Share buybacks grow 44% at B3 in 2021

Carlos Sequeira — Foto: Divulgação

A drop in the Ibovespa index, attractively priced shares, flush with cash and less indebted companies. The combination of these factors led to a strong growth in the opening of share buyback programs, especially in the second half of the year, when stocks fell the most.

According to Brazil’s securities market authority CVM’s database on the subject, from January to December last year there were 108 programs opened, against 75 in the previous year, an increase of 44%, and December, with 18, was the month with the most buybacks.

January seems to maintain last year’s pace, with eight announcements in the first 17 days of 2022.

“The Brazilian stock market had a very important sell-off, going to around 100,000 points from 130,000 points in a few months,” said Carlos Eduardo Sequeira, head of research and analysis for Latin America at BTG Pactual.

The Ibovespa closed 2021 down 11.93%.

He adds that the value of the stock market, as a whole, is at levels considered attractive, trading below the historical average. “Companies design their budgets for the coming year at this time in December. They must have felt comfortable making their announcements, as well as taking advantage of the fact that stocks are cheap,” he said.

Buybacks are a way for public companies to give more resources to shareholders. The repurchased stocks reduce the amount in circulation and, therefore, increase the participation of investors in the distribution of dividends. The tool is also used to show confidence to the market that prices will rise.

That was the case of logistics company Sequoia. In the announcement of the buyback program, this month, the company made it clear that it considers its stocks cheap. “In the view of the company’s management, the current value of its shares does not reflect the real value of its assets combined with the prospects of profitability and generation of future results,” it says in the document.

Bradesco, which usually is not very fond of buybacks, started to use them more actively last year, amid pressure on financial sector shares caused by the pandemic and increased competition. When the bank announced the measure in April, it said it would adopt buybacks as an instrument to manage its capital level and as a complement to shareholder remuneration.

“Large companies, like Vale and banks, regularly leave their programs active, for when needed. Other companies, on the other hand, had a strong drop in prices and repurchased the shares for a cheaper amount,” said Rodrigo Moliterno, head of equities at Veedha Investimentos.

Construction was one of the sectors that most announced buybacks in 2021, in line with the performance of the segment’s shares, which fell 31%, said Rafael Passos, a partner at Ajax Capital. However, he notes that other activities linked to the domestic economy also underperformed. “Local companies suffered a lot. The same happened with consumption. Several, including retail, announced buybacks. Consumption had a devaluation of 26% in the stock market,” he said.

Antonio Marcos Samad Júnior, CEO of the proprietary desk Axia Investing, points out that the inflation and high interest rate scenario added to the elections “punished” many companies as investor fled. “Many companies are trading below their equity value, which makes no sense if the company is in good financial health.”

In addition to the downward prices, the fact that companies are capitalized contributed to the buyback drive. In 2021, many companies went to the market and are with comfortable financial statements positions, Mr. Sequeira said. For this reason, he states that it is “not surprising” that the wave of announcements will extend into 2022. “The consolidated debt of listed companies or the size of leverage has fallen a lot in recent years.”

A survey by BTG with 200 companies listed on the B3 suggests net debt ratio at 3 times in 2015, when the country entered into recession. The bank estimates that the indicator has fallen to close to 1.2 times last year.

In addition, companies have been pricing this year’s elections, which tends to drive volatility in the stock market. “After the election, I am reasonably confident that the Ibovespa will trade at higher values than today, regardless of who wins [for president],” said Mr. Sequeira, with BTG.

Mr. Moliterno, with Veedha, also believes that buybacks will continue at strong levels, and that companies may end programs already unveiled and start new ones if stocks remain at low prices. “It is natural, since we have had a very sharp drop in the stock market. Companies are likely to keep their programs active as a way to protect themselves from sharper swings.”

Companies can buy back up to 10% of the total outstanding shares, but the programs are not always that comprehensive. Nor does the company have to buy back the entire amount announced. In general, announcements state the maximum amount that can be repurchased. “The volume rose in 2021 compared to 2020 and is likely to increase again this year,” said Mr. Sequeira, with BTG, without detailing the amount purchased.

For Enrico Cozzolino, a partner and head of analysis at Levante Ideias de Investimento, there is no one better than the company itself to know if its stock is cheap. “The company may have a lot of cash on hand and instead of allocating the capital in an investment with daily liquidity, but a bad one, it can buy shares thinking of the more attractive ROE [return on equity],” he said.

