto, extraordinary secretary of State Partnerships.

Asked about the need to review the next projects, in view of the low bidding competition, he said that Wednesday’s result gave a positive signal to the team. “We understand that the success reinforces the importance of the auctions. It is a concession with a very high investment volume. I think it reinforces the rightness in moving forward,” he said.

The government had already predicted that the bidding would have a lower attractiveness. The strong inflation of inputs and the high interest rates in recent months reduced the return initially forecast by the economic studies. The government, however, evaluated that, even with the new scenario, the concession was still profitable and opted to go ahead with it.

For the BNDES, which structured the project, even with only one interested party, the result was a “great success”, according to Guilherme Martins, superintendent of the bank’s Investment Partnership Structuring Area. “It was a great success from different points of view: for making it feasible to attract investments of R$3.4 billion, for bringing improvements and security to the road structure in Rio Grande do Sul, which has had investments held up for decades,” he said.

Source: Valor International

https://valorinternational.globo.com

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Brazil mulls joining WTO agreement on trade in civil aircraft

Agreement will facilitate the entry of Brazilian products into signatories countries — Foto: Pixabay
Agreement will facilitate the entry of Brazilian products into signatories countries — Foto: Pixabay

Brazil will negotiate its accession to the World Trade Organization’s Agreement on Trade in Civil Aircraft, the Economy Ministry said Wednesday. The plan is to facilitate the access of Brazilian products to a global market estimated at $3 trillion.

The mandate to negotiate was approved Tuesday by the Commercial Strategy Council of the Foreign Trade Chamber (Camex). The council defines the broad lines of Brazilian trade policy.

“Brazil is the only relevant aircraft maker and founding partner of the WTO still outside the agreement, which came into force in 1980 and brings together 33 members of the organization,” the Economy Ministry said in a note. “In addition, [the accession to the agreement] has the potential to reduce the negative impact of the Covid-19 pandemic on the airline industry, aggravated by the war in Ukraine.”

The WTO agreement on aircraft trade will facilitate the entry of Brazilian products into countries that are signatories to the agreement and access to tariff-free goods in production chains in the segment, the ministry said.

The agreement eliminates the import tax charged from civil aircraft, their parts and other goods used in air services, according to the ministry.

It also establishes commitments to foster a favorable environment for the free market in the industry, curbing non-tariff measures that limit trade, such as quantitative restrictions and the requirement of licenses and certifications that restrict trade and are contrary to the General Agreement on Tariffs and Trade (GATT).

“In addition to the benefits related to predictability and legal security, the accession will allow the airline industry to have access to a privileged space for discussions and debates on best regulatory practices in the sector,” said Lucas Ferraz, the secretary of foreign trade of the Economy Ministry, in a note.

According to the ministry, Brazil has already informed the other Mercosur members about its intention to start the accession process. In addition, it has consulted whether there is interest in following suit, a possibility that remains under evaluation by the other members.

This new negotiation front reinforces the multilateral trade liberalization agenda, the ministry said. The government has already granted a negotiating mandate for Brazil’s accession to WTO’s agreement on government procurement, the Economy Ministry said.

Source: Valor International

https://valorinternational.globo.com

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Palm oil from the Amazon rainforest will fuel airplanes

Palm Oil Challenges in the West: EU Ambassador Insists Sustainability is Non-Negotiable for Consumers — CSPO

In the south of the northern state of Roraima, land costs one seventh of real state in other large centers of agricultural production in Brazil. In spite of that, when flying over it, it is possible to see areas that have been open for decades and have been abandoned due to lack of resources. They are holes in the middle of the Amazon biome.

Brasil BioFuels (BBF) will use this degraded land to cultivate palm and produce oil — which will later be transformed into 500,000 cubic meters of green diesel (HVO) and sustainable aviation fuel (SAF) in the biorefinery that is being built in the Manaus Free Trade Zone, with planned investments of R$2 billion.

Vibra Energia, formerly BR Distribuidora, will have exclusive access to this production for five years, and may renew the agreement for another five years. Leader in the Brazilian fuel market in general, the company intends to start distributing these biofuels between 2025 and 2026.

