Votorantim takes another step to leave steel market

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Brazilian infrastructure group Votorantim is expected to end this month, with great relief, the sale of its steelmaker in Colombia, in a deal negotiated in November with two local funds – Trinity Capital S.A.S. and Structure S.A.S. Banca de Inversión.

The deal involving Boyacá-based Acerías Paz del Río depends on a public offering of shares to be made in the local stock exchange later this month. The offering will allow the acquisition of the remaining shares beyond the 82.42% stake held by Votorantim.

Votorantim will receive $19.2 million for its 20,499,067,131 shares, considering the price agreed with the funds, of 3.65 Colombian pesos each. That means a little more than 3% of the total disbursed to buy the asset in March 2007 and in operations in the following years.

The date of the offering is currently being analyzed by the Financial Superintendence of Colombia. The local securities market authority had 30 days from the communication (November 11) of the pre-agreement between Votorantim and the funds to set the day.

By getting rid of Paz del Río, the group takes another step towards leaving the steel industry after making the decision in 2017. A year later, it sold a controlling stake in the Brazilian business to ArcelorMittal in exchange for 15% of the rival’s long steel business. This stake is expected to be negotiated with ArcelorMittal at the end of 2022, when it can exercise a put option – which gives it the right to sell the asset.

The acquisition of the Colombian steel mill, located in the Belencito district, 200 km far from Bogotá, took place amid fierce competition with ArcelorMittal, Gerdau and CSN. The auction in the Colombian stock market took five hours. ArcelorMittal battled for the asset until the final bid.

Votorantim won by paying $491 million for 52% of the controlling shares, which belonged mostly to the employees and the Colombian government, paying a premium of 157%. The group later spent more than $100 million to reach the 82.42% stake.

Those were times of euphoria in the mining and steel industry around the world. M&A activity was intense, and all groups active in the sector wanted to mark territory – globally or regionally.

Paz del Río is a medium to small-sized steel mill that makes around 350,000 tonnes of rolled steel per year. Most of its facilities are outdated, except for a billet rolling mill that started operating at the end of 2007. The steel company owned iron, coal and lime mines, which enticed Votorantim to buy the asset at the time.

The group ended up not making significant investments in the steelmaker, so much so that it still has the same size and operational facilities. It produces what the local market is able to absorb. Colombia is a great importer of steel to meet the internal demand. Competition is fierce due to favorable import conditions.

The company accounts for 30% of Colombia’s steel output. A source familiar with the steelmaker said it wasn’t worth keep investing there because the return wouldn’t come. Paz del Río probably ended 2020 with an operating revenue of $1.35 billion.

The steelmaker is expected to report R$500 million in EBITDA and maybe some profit in 2021. The company failed to make a profit in the last three years.

The second largest shareholder of the company, a state-owned company created by the Colombian government in 1948, and then the main integrated steelmaker in the country, is the Instituto de Fomento y Desarrollo de Boyacá (Ideboy), owner of 13.27% of the common shares of Paz del Río.

After these sales in 2022, Votorantim will still keep a long steelmaker in Argentina, called Acerbrag, which produces 250,000 tonnes a year, is the third largest in the country, has a high-quality industrial complex and no debt. It is a very small mill that operates with scrap and is located in Bragados, two hours away from Buenos Aires.

The group designed a strategy to reduce exposure to commodities – such as steel and pulp, which are very subject to price volatility – and expand its footprint in businesses that generate stable income. As a result, in November, it invested R$1.35 billion to expand its stake in CCR by buying shares on the stock exchange over three months. The group now owns 5.6% of Brazil’s largest infrastructure company.

The segment, which includes highways, sanitation, railroads, ports, logistics and airports, is one of the group’s targets for new investments. In 2021, Votorantim launched Altre, a real estate development company. The first large investment amounted to almost R$1 billion to buy 60% of a business building in São Paulo.