Source: Valor international

https://valorinternational.globo.com/

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Development Bank to invest up to R$2.5bn in infrastructure funds

A cruzada inócua e cara de Bolsonaro contra o BNDES

The Brazilian Development Bank (BNDES) will invest up to R$2.5 billion in infrastructure funds, which will be selected through a competitive process. The state-owned bank opens a call for proposals this Monday to choose up to five funds. A maximum of R$500 million will be allocated to each of them. The bank expects, however, to draw at least R$5 billion more from the private sector through the effort.

Asset managers interested in receiving funds will have until March 4 to submit their proposals. The choice will be made by the bank, which will evaluate the fund’s investment thesis, governance and costs, as well as the manager and the team involved. The selection is expected to be concluded by the first half of this year.

It is a new investment mechanism of the bank. “The BNDES’s central objective is to increase its instruments for operating in infrastructure. We already have direct investments, financing, and now we want to allocate resources through funds,” said Bruno Laskowsky, head of shareholding, capital market and indirect credit at BNDES.

The plan is to boost both debt funds, destined to finance projects and companies, and equity funds, which will directly invest in the capital of the businesses. Of the five chosen, up to two will be debt funds and three equity funds.

The BNDES will give priority to investments in basic sanitation and urban mobility, segments that have a greater social impact. There is also a preference for funds from institutional investors (who manage third-party money) and with criteria for measuring social and environmental impact.

Mr. Laskowsky highlights two other focuses sought by the BNDES. The first is “project finance” operations, that is, in which the project is capable of “self-financing,” providing its cash flow as a guarantee. “We want to privilege the risk-taking of the project, and not necessarily the risk of the larger guarantor.”

The second goal is to lengthen the term of the loans. “We are looking for structures that follow the long-term timing of infrastructure projects, which is more like 15, 20 years, while the term of bank loans in general is 7, 8 years,” he said.

For this, the idea is that the funds are closed-end, with a minimum term of eight years, and up to 15 years (equity funds) and 20 years (debt funds), said Filipe Borsato, head of fund investments at BNDES. “The idea is, in the short term, to serve these companies and projects benefited, but also, in the long term, to bring institutional investors to the country and give them more security to put funds into infrastructure projects in Brazil,” he said.

The idea is for the BNDES to be a “relevant minority shareholder” in these funds, and for the allocation decision – that is, which projects or companies will receive the investments – to be made by the private-sector manager, the executives highlight.

“The choice of specific projects will be made by private-sector managers, not by the BNDES. Typically, the term for the allocation of funds is three to six years, so the benefited projects will be structured and selected over the next few years. It is not something thought out for the projects of 2022,” Mr. Borsato said.

For this reason, the fact that the process takes place in an election year will not be a problem, and potential changes in the bank’s direction is not a concern, Mr. Laskowsky said.

“We are talking about 15, 20-year projects. This goes beyond any administration. And the country has a huge gap in infrastructure. The math done when it comes to thinking about investments is: there are people prepared to execute the works, there are good project structurers, there is financing and there is demand. These factors are not trivial. Stability helps a lot, of course, but the central theme here is not electoral volatility,” he said.

As for BNDESPar the move is part of its “capital recycling” process, Mr. Laskowsky said. Since 2019, the development bank’s equity arm has been disposing of its shares in companies such as meatpacker JBS, paper and pulp maker Klabin and mining giant Vale, among others. The idea, the executive said, is to rebuild the portfolio having as guidelines innovation, environmental and social impact.

The investment in infrastructure funds will be a first experience in this investment model, which may be extended to other areas of BNDES’s operations. “This is the first call. We will understand how the process will work out. But one possibility is to give guidance, which could be annual, biannual, or triennial, and the bank will make subsequent calls in different strategic sectors, not just infrastructure,” he said.

Source: Valor international

https://valorinternational.globo.com/

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Free power market can generate R$6.3bn in investments in 10 years

The Brazilian Government reduces energy load requirement for entry into the Free energy Market, starting in the second half of 2019 | Viridis

The free power market, a segment in which consumers with high demand negotiate directly with generation companies and traders, may generate R$6.3 billion in investments in 10 years to draw customers, a projection by consultancy Thymos Energia made at Valor’s request shows.