In a one hour and twenty minute flight between Manaus, the capital of Amazonas state, and São Luís, in Roraima, for example, a single engine burns 320 liters of aviation kerosene and releases carbon into the air. Aviation accounts for 2% of global carbon dioxide emissions — 915 million tonnes, out of a total of 43 billion.

It was because of this demand that Brasil BioFuels raised to R$2 billion from R$1.8 billion its investment in biofuel production. Besides the production of HVO, announced in November, the extra resource will guarantee technology to produce SAF, which emits up to 90% less pollutants than aviation kerosene.

Brasil BioFuels opted to verticalize palm production in São João da Baliza, a municipality neighboring São Luís, unlike the strategy it adopted in Pará, where it has about 70,000 hectares planted and partnerships with family farmers. In the south of Roraima, the company will plant 20,000 hectares this year and intends to reach 120,000 by 2026. With this, the expectation is to capture 600,000 tonnes of carbon dioxide per year.

BBF grows the seeds in small pots, called pre-beds. They count on a strict control of humidity and other needs for a good development. In the nursery BBF uses irrigation but subjects the plants to temperatures and winds similar to those in the field. Then the palms are transferred to the final planting area. The cycle from planting to harvesting is about four years.

The option for the palm is mainly due to its high productivity: it is estimated that it produces seven times more oil in volume than soy. “It is a paradigm break in relation to biofuels in the Center-South. The sugarcane cycle lasts seven months, while the palm yields the whole year”, says the CEO of BBF, Milton Steagall.

The palm’s agricultural zoning allows its cultivation in areas that were deforested until the end of 2007. This means that there are 31 million potential hectares, much more than what BBF plans to occupy.

The palm oil will be transported in biofuel-powered trucks to the Manaus Free Trade Zone, where the industry has tax exemptions. “And the largest consumers of diesel are concentrated in the Amazon,” says Dionisios Vossos, from BBF’s Business Development area.

Since part of the area opening in the Amazon biome happened after 2008, BBF is studying a way not to leave holes. For this, the plan is to cultivate cocoa and sell it to chocolate industries.

It is not yet clear what the demand for these biofuels will be, but the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) already foresees voluntary CO2 reductions starting in 2025 and mandatory after 2027. Executives from Azul, Gol and Latam airlines followed the presentation of BBF and Vibra.

“It’s not just a desire to be sustainable. In a while, it’s going to be mandatory. If this work doesn’t start now, things are going to get complicated later on,” said one of these executives, who spoke on the condition of anonymity.

HVO has advanced at a faster pace than ethanol and biodiesel, according to Marcelo Bragança, Executive Vice President at Vibra. “It is more stable, easy to use. Technically, it can be used in any proportion. But biodiesel presents some problems after a certain level of mixture”, he says.

The government is expected to soon send to Congress a suggestion for a mandate for green diesel. The proposal will be based on decarbonization metrics, instead of a percentage of mixture, as in biodiesel. The idea is that emission reductions will be between 1% and 10%. The text is at the Chief of Staff Office and may be altered before going to Congress.

The CEO of Vibra, Wilson Ferreira Junior, is confident that the Brazilian market for these products will grow significantly in the coming years. Asked about the carbon credit market, he said only that these are gains for the future, and that the focus now is to obtain cheap biofuels.

If everything goes wrong, Vibra says it will be possible to export the surplus. The volume of HVO and SAF supplied by BBF will represent only 2% of Vibra’s demand. If the production announced by the company were to stay in the North region to replace diesel and aviation kerosene, it would only meet 25% of demand — the global market for aviation fuel reaches 360 billion cubic meters of kerosene per year.

Mr. Steagall says that the structure allows to double production, to 1 billion cubic meters, in a year and a half, if Vibra wants so. However, BBF will only expand production if new agreements are closed, since sales contracts help in obtaining credit. Brazil’s development bank BNDES was invited to visit the project.

Founded in 2008, BBF operates in five states in the North region, where it employs more than 6,000 people. The company has 18 thermoelectric plants in operation and 18 under implementation, three palm oil crushing industries and a biodiesel industry.