Also last year, in October, the group announced a merger of its power generation and commercialization operations, run by a partnership between VE and the Canadian fund CPP Investments. A new company, including assets such as wind and solar generation company CESP and the commercialization company, formed a new company with annual sales of around R$6 billion, which is expected to be listed on the Novo Mercado, the strictest governance segment of exchange B3.

Since 2020, with the money obtained from the sale of pulp maker Fibria, the group adjusted the capital structure of Votorantim Cimentos (injected around R$3 billion) and CBA, its aluminum maker. With an improved financial situation, VC went into the field and acquired three cement companies within a year, starting in December 2020 – one with operations in Canada and the U.S., and two in Spain.

CBA restructured itself financially and adjusted its business focus, seeking to work more with recycled aluminum to offer “green metal” to local and overseas customers. In July, it went public at B3, with shares listed on Novo Mercado.

Source: Valor international

https://valorinternational.globo.com/

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Brazilian companies likely to drive M&A activity this year

Entenda o que é M&A e como esse processo funciona - Deallink

Brazilian companies had a prominent role in mergers and acquisitions this year and are likely to be major consolidators in 2022, investment banks told Valor. Dealogic data shows that M&A activity totaled $87.7 billion up to December 20, surpassing by 26% the amount seen in 2020. In volume, 695 deals were closed, up 24% from 2020 and a record of the last 10 years.

The 571 deals involving Brazilian groups totaled $69.8 billion, while the 135 deals of foreign groups buying Brazilian companies reached $20.8 billion, according to Dealogic.

Data from consultancy Kroll show that the total number of operations totaled about R$ 600 million, with 1,500 transactions, a new record, with a more “multisectoral” profile than in other parts of the world.

“We saw activity in all sectors: retail, food and beverage, industrial, health, education, agribusiness, technology, services, oil and gas, and in techs, which is good for overall performance,” said Alexandre Pierantoni, head of corporate finance in Brazil at Kroll. He highlighted fields such as retail, logistics and healthcare, besides technology companies associated with these sectors.

Contrary to capital market offerings, which are expected to slow down next year due to the strong volatility caused by the presidential elections, M&A activity is likely to remain heated this year.

“Some companies that have given up on going public tend to seek private investors as an alternative,” said Diogo Aragão, head of M&A in Brazil at Bank of America.

Those companies that went public whose shares have devalued sharply this year may become targets of consolidator groups, Mr. Aragão said.

A group of 30 to 40 companies intended to go public between the end of this year and the first quarter of 2022, but postponed their plans due to the worsening of market conditions from September on, said Roderick Greenlees, head of investment banking at Itaú BBA.

“To make their projects viable, companies will look for an alternative, and the M&A path seems the most favorable today,” he said. Even so, the growth rate seen last year is unlikely to be repeated.

Mr. Greenlees recalled that, in the last three years, the capital market was extremely active and tapped by many companies with expansion projects. Thus, it was possible to see the result of capital injection in 2021, a very strong year for M&A, both in terms of number and financial volume. “The more we have listed companies, the greater the M&A activity.”

But there is caution from potential buyers about companies that have given up going public and are looking for a private investor. “There is an understanding that the consolidating groups are not willing to pay any price for the asset,” said Gustavo Miranda, head of investment banking at Santander. “The companies that gave up on IPOs had defined a very high price range for their assets.”

Another consensus is that private equity funds (which buy stakes in companies) are willing to look at assets in Brazil, which are cheap because of the weakened real.

Technology, health and education companies will continue to be acquisition targets, as in recent years. Another sector that will continue to be attractive is renewable energy, with interest from local and foreign companies.

“Renewable energy companies are the new tech companies. Biofuels and recycling companies will also continue to draw buyers,” said Mr. Aragão, with BofA.

This year, the number of M&A deals with volumes over $1 billion drew attention, representing about 6% of the deals, said Daniel Bassan, CEO of UBS BB. “This share was around 2% in the previous three years,” he said. The growth seen in large deals was driven by the capital market, where companies took advantage of IPOs and secondary offerings to make their expansion plans feasible.