The cost for companies to draw consumers who want to migrate from the regulated market to the free power market is higher than R$1,000, the consultancy said. However, the value is expected to fall to only R$100 as a result of a digitalization drive.

The calculation is based on the number of potential consumers that can migrate from the regulated market to the free market. In Brazil, there are about 87 million consumers. However, Alexandre Viana, a partner and head of consulting at Thymos, believes that about 63 million will change to the free market.

“The cost of drawing customers multiplied by the number of consumers who can migrate to the free market is equal to R$6.3 billion in investments in 10 years, excluding other injections that may come from generation and services,” he said.

The consultancy’s survey outlines a conservative, a baseline and an aggressive scenarios for electricity consumption and projects that the free power market will account for almost 73% of the total load of the National Interconnected System (SIN) in 2035, compared with 35.4% now.

This scenario takes into account that as of 2024 the free market will open fully to all consumers of high voltage, as proposed by the Ministry of Mines and Energy (MME), and THAT in 2026 the opening follows for low-voltage consumers.

“In 2035, this curve will stop growing because low income, public services and rural [clients] will have more difficulty migrating and will remain in the regulated market,” Mr. Viana said.

Bills in Congress on the modernization of the electric sector and regulations can speed up the migration of consumers, the executive added.

As for businesses, some power trading companies no longer want to only buy and sell energy and are expanding their operations by offering services to consumers and generation companies.

This is the case of 2W. With an eye on the liberalization of the market, the company is increasing the supply of renewable power to sell on the free market with the construction of two wind power farms, and has set aside funds for the acquisition of new customers.

“We see a more liberal market in the second half of this decade. For this, it is key to have generation assets so that we are not in the middle of the chain having to buy power from a generation company to sell it to the customer…We have R$150 million for customer acquisition cost to be able to tap the market and sell electricity from these farms,” CEO Claudio Ribeiro said.

Tradener follows a similar path. The company sells about 800 average megawatts and serves between 20% and 30% of its customer portfolio with its own generation. CEO Walfrido Avila said that the investment relies on better market conditions.

“We have 400 MW of projects, but we will do this in tandem with the economy. The interest rates are very high right now. This is bad for financing and this hinders investments,” he said.

For Alexandre Lopes, vice-president of the Brazilian Association of Power Trading Companies (Abraceel), this is a trend since the sector has been driving competitiveness in companies for more than 20 years and the expansion of the electric system.

“The free market has become the flagship of the expansion of electric power generation in Brazil, responsible for more than 70% of the plants under construction, mainly of renewable origin, aligned with national public policy and the global energy transition.”

Source: Valor international

https://valorinternational.globo.com/

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Raça Agro accelerates expansion, projects R$500m turnover

GRA - Grupo Raça Agro | LinkedIn

After raising R$40 million with the issuance of agribusiness receivables certificates (CRA) at the end of 2021, Grupo Raça Agro, based in the state of Mato Grosso, wants to accelerate its expansion project in the segment of livestock inputs distribution. The company will invest the funds raised to increase its territorial presence and to more than double its number of stores by next year.

Today, the company’s structure is made up of 13 resellers, located in Mato Grosso and Mato Grosso do Sul, but, by March, the group will open seven more outlets, four in Mato Grosso and one in Mato Grosso do Sul, one in Goiás and one in Pará, states in which it does not yet operate.

With the investments (in the states with the biggest herds), Raça Agro expects to bring forward by three years its goal of earning R$500 million annually, initially scheduled for 2025 — in 2021, the group’s revenue was R$340 million. “Our plan is to spread the company nationwide. We want to expand throughout the Central-West region and, by 2023, also reach [the states of] Rondônia and Tocantins,” says the group´s CEO João Antônio Fagundes. The goal is to have 30 dealers by the end of next year.

The input distribution industry is still quite dispersed in Brazil, but competition has grown in recent years. With the expansion of its business, Raça Agro wants to anticipate the movement that is already taking place among resellers of agricultural inputs, a segment in which Nutrien, Lavoro (owned by Pátria Investimentos) and AgroGalaxy (controlled by Aqua Capital) have been central characters in the consolidation of the market through the purchase of small networks.