Vibra, in turn, is a licensee of the Petrobras brand and has 8,300 service stations in all regions of the country. The company has more than 18,000 customers in various segments, such as transportation, trade, chemicals, and agribusiness. The BR Aviation brand holds 70% of the aviation market.

The journalist traveled at the invitation of BBF and Vibra

Source: Valor International

https://valorinternational.globo.com

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Hospital Care in talks to sell stake to Bradesco Saúde

Dois anos de pandemia: Grupo Bradesco Saúde destaca assistência a beneficiários e ações do período – CQCS

Hospital Care – a group with 13 hospitals and 30 clinics owned by Crescera and Abaporu funds, of the businessman Elie Horn – is negotiating the sale of part of its business with the insurance company Bradesco Saúde and local and foreign private-equity funds. Bradesco is interested in a 30% stake in the hospital group valued at around R$3 billion. The insurance company is pressured by the recent merger between Rede D’Or and Sul América, a direct competitor, and is accelerating talks to acquire assets in the segment, but Hospital Care is in more advanced talks with two funds, sources say.

According to sources, Hospital Care prefers the insurer, but Bradesco’s known bureaucratic, slow pace negotiations are seen as an obstacle, and the funds may end up presenting binding proposals before. If it closes with a private-equity firm, there is the possibility of selling control.

Hospital Care tried to go public last year, but gave up due to the adverse scenario. As a result, the company’s project for this year was to integrate the acquisitions and try an IPO after the elections, in October. Then Bradesco and private-equity firms presented bids that changed the course. At the same time, the original investors, Crescera and Abaporu, are not expected to make new investments. Now, the strategy is to follow a path similar to the one traced by Rede D’Or, which initially received contributions from funds and a few years later went public.

With 13 hospitals, about 30 clinics in the interior of São Paulo, Florianopolis (Santa Catarina) and Curitiba (Paraná) and performance-based compensation models, Hospital Care is today one of the few hospital groups available in the market. This is why investors are so interested in the company, which is expected to gross R$2 billion this year.

Rede D’Or, Mater Dei, Dasa and Kora are the other companies in this industry already listed on the stock exchange. Sources say Brasília-based Grupo Santa is also up for sale for an undisclosed multi-billion amount.

Any hospital business needs scale to be profitable – at least 150 beds. However, in Brazil, of the 4,500 private hospitals, half have less than 50 beds, about 130 are already in the hands of large groups, and about 1,000 are non-profit organizations or linked to foundations, according to a survey by BR Finance consultancy.

Bradesco Saúde entered this market last year with the creation of the Atlantica Hospitais arm. The initial strategy was to buy small and medium-sized assets and in parallel build hospitals in the group’s properties in São Paulo. However, the merger of Rede D’Or and SulAmérica made the insurer look for a hospital network, even with a presence in other states, to enter the sector with strength. The health insurance company is also analyzing other hospitals outside the Rio-São Paulo area.

Valor found out that Bradesco Saúde does not intend to have a verticalized health model. Its strategy is to buy hospitals, always with a minority stake – control is not interesting at this moment, since it has no expertise in managing these assets. The operator is a shareholder in the laboratory chain Fleury, with almost 30%. In the dental operator Odontoprev, the group has control, with 50.01%.

With around 3.4 million users, Bradesco Saúde is the third-largest company in the health insurance market. Despite its relevance, the company is not as competitive in terms of costs.

In the recent past, Bradesco even negotiated to enter the health company Alliar and, previously, Intermédica (before the merger with Hapvida), sources say. The operator took so long to make a decision on both negotiations, a source familiar with the matter said.

As the healthcare sector is concentrated, the verticalization of the health business is seen as an important movement to keep healthcare companies more competitive. The efficiency of this current model designed by Bradesco Saúde — of having to buy hospitals only as investments — is still a mystery when it comes to capturing synergies. “In the healthcare market, it is necessary to have an integrated network to reduce costs,” a source said.

Hospital Care and Bradesco Saúde declined to comment on market rumors. “Grupo Bradesco Saúde stresses that it is always attentive to changes in the supplementary health sector, evaluating impacts and opportunities for its business.”