For Mr. Bassan, the volatility expected for the coming months is expected to open M&A opportunities in the coming months. This is likely to keep activity strong in this segment given that many companies have been capitalized. “But I don’t see companies very leveraged. They don’t need to do business at any cost,” he said.

“Companies used to tap the market to pay debt and reduce leverage. Now most of them have focused on growth,” he said. Next year, with the proximity of the election and a more challenging macroeconomic backdrop, investors – whether financial or strategic – are likely to look at more advantageous deals. “Private equity firms, which have made many divestments, are now likely to start investing again. It will be a year of great opportunity for this class of investor,” he said.

Eduardo Miras, head of investment banking in Brazil at Citi, also sees venture capital funds looking for business opportunities, as well as unicorns (startups valued at over $1 billion). The executive, however, declined to offer any forecast for the number of M&A deals in 2022.

For Mr. Greenlees, the expectation is that the number of deals will remain close to stability, but that the financial volume will fall. “There is a substantial number of deals in the pipeline, due to the worsening of the capital market, but I believe that the size of the operations will be a little smaller.”

Source: Valor international

https://valorinternational.globo.com/

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Flurona expected to gain ground in Brazil, cruise season under threat, airlines gradually increase flights

O que é "flurona", infecção por covid-19 e gripe | Band

The number of cases of double infection by Covid-19 and influenza, called Flurona or twindemic by some doctors, tends to increase in Brazil in the coming weeks, researchers warn. Specialists, however, affirm that this is not an unprecedented or unexpected fact — especially because it involves the influenza virus.

“There are several viral coinfections that start in the nose, especially when influenza is present,” said biologist Beatriz Carniel, PhD from the Liverpool School of Tropical Medicine with a thesis on the disease. The novelty, say the researchers, is the scale that the phenomenon may gain in the future, due to the combination of the Covid-19 pandemic, fed by the omicron variant, with the outbreaks of influenza out of season (summer in Brazil).

In the state of São Paulo, 110 cases have been detected in 2021, according to the Secretary of Health, including 59 in the capital. In Rio de Janeiro city, there are 17 cases under investigation of coinfection.

Cruises season may be terminated, association says

The president of Clia Brasil (the entity that represents cruise ships in the country), Marco Ferraz, admitted that Covid-19 may lead to the termination of the season. “If we reach a favorable condition for resumption of cruises, we will return on the 21st,” Mr. Ferraz said. “Otherwise, we will end the season.”

The industry announced on Monday the voluntary suspension of the current cruise season. It then extended talks with authorities at all levels in order to explain the current scenario and try to succeed in the reopening scheduled for the 21st.

The health authority Anvisa confirmed 829 cases of Covid-19 among crew and passengers from November 1 to January 3 on the five ships operating in the country — three from MSC and two from Costa. The cases account for less than 1% of the total number of travelers so far in the current season, of about 130,000.

Airlines operate 85% of pre-pandemic network, association says

In December, airlines operating in Brazil reported an average of 2,036 daily departures, or 84.7% of the domestic network of March 2020, when the daily average was 2,400 departures. At the time, the Covid-19 pandemic had not yet affected the sector.

The numbers were released by the Brazilian Association of Airlines (Abear) based on data by the National Agency of Civil Aviation (ANAC). According to Abear, December’s result is the best in 21 months, since April 2020, when the daily offer of flights shrank to 6.8%, or just 163 flights a day.

XP buys minority stake in Suno

XP Inc. agreed to buy a minority stake in the Suno group, which brings together the areas of investment research, resource management, as well as content production, data and financial market analysis.

Since July 2021, this is XP’s fourth acquisition of companies born under the umbrella of independent review. It acquired OHM Research and Levante Investimentos and already had Spiti – absorbed in December by the Primo Group, of which XP is also a partner.