Mr. Fagundes says that the company has already been sought by a potential buyer. However, according to him, the company’s intention is not to be bought, but to become one of the main names in the marketing of products intended for livestock farmers, such as supplements, products for pastures and veterinary medicines.

“We are paying attention to other movements, alliances and acquisitions. The question is whether it makes sense to have a partner at this point. We also see no point in selling control. We still have the ability to add value, and these partnerships [such as the issuance of the CRA] show that it is possible,” he says. “And with the CRA, we’re just giving our first steps on [Brazilian exchange] B3.”

Source: Valor international

https://valorinternational.globo.com/

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Human Rights Watch warns about Bolsonaro, ViajaNet on the block, cruise lines extend suspension, MSC takes over Log-in

Human Rights Watch criticizes Bolsonaro

International human rights watchdog Human Rights Watch says in a report released Thursday that President Jair Bolsonaro threatens “the pillars of democracy in Brazil by attempting to undermine confidence in the electoral system, freedom of expression, and the independence of the judiciary.”

The document says this year’s elections will test the strength of Brazilian democracy in the face of the authoritarian threats made by Mr. Bolsonaro. The report also says that the right to vote and freedom of expression are at risk in the current administration, and it is necessary that democratic institutions such as the Federal Supreme Court (STF), the Superior Electoral Court (TSE), and Congress resist Mr. Bolsonaro’s attempts to deny Brazilians the right to elect their representatives.

ViajaNet is on block, sources say

The crisis caused by the pandemic put the travel agency business on the line, a scenario that has favored consolidations. After Flytour and Queensberry were bought by BeFly, sources say that another relevant player in the sector is on the block: ViajaNet, an online tourism agency that reported sales of R$1 billion in 2019.

Among the interested parties are groups linked to tourism, such as BeFly itself, which has shown an appetite for further consolidation, and Despegar, sources say. There are also online marketplaces on the list of potential buyers. The view is that ViajaNet already has strong partnerships for sales with this type of platform and there would be plenty of synergy – Magalu and Mercado Libre are two partner companies also on ViajaNet’s radar.

Cruise lines decide to extend season suspension until February 4

Cruise companies have decided to extend the suspension of the current cruise season in Brazil until February 4th. The information was released this Thursday by Clia Brasil, an arm of the international association that represents groups such as MSC and Costa.

Previously, the season suspension would be in effect until January 21. The sector’s decision to extend the period came after health regulator Anvisa asked the government, on Wednesday, to end the current season definitively because of the new Covid-19 cases.

The sector argues that the decision to extend the suspension aims to continue discussions with the authorities in order to align the necessary measures for the resumption of cruises.

Representatives of the Health and Tourism ministries and of the Chief of Staff Office will meet again in the coming days to discuss the situation of maritime cruises in the country, Tourism minister Gilson Machado Neto told Valor. The date of the meeting has not yet been set.

MSC takes over short-sea shipping company Log-in

The sale of control of Log-in to MSC (Mediterranean Shipping Company), completed on Thursday, is likely to boost the short-sea shipping company. The entry of the new partner —a global giant in long-haul shipping — opens up several opportunities for joint operations, Log-in’s CEO Marcio Arany said.

However, the executive emphasizes that this is not the complete incorporation of the Brazilian company, which will continue seeking results and expansion goals regardless of its new parent company.

With the public offering of shares held Wednesday, MSC (through its subsidiary SAS Shipping) will now hold 67% of the company’s capital. The shares were priced at R$25. As a result, the total disbursement is expected to reach $316 million.

Source: Valor international

https://valorinternational.globo.com/

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Services sector shows positive results in November

Service Sector Images, Stock Photos & Vectors | Shutterstock

With an increase of 2.4% compared to October, the volume of the services sector surprised positively in November. The good news, however, should be viewed with caution, economists point out. In addition to having been preceded by declines in the previous two months, the November expansion was driven by segments that have presented volatile performances.

For 2022, at least in the short term, the omicron variant, inflation, slow job recovery and political uncertainty are among the factors that could act as “headwinds”, despite the gradual resumption of services provided to families and the new cash transfer program Auxílio Brasil.