Source: Valor International

https://valorinternational.globo.com

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Market already projects inflation at 7.5% by year end

Patricia Pereira — Foto: Leo Pinheiro/Valor
Patricia Pereira — Foto: Leo Pinheiro/Valor

The Brazilian monetary authority has been sailing in the dark for almost two weeks without the latest editions of the Focus survey, which collects the estimates of economic agents for several key indicators in the management of the country’s monetary policy, such as inflation (IPCA), activity (GDP), and interest rates (Selic). It does not mean, however, that market projections are not moving. Since the last Focus survey, released on March 28 and interrupted by a civil servants strike, the official inflation for March has frightened, the president of the Central Bank has reacted and the statistics agency IBGE has released the performance of the main sectors of the economy in February.

A survey carried out Wednesday by Valor with 74 financial and consulting firms shows a median projection for the variation of the country’s benchmark inflation index IPCA of 7.5% in 2022 and 4% in 2023. The lowest estimates are 6.5% for this year and 3.4% for next year, while the highest are 8.6% and 6%, respectively.

In the latest Central Bank bulletin, whose responses were collected on March 25, the median expectation for the IPCA was 6.9% in 2022 and 3.8% in 2023. The targets are 3.5% and 3.25%, respectively, with a tolerance of up to 5% and 4.75%, in that order. Valor’s survey is not directly comparable to Focus, which registers around 130 to 140 responses, but it helps to give a sense of direction.

“What led many people to revise [the inflation projection] recently was the IPCA of March, the biggest surprise in 20 years,” said João Fernandes, an economist at Quantitas, in reference to the monthly high of 1.62%. The median market expectation was 1.32%, according to Valor Data. “Before that, the revisions were just approaching the median, as some firms that had lower numbers raised their estimates. The data changed this dynamic. They all started to revise projections upwards”, Mr. Fernandes said. Quantitas forecasts inflation of 8.3% in 2022 and 4.3% in 2023.

Goods in general are to blame for current inflation, including the durable ones, like vehicles and electronics, and semi-durables, such as cleaning products, cosmetics and clothing, Mr. Fernandes said. The story, he says, is well known: the global lack of inputs, in the context of the pandemic, was in the process of normalizing, but ended up aggravated again by the war in Ukraine and the outbreak of Covid in China.

“Our biggest concern is basically with the inflation scenario. We experienced last year specific shocks that turned into generalized price hikes, and we had even more shocks on top of this already concerning picture. This is why we think that the IPCA will close the year at 8%, because inflationary pressures are very disseminated,” said Roberto Padovani, the chief economist at Banco BV.

These shocks will be more persistent than predicted, due for example to the secondary effects of inflation on fuels and other commodities, said Gustavo Arruda, head of research for Latin America at BNP Paribas. “When we do the math, we see that those risks are undersized.” He projects the IPCA at 8.5% this year and 4.5% next year.

In Brazil, Mr. Fernandes added, there is still a resilient labor market. “Even though we understand that a higher Selic will ease the pressure at some point, we see now labor costs gaining traction amid higher demand for in-person services. We saw the PMS [Monthly Services Survey] slowing down last month, but I think there will still be strong readings for three or four months.”

IBGE said this week that services fell 0.2% in February compared to January, seasonally adjusted, while the expanded retail market — which includes vehicles and construction materials and is what counts the most for the GDP — advanced 2%. Earlier this month, the institute said that industrial production had grown 0.7% in February.

Based on these indicators, the Central Bank would present Thursday its February Economic Activity Index (IBC-Br), which offers the market a barometer of the month’s activity, but the release is not expected to happen because of the strike. Valor Data’s survey with 27 analysts indicates a median increase of 0.4%.

Valor’s survey captured Wednesday a median projection for the GDP of 0.5% in 2022 and 1.2% in 2023, virtually the same as the Focus of April 28 (0.5% and 1.3%, respectively).

Another problem for inflation, according to economists, is the perception that inflation expectations are unanchored. “That leads to more persistent inflation. Even in sectors of the economy that are not directly affected by the conflict, just the perception that the cost of living is higher allows agents to pass on more price. Although we are a little blind because there has been no Focus survey, the dynamics of the daily price surveys show that inflation is not slowing down,” said Mr. Arruda, with BNP Paribas.