Source: Valor international

https://valorinternational.globo.com/

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Petrobras expects to produce 20bn barrels by 2030 in efficiency drive

Petrobras intends to enable the production of up to 20 billion barrels of oil equivalent in the main fields operated by the company by 2030, through a program aimed at increasing the recovery factor of the deposits. Named RES20, the effort was created by the company with a focus on incorporating new reserves into assets already in the operational phase.

The 20 billion barrels include not only Petrobras’s share, but also the volumes of Petrobras’s partners in the fields operated by the company. The figure, however, is nonetheless expressive. For comparison purposes, the company has produced 23 billion barrels over nearly seven decades of history.

The recovery factor indicates the percentage of the volume originally contained in a reservoir — the volume “in place” — that has already been extracted. In Brazil, these rates are historically low, in relation to what is seen, for example, in the North Sea, in Europe. According to the National Agency of Petroleum, Natural Gas and Biofuels (ANP), in the Campos Basin, where the main mature fields in the country are located, the recovered oil fraction is 15.8%.

In the case of mature fields, increasing the recovery factor means ensuring the extension of the asset’s useful life. Not all volume “in place” is economically recoverable, but by investing in the growth of the recovered fraction, the company is able to add more reserves to its portfolio — that is, more commercially viable volumes.

In a note, Petrobras highlighted that the RES20 will work with more well-defined and detailed deposit models. The company’s 2022-2026 business plan foresees investments of $2.5 billion in high-resolution seismic acquisitions for this purpose.

Among the assets expected to receive investments to increase the recovery factor are Roncador, in the Campos Basin post-salt, and Tupi, in the Santos Basin pre-salt.

Source: Valor international

https://valorinternational.globo.com/

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Rise of renewable power may create bottlenecks

Substantial growth in renewable energy generation in Brazil’s North and Northeast, mainly from solar and wind sources, may create bottlenecks in the flow of energy to other regions. The mismatch between the new generation and transmission projects going online reveals how outlining plans for the electricity sector is increasingly complex amid the energy transition drive and the search for greener sources.

Brazil’s national grid operator ONS says that the great challenge to make feasible the use of all the potential of the Northeast region is the mismatch between the deadlines of the generation and transmission projects. While setting up transmission lines usually takes seven years, solar and wind farms need only two years.

The lack of synchrony between new transmission and generation projects may lead to a surplus of power of 5.5 GW in the North and Northeast until 2026, the ONS warned in the medium-term plan of the electrical operation of the National Interconnected System (SIN) released this week.

Luiz Barroso, CEO of the consultancy PSR and a former head of the Energy Research Company (EPE), said that the issue reflects the changes that the sector has undergone in recent years. Transmission projects used to come into operation faster than the hydroelectric and thermoelectric generation plants. Now that renewable power grabbed an increasing share in the generation mix, the opposite is true.

“Today, it is necessary to plan the transmission with greater uncertainty about generation. The interface between the projects has become more complex, due to the uncertainty in the location of the new plants and the greater speed in implementing the projects, as well as the difficulties to get environmental permits for transmission projects,” he said.

For him, the scenario will require more proactivity from the planning bodies to point out the transmission projects that will be auctioned in the next few years, as well as an effective action from the Brazilian Electricity Regulatory Agency (ANEEL) to guarantee the entry into operation within the deadlines.

According to Mr. Barroso, there is already an effort underway at EPE to improve the planning methodologies, considering the greater complexity of the sector. He recalled that Brazil is one of the most attractive countries for investments in this segment. Data from ANEEL indicate that the transmission projects auctioned between 1999 and 2021 total R$275.2 billion in investments, with values updated for inflation.

“It is important not only to build the transmission infrastructure but to build it in the right places, where the lines add value. The lack of transmission can prevent the development of renewable projects in areas that could have value for the system,” Mr. Barroso said.

Source: Valor international

https://valorinternational.globo.com/

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