The Monthly Survey of Services (PMS) released on Thursday by the Brazilian Institute of Geography and Statistics (IBGE) indicated that the volume of services of four of the five large groups increased in November compared to October (seasonally adjusted), opening space for double-digit growth in 2021, which would be a record in the annual result of the indicator series, which started in 2012.

The rise in services in November came above the median growth of 0.2% pointed out by Valor Data in a collection of projections with 26 consultancies and financial institutions, even surpassing the estimates’ ceiling of 1.5%.

Rodolpho Tobler, a researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), says that November certainly brought a positive result, but that it needs to be viewed with “certain caution”. Analysis of the indicator’s composition doesn’t seem to indicate a trend review, he says.

In September and October, the PMS indicated a drop in the volume of services of 0.6% and 1.6%, respectively, in the seasonally adjusted monthly variation. For Mr. Tobler, it’s not entirely clear what propelled the “information technology services” business to such a high in November. “I believe that we can return to that more fragile scenario from December onwards.”

In a statement released by XP, economist Rodolfo Margato also highlights the rise in information technology services, which increased 10.7% in November compared to October, in the seasonally adjusted series. This performance was one of the explanations for the difference in the estimate of a 0.2% increase expected by XP for the November PMS and the result of the survey released by the IBGE. Another area that came above expectations, he indicates, was “air transport services”, with an increase of 7.6% in November.

Mr. Margato points out, however, that these activities have not shown continuous growth. The information technology expansion in November followed a 0.4% contraction in October and a 0.1% drop in September. In air transport, the rise in November came after accumulated contraction of almost 14% in the previous two months. The PMS results for November were clearly positive, highlights Mr. Margato. He believes, however, that the pace of growth in the sector should be viewed with caution, “since a relevant part of the bullish surprise with the data for that month came from volatile segments in the monthly comparison.”

Mirela Hirakawa, economist at AZ Quest, also highlights the volatile components in service performance in November. For her, in December the indicator can still show a positive evolution, with the result of November having the effect of containing additional downward revisions for the 2021 GDP. AZ Quest currently projects an increase of 11% in the volume of services by PMS in 2021 and, to GDP, it maintains a growth of 4.4%.

Ms. Hirakawa points out that the November survey still shows recovery in services provided to families. These are activities that include accommodation and food, she explains, which are important for the GDP and which had its resumption favored by greater social mobility, with the advance of vaccination. There is, however, she says, additional apprehension in the short term due to the increase in cases of Covid-19, by the omicron variant. What is expected, she says, is an impact on services not only as a result of new restrictive measures on circulation but also as a result of the shortage of service professionals, with an increase in contamination.

Étore Sanchez, chief economist at Ativa Investimentos, also has the omicron on his radar for 2022. The movement of people is an important factor for the resumption of services, he says, and therefore, he still expects a marginally positive performance for the sector for December. With the performance of the November PMS, Ativa revised its GDP growth forecast for 2021 to 4.6% from 4.4%.

Even if an impact of a new wave of Covid-19 is expected, however, Ms. Hirakawa points out, the expectation is that the effects will be increasingly gradual due to adaptations in life and learning habits by the various levels of government. She recalls that in April 2020, under the impact of the first wave, the area of hotels and food services fell by 45.2%. In March last year, there was already a smaller drop, with a contraction of 29.6%, in the same comparison.

In addition to the advance of the vaccination against Covid-19, Goldman Sachs also expects that cash-transfer program Auxílio Brasil will also help in the continuity of the recovery of services in 2022. In the short term, however, the bank’s chief economist, Alberto Ramos, says that, in addition to the increase in cases of Covid-19, we should also think of high inflation, tighter domestic financial conditions, increased political noise and uncertainty and deteriorating consumer and business confidence as “headwinds”.

In the November 2021 PMS, services provided to families showed an increase of 2.8% compared to October, with the eighth consecutive positive rate in this comparison, accumulating growth of 60.4%. But, even with this accumulated increase, the segment in November 2021 still was at a level 11.8% below February 2020, before the pandemic.

A resumption of services provided to families, such as restaurants for example, to levels before the pandemic depends not only on health factors related to Covid-19, but also on the macroeconomic context, such as income and employment, highlighted Rodrigo Lobo, IBGE economist and manager of the PMS.