When “the regime in people’s minds” and the economy takes longer to deflate, the Central Bank “must try to ease the pass-through,” said Fernando Fenolio, the chief economist at WHG. The president of the monetary authority, Roberto Campos Neto, drew attention earlier this week when he acknowledged that the result of the IPCA in March was a surprise and said that “our inflation is very high.”

“The Selic rate today is our point of greatest uncertainty. We recently brought it to 12.75%, despite the math showing that it would need 13.5%, because the monetary authority made a point of affirming that 12.75% was enough. After the IPCA of March, Mr. Campos Neto opened the possibility of a stricter conduct, but we are still waiting for a more intense communication,” said Étore Sanchez, the chief economist at Ativa.

The survey for the Selic rate carried out by Valor is directly comparable to another one made by the newspaper in mid-March and showed no change in the projection of a median Selic rate of 13.25% at the end of the high cycle this year.

“The bar was high for the Selic to go above 12.75%, but it was only because of the Central Bank’s signaling, as on the inflation side the dynamics showed that prices were going to continue rising fast,” said Patricia Pereira, the chief fixed income strategist at MAG Investimentos. She revised her forecast for the Selic to 13.75% from 13.25% after Mr. Campos Neto’s remarks.

Some factors can help the Central Bank in its task. If the exchange rate remains below R$5 to the dollar, for example, this may translate into lower industrial prices, and the activity, as it gets weaker, would also contribute to a lower pass-through capacity, points Mr. Fenolio, with WHG.

The median of the exchange rate projections of the last Focus survey was R$5.25 at the end of 2022, while the one collected Wednesday by Valor indicates exactly R$5. Even so, it would be a more depreciated exchange rate than the current levels. “There doesn’t seem to be much more room for an appreciation of the real ahead. The United States will start to tighten interest rates, there is domestic uncertainty and commodities have already risen a lot at the peak,” said Ms. Pereira, with MAG.

Source: Valor International

https://valorinternational.globo.com

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WTO chief wants Brazil to export more to avoid global food crisis

Food crisis grows as spiralling prices spark export bans | Reuters

The director-general of the World Trade Organization, Ngozi Okonjo-Iweala, will arrive this weekend in Brasília on her first visit to Latin America. One of her interests is to find out how much Brazil can help prevent an imminent global food crisis.

If Brazil exports additional food, it could help to slow rising global prices, Ms. Ngozo told Valor. The message she is likely to hear from the Brazilian government is that the country is part of the solution, with a surplus of grains and proteins to supply the world.

The WTO director-general does not hide her concern with the economic repercussions of the double shock of the pandemic and now the war in Ukraine on the world economy and trade. The most immediate effect of the war has been a sharp rise in the prices of food, energy, fertilizers and some important minerals, of which Russia and Ukraine are major suppliers to the international market. The outlook is so uncertain that the WTO projection for trade this year ranges from 0.5% to 5.5%.

Ms. Okonjo-Iweala does not rule out risks of even more geopolitical tensions, nationalism, populism and protectionism. But she makes a strong case for the multilateral trading system for the resilience of economies, including in view of the growing dangers related to climate change.

She will arrive in Brasília on Saturday evening. On Sunday, she will attend a barbecue. She says that her children, in the United States, go to a Brazilian restaurant and consider the all-you-can-eat barbecue “marvelous.” On Monday, she will meet with President Jair Bolsonaro, speak at the Foreign Affairs Ministry and meet with ministers. On Tuesday, the National Confederation of Industry (CNI) and the Federation of Industries of the State of São Paulo (Fiesp) will hold a business event with the WTO director-general, in São Paulo, when they will present her with a document with the sector’s priorities, which includes fighting agricultural and industrial subsidies.

Ngozi Okonjo-Iweala took over in March 2021 and became the first woman and the first African to lead this key entity in global governance. She was previously Nigeria’s finance minister (2003-2006 and 2011-2015) and foreign minister in 2006. She spent 25 years at the World Bank, where she reached the second-highest position. She holds a degree from Harvard University and a PhD from the Massachusetts Institute of Technology (MIT).