Mr. Lobo acknowledged that, just as the pandemic was a new factor affecting business in the sector, the macroeconomic context of February 2020 was different from that observed in November 2021. In practice, the economic environment affects the purchasing power of the population, he noted. The effect of the omicron variant on services, he says, will only be known effectively in March, when the January 2022 survey will be announced.

Source: Valor international

https://valorinternational.globo.com/

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As Brazilian exports grow, China grabs larger share

Lia Valls — Foto: Leo Pinheiro/Valor
Lia Valls — Foto: Leo Pinheiro/Valor

Brazilian exports grew 34% year over year in value in 2021, more than offsetting the 5% loss reported in the previous year. The growth led to a record shipment of $280.6 billion last year, but had uneven distribution by destinations. The increase in shipments was almost all directed to China, which grabbed a larger share of Brazilian exports compared with before the pandemic. The Chinese share of the values shipped by Brazil rose to 31.3% last year from 28.7% in 2019. Asia as a whole advanced four percentage points in the same period, reaching 46% in 2021.

Exports to the United States, European Union and South America also grew last year compared with 2019, but at a lower rate than China’s 38,5% rise over the same period or than the average of Brazilian shipments, according to federal government data. With this, the American share in the value of Brazilian exports fell to 11.1% from 13.4%. The European Union had a small reduction, to 13% from 13.6%, but now holds the lowest share since official records began, in 1997. South America’s share shrunk to 12.1% from 12.6%. This is not the lowest share ever because last year, as the region’s economy suffered more due to the pandemic, its share was 10.8%.

The Foreign Trade Indicator (Icomex), which is surveyed by Fundação Getulio Vargas’s Brazilian Institute of Economics (FGV/Ibre) and considers the volume alone, excluding the price effect, shows growth in shipments to China. Even as there were slowdowns or even falls in some periods, the survey suggests that shipments to China are on the rise considering data since 2008, said Lia Valls, a research associate at Ibre. The volume exported by Brazil to the Asian country grew more than 360% in 2021 versus 2008, the Icomex shows. On the other hand, the volume shipped to the United States fell 18.6%, while exports to Argentina and the European Union dropped 30% and 28%, respectively, in the same comparison.

It is important to highlight the effect of volumes, Ms. Valls said, because the value shipped by Brazil last year grew predominantly by the price factor, driven by key items like agricultural and metal commodities. Iron ore had a prominent role. Still according to Icomex, the average price of exports rose 29.3% year over year in 2021. In volume, shipments increased at a much slower pace, 3.2%.

Structural and cyclical issues explain Asia’s largest share in Brazilian exports, said Livio Ribeiro, a researcher at Ibre and a partner at BRCG Economic Consultants. “The most structural issue is that we are developing an export agenda that is very complementary to the Asian value chain. This is true for China, which leads many of the region’s productive processes, but it includes other countries on the continent, such as Korea, Malaysia, Singapore and even Indonesia,” he said. That’s why the increase in export value in 2021 was not evenly distributed among the blocs, according to him. “About 90% of that margin went almost entirely to China.”

Brazil’s tariff structure for exports to the European Union, Mr. Ribeiro compares, is not very different from China, considering the prominent role of agricultural and metal commodities. “But Asia has been buying the incremental [volume], and this makes sense when you consider that China and Asia have been growing above the global average and the eurozone countries have been growing less than the United States.”

The long-term path in volumes follows similar logic, Ms. Valls said. The European Union has had much lower growth than Asia and the United States since the 2008 financial crisis, she recalled. The picture is similar to the recovery seen over the past year, after the first cycle of the pandemic, Mr. Ribeiro said, which is already the broader factor of the scenario, as Asia overcame the health crisis more quickly with the first variants of Covid-19 and resumed economic growth with more vigor.

In relation to South America, the Argentina factor weighs the most. For economists, there is no prospect of a faster recovery in the values exported to the region if there is no more sustained recovery of the Argentine economy over time. At the same time, Mr. Ribeiro said, there is also a reorganization of the automotive sector, with many factories settled in Argentina, which does not favor Brazil.

Source: Valor international

https://valorinternational.globo.com/

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Itaú buys broker to speed up retail expansion

Until the beginning of October last year, Itaú was forbidden by the Central Bank of Brazil to make new acquisitions in the investment segment, due to its agreement with asset management firm XP. Once the separation between the two companies was concluded, this interdiction no longer existed and Itaú unveiled Thursday the purchase of Ideal, another brokerage firm. The bank will pay R$651.3 million for 50.1% of the firm and, after five years, will be able to acquire the remaining slice.