At the end of the interview, Ms. Okonjo-Iweala commented on Nigeria’s national soccer team. For her, the team has many good players, but needs more teamwork. Nigeria did not qualify for this year’s Fifa World Cup, to be held in November and December in Qatar.

Read below the main excerpts from the interview.

Valor: This is your first time in Latin America and you are visiting Brazil. What do you expect from Brazil?

Ngozi Okonjo-Iweala: Brazil is a very important member of the WTO, very active and very instrumental in a number of the negotiations that we are doing. It is a big country, we are having a ministerial conference (MC 12) in June, and it will be good to talk to colleagues in Brazil, to let them know what the WTO is doing, to hear their perspectives, and to seek Brazil’s support for a strong MC 12.

Valor: The world is heading toward a global food crisis. Who could do more in this backdrop?

Ms. Okonjo-Iweala: I am certainly concerned about the prospect of an impending global food crisis. Ukraine and Russia represent less than 3% of world trade in goods, but they are very, very important in certain sectors, like food. You see, 30% of the world’s wheat and 73% of sunflower oil come from the two countries, and a lot of barley, corn, so many grains and other foods. Several regions of the world are very dependent on the Black Sea region. In Africa, 35 countries import food from Russia and Ukraine, and you can see that Egypt is having problems now because most of its wheat comes from these two countries. So with war in Ukraine, if we don’t take action, it could result in real stress. I think even in Latin America, [with] inflation in many countries, the high cost of food. We have a crisis situation, and if we don’t take care of it, we may continue with it next year, unless we are able to support humanitarian corridors so that Ukraine can harvest this winter crop in July. Brazil is a food exporting powerhouse. It is one of the most important countries in the world when it comes to agriculture and food. And of course, if Brazil is able to release additional food on the market, it can help bring down the price of food around the world. I am interested in how Brazil sees the situation and what it can do. Of course, I know that Brazil depends on the Black Sea region for fertilizer and that is a big concern for what is going to happen. I know that Brazil is trying to make alternative arrangements to get supplies from other places.

Valor: Concretely, what more can Brazil do in this case?

Ms. Okonjo-Iweala: Brazil has the ability to increase [the supply of] all these things. It is one of the largest producers of soybeans in the world, for example. With a shortage of sunflower oil now because of the Ukraine problems, you can imagine that Brazil could replace with another oil. In the corn market, 15% comes from Ukraine. If Brazil could put more corn on the international market, it could help as well.

Valor: What about domestic inflation? Would it increase?

Ms. Okonjo-Iweala: Not exactly. I wouldn’t encourage any country to export unless they were very comfortable with enough supplies for themselves. The first thing you do is make sure you have enough supplies. What I tell WTO members is that if you have extra stocks, and many countries do, especially of grains and oils, they can help.

Valor: How do you see concerns from agricultural exporters that some countries may try to take advantage of using their stocks built up for food security, with subsidies, to grab shares in the global market?

Ms. Okonjo-Iweala: Right now we have shortages of supply of really important products in the world. Wheat is a staple food for many, many, many countries. So what we are focusing on now is not so much the question of who is going to profit but how to respond to the humanitarian consequences of rising food prices. Taking 30% of wheat off the world market is huge. Even those countries that have extra can’t make up for all that. The big concern now is to have the supplies. We must take care of world hunger.

Valor: For world trade, what worries you more in the short term: the war or the lockdowns again in China?

Ms. Okonjo-Iweala: Both situations impact supply chains. Obviously, the lockdowns in China, Shanghai being one of the most important ports in the world, and when Shanghai is shut down, it has a big impact on the trade of goods. But I think the war in Ukraine right now is having more of an impact, simply because you have the fear of what people will do to feed themselves. Why is that so important? Because poor people are hit the hardest. Food and energy prices are going up a lot. Russia also has 10% of the world’s energy exports. So you have high food prices, high energy prices, and many, many poor households spend a large percentage of their budget on these items. I repeat what Antonio Guterres, the UN secretary-general, said. We need to end the deaths, end the famine, not only in Ukraine but also in other parts of the world, and the rising food prices. Energy prices affect almost everyone through transportation.

Valor: With two shocks in a row, is there a risk of global stagflation?

Ms. Okonjo-Iweala: There is a risk certainly and that is why most central banks are now focusing on fighting inflation and trying to balance how to pursue that goal with employment and economic growth targets. I hope that doesn’t materialize globally. If we can take the right measures to ease the food situation, I think it will help. The energy situation is a little more complicated. The United States is releasing its reserves, at the rate of 1 million barrels of oil per day over the next six months. That will help, but it may not solve all the problems. I think that, without Russia, that’s 2 million or 3 million barrels a day taken off the market. So any country that can release its oil reserves will help. As for food, we have the ability to really try to mitigate the situation, because countries can also change their diet, and try to replace items. But it is not so easy to replace gas and oil in the short term. I hope that in the long term this will drive the movement toward renewable energy. Although a difficult situation, it should be seen as an opportunity to start moving faster toward renewables and net-zero emissions by 2050.

Valor: How do you see risks of fragmentation in trade becoming a reality?

Ms. Okonjo-Iweala: Well, it’s very fashionable now to talk about decoupling, fragmentation, a breakdown into two or three spheres of trade. Conversations about deglobalization started even before the Covid-19 pandemic. But now, because of the war, the world has gone through, as you said, several shocks, the pandemic and now the war shock. We also had the climate change shock. Despite these shocks, trade has been relatively resilient, still able to move goods around the world, even with all the supply chain issues. My point is that the multilateral trading system has provided for the world in the past. It has lifted more than 1 billion people out of poverty. It has helped integrate the world and brought peace. I know people are feeling that this principle has been broken now, but we should not draw the wrong conclusions from this. We should not conclude that decoupling or different trade blocs will now carry weight and is the way to go, because the costs to the global economy, in the long run, will be substantial.

Valor: The WTO is talking about a 5% drop in global GDP…

Ms. Okonjo-Iweala: Our economists’ simulations have shown that even with just a portion of these costs, not even taking into account all [the impacts], it could result in a 5% loss in GDP. This is not trivial. And there are many other costs that would result in even something worse than 5%. The loss to the world has many consequences. What we should seek to demonstrate and do is to rebuild and support the multilateral trading system. I know people are talking about “reshoring,” “nearshoring” etc. The evidence on all of this is not very great yet. I’m sure there will be some reshoring, and we’ve seen some nearshoring, okay, like shifting production from China to Vietnam. We can see some of that and it’s actually not bad. This kind of globalization, where you see production in different countries, can be a good thing. I call it reglobalization, and we should consciously use it to bring those countries, which have been marginalized, into integration into global trade.

Valor: But the reality is that we have increasing talk of economic nationalism, strategic autonomy, and a kind of weaponization of trade with countries using their power instead of following rules. International cooperation is in a very bad situation.

Ms. Okonjo-Iweala: Yes, there is absolutely no doubt that multilateralism has been hit. And what you are saying about weaponization, if you want to use that word, of trade as a tool, using the geopolitical tensions, populism and nationalism, tendency to protectionism, all these things, it is true, are happening. And it has a risk that we might see a little bit more. But that’s not the kind of trend that we want to encourage or see in the WTO. Of course, the circumstances now with the war make everybody want to look at their domestic situation. But in the long run, isolation doesn’t pay off for individual countries or for the world. If tomorrow you have climate change events, floods or droughts, that wipe out all your harvest in the country, if you have no trade, what do you do? Do you starve? But if you have trade, you are resilient and you get supplies from other parts of the world.

Valor: Will the trend toward deforestation-free products be a new normal in international trade?

Ms. Okonjo-Iweala: Look, we need to think in terms of incentives, certainly to maintain our forests, because there are some of the largest carbon reservoirs in the world. And we need to think about how to balance this kind of approach. Brazil has already signed at COP 26 [UN Climate Conference in Glasgow] a global public declaration on forests and land use, to decrease the rate of deforestation, and has set some targets. This is a good thing. I think that this way the Brazilian government is doing the right thing.