Ideal Investimentos is expected to be the spearhead for Itaú Unibanco to enter businesses that it has not yet operated, according to Carlos Constantini, chief executive of the bank’s wealth management and services division. As the digital brokerage serves mainly institutional investors in high-frequency trading, the executive does not expect that there will be any barrier to the approval of the deal, either by antitrust regulator Cade or by the Central Bank, as it happened with the transaction with XP.

“We are not buying a client base [as was the case with XP]. Ideal is still going to make a move to build retail. We’re buying people’s knowledge and the technology. It’s not comparable,” Mr. Constantini said. “It’s more the expectation of building a business than buying a business and keep driving.”

It was the recent divorce from XP that also allowed Itaú to look at its surroundings. “It’s going to be an exciting year to get the pieces on the board and play. I don’t think it’s going to be big acquisitions, but from our point of view it’s an opportunity to look at the whole platform and different ways of serving the customer where the bank is not,” the executive said.

Arrangements in the “broker as a service” model, to offer partner-branded investments and reach new customer bases are among the plans for the acquisition. Retail companies, utilities and the corporate segment served by Itaú are the potential targets. It will also be on Ideal’s platform that Itaú intends to accelerate the service to independent financial advisers, which is largely responsible for XP’s climb. The fintech ended 2021 with R$815 billion under custody.

“When we look ahead, the digital brokerage will play an important role in serving retail clients, whether directly or through the use of third parties, such as independent financial advisers, or in environments outside the financial market, such as retailers,” Mr. Constantini says. He said that for some time he had already discussed with Ideal’s partners some kind of partnership, but the conversations naturally evolved into an acquisition. The purchase of the control and then the entire operation will effectively be subject to regulatory approvals.

Unlike the transaction with XP (in which there was a commitment from both parties), this is a right that can be exercised or not. In the transaction, both Ideal’s founding partners and the Kaszek fund will be diluted in proportion to Itaú’s capital contribution. The private equity manager invested R$100 million in the business in September 2020.

In the view of Filipe Medeiros, CEO of AAZW, a company that provides technology and consulting services to independent financial advisers, for an institution as big as Itaú, it was natural for it to make a move to advance in this market and the purchase of Ideal serves this purpose. “The independent advisory market, represented in large part by independent agents, is already too big not to be considered by brokers and banks that want to enter this sector,” he said.

For Carlos Macedo, an analyst at OHM Research, Ideal is complementary to Itaú’s existing business and allows the bank to compete on equal terms with XP, BTG and Nubank. “It is worth remembering that service revenues in the traditional model — charging for account maintenance, transfers, etc. — are a business model that tends to die,” he said. “Services that have a higher added value, such as investment advice, for example, should still be able to generate revenue for banks. It makes sense for Itaú to seek to expand its operations in this field, since its competitors are quite active.”

Renata Cardoso, a partner for banking and finance at law firm Lefosse, says it is not yet possible to know how the CADE and the Central Bank will evaluate the purchase of Ideal by Itaú, but she points out that the deal is part of a large movement of mergers and acquisitions (M&A) in the financial services sector. “Big banks are using these acquisitions as a way to renew their business, reinvent the way they operate, and even acquire and develop new technologies. It is something we will continue to see throughout 2022.”

“It emerges as a mantra of focus on clients. They are the ones who will gain the most from the deal, since Ideal will help us expand and standardize the offer for different channels,” Itaú CEO Milton Maluhy Filho said in a statement. Nilson Monteiro, Ideal’s CEO, will remain at the head of its operations, together with the other founding partners of the company. The management and conduction of Ideal’s business will remain independent from Itaú, which will become another institution served by the brokerage house.

Source: Valor international

https://valorinternational.globo.com/

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Brazilian firms raised record amount in 2021, Embraer sells subsidiaries in Portugal, Via buys logistics startup

Investing in Brazil : 5 Sectors to follow and invest in 2022 - Europartner

Brazilian companies raised R$596bn in domestic capital market in 2021, an all-time high

The Brazilian capital market had a landmark year. Companies in the country raised R$596 billion in 2021 considering equity, bonds and hybrid instruments, up 60% year over year and the highest amount since records began, said Anbima, the association of securities firms.