Valor: The European Union has plans to ban the entry of commodities coming from deforested areas. Is this the kind of proposal that could be copied by other countries?

Ms. Okonjo-Iweala: What I would say is that the world has set targets for carbon emissions to be low and then to reach net zero by 2050. All the countries of the world have engaged, including Brazil, and they are obviously looking for instruments and mechanisms to do that. In the WTO, what we insist is that these instruments must not become an instrument of discrimination in trade. We will look at all proposals with that lens to make sure that they are WTO-compliant, that they do not discriminate against other comparable products from other countries. That is what I can tell you. It is good to look for an instrument that is good for fighting carbon emissions, but it has to be done in a way that is WTO-compliant.

Valor: How do you see the carbon tax plan at the EU border, targeting competitors who are not subject to the same environmental standards?

Ms. Okonjo-Iweala: As I said, the CBAM [carbon border adjustment mechanism] has to be compatible with WTO rules. We have 70 fragmented carbon pricing and taxation systems in the world today. And it is very difficult for businesses to navigate that fragmentation, especially small and medium-sized businesses. And they are the ones that create the most jobs. What we are saying at the WTO is that we should have a global price on carbon. And that the WTO, the IMF, the OECD and the World Bank should work together to come up with a global methodology for a global price on carbon. In fact, we are talking to each other now, trying to work together to do this. That will be the best way for the world to deal with this. It can be done. The leaders of the world should ask these organizations to put together [this carbon price]. I would argue that there should be a big drive from leaders. We cannot continue with fragmented systems in the world. That simply doesn’t work.

Valor: Is there a possibility that Russia will be kicked out of the WTO?

Ms. Okonjo-Iweala: Right now, the WTO does not have an instrument or methodology to expel its members. Trying to do that is going to be extremely difficult. There are some organizations that have an instrument, but we do not.

Valor: But the WTO also has diplomatic tensions about this…

Ms. Okonjo-Iweala: Right now, there are diplomatic tensions. We will see what happens at the ministerial conference in June. That has not stopped us from working. We still find ways to work around the problem and hold our negotiating sessions in small groups in different settings. The tension is there, but we are trying to work with it.

Source: Valor International

https://valorinternational.globo.com

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Government to raise salaries of federal civil servants

Paulo Guedes — Foto: Washington Costa/ME
Paulo Guedes — Foto: Washington Costa/ME

The federal government has decided to raise salaries of all federal civil servants by 5% from July. According to sources, the decision was made on Wednesday afternoon, during a meeting between Chief of Staff Ciro Nogueira and Economy Minister Paulo Guedes. The decision had the backing of President Jair Bolsonaro.

President Bolsonaro had promised to raise the salaries of federal police officers, federal highway patrol officers and employees of the prison system. But other groups had been threatening to go on strike if they were not also contemplated. In the middle of an election year, Mr. Bolsonaro ended up giving in.

As there is not enough money within the spending cap to an across-the-board salary increase, it will be necessary to reallocate funds from other segments, according to government sources. The 5% increase for all federal civil servants would cost something like R$5 billion to R$6 billion this year, according to information circulating among the technical staff. This is more than the amount set aside in the 2022 budget for this purpose: R$ 1.7 billion.

In order to create conditions to have a higher spending on salaries, the government needs to cut expenses. The preferred target of these cuts are parliamentary amendments to the budget. Officials have been scanning the budget in recent weeks to find expenses that could be cut.

The idea of a 5% adjustment was not the preferred option of Mr. Bolsonaro, who intended to please the police, particularly prison guards. The amount of R$1.7 billion was originally intended for this group, but the president was warned by Mr. Guedes that granting an increase for only part of the servants would be like pulling a grenade pin.

The associations that represent civil servants reacted negatively to the proposal. “This is completely unsatisfactory,” said Rudinei Marques, president of the Permanent National Forum of State Careers (Fonacate), which represents the civil service elite. According to him, the mobilizations “will intensify until mid-May, when we understand that the Provisional Measure will need to be sent to Congress to be converted into law.”

Source: Valor International

https://valorinternational.globo.com

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