The companies also raised $24.8 billion abroad, down 4.7% year over year. Considering funds raised locally and abroad, Brazilian companies got R$734 billion.

In variable income, companies issued R$128.1 billion, which was not higher than the nominal result of 2010, of R$150.3 billion. However, the figure of 11 years ago includes a one-off move by oil giant Petrobras, which raised R$120.3 billion.

In fixed income and hybrid instruments, companies raised R$467.9 billion in 2021. This is another record. The bond market alone totaled R$253.4 billion, more than double that of 2020.

Embraer sells subsidiaries in Portugal to Aernnova Aerospace for $172m

Embraer unveiled on Wednesday that it has sold two subsidiaries in Portugal, Embraer Portugal Estruturas Metálicas (EEM) and Embraer Portugal Estruturas empósitos (EEC), to Spain’s Aernnova Aerospace for $172 million. Both companies supply components used in aircraft manufacture and, after the closing of the deal, scheduled for the first quarter, they will continue to supply parts to Embraer.

The sale is neutral for the company, says Citi. The bank questions whether the company has not created unnecessary complexity. Citi has a neutral recommendation for Embraer, with a $17.50 price target for American Depositary Receipts (ADRs) traded on the New York Stock Exchange (NYSE).

Via buys logistics startup CNT

Via, owner of Casas Bahia and Ponto, announced the acquisition of 100% of the capital stock of the logistics startup CNT, which specializes in complete offers for e-commerce operations, according to a statement to the market. The value of the transaction was not disclosed.

According to Via, the transaction value consists of a fixed and a variable portion, with the fixed portion implying a multiple of about 0.20 times the gross volume of goods (GMV) in 2021. The variable part is conditioned to the achievement of performance targets and the permanence of CNT’s main executives at the head of the business.

CNT is specialized in complete offers for e-commerce operations, multi marketplace and platforms in the “plug & play” model, and have been operating for 11 years in the provision of complete logistics services (fulfillment) and for four years in services in e-commerce (full commerce).

Source: Valor international

https://valorinternational.globo.com/

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Brazil to adopt unilateral retaliation in foreign trade

The Brazilian government will use an arsenal to apply unilateral retaliation against countries that were convicted of illegal measures on Brazilian exports, but use tricks to maintain restrictions, Valor has learned.

A provisional measure already approved in ministerial meetings, and currently in the Chief of Staff Office, authorizes the federal government to retaliate proportionally and unilaterally, in cases of litigation victories at the WTO, when the losing country makes the so-called “appeal in the void”.

This is what happened this week with India in the sugar dispute and with Indonesia at the end of 2020 in a dispute involving barriers to entry of chicken meat. Both countries appealed to the Appellate Body knowing that the mechanism is inoperative and cannot decide; hence the term “appeal in the void”. With that, in practice, they stop the Brazilian victory and maintain the measures considered illegal by the panel, which cost millions of dollars in losses to Brazilian producers.

India and Indonesia are thus potentially the first to be threatened when the provisional measure comes into force. Retaliation takes the form of surcharges on goods and services from the targeted countries, or suspension of intellectual property rights.

Sarquis JB Sarquis, secretary of Foreign Trade and Economic Affairs at the Foreign Affairs Ministry, known as Itamaraty, emphasized that “the current paralysis of the WTO Appellate Body is at the origin of the initiative conceived by Itamaraty, which aims both to protect the country’s legitimate commercial interests within the framework of the multilateral trading system and to promote the full functioning of the system based on the rules and fundamental principles of the WTO”.

“Once the WTO Appellate Body is back to normal, the initiative will have served its purpose,” he added.

In the same vein, the secretary of Foreign Trade at the Economy Ministry, Lucas Ferraz, stated: “We understand that it is a very important mechanism to face the current situation of appeals in a void. The Brazilian government is committed to the WTO reform process, as well as the timely restoration of its Appellate Body. We cannot condone the opportunistic use of the current situation, in clear detriment to our productive sector.”

Current WTO rules allow a country to apply trade retaliation if the convicted country fails to implement the recommendations of the Appellate Body, a kind of supreme court for international trade.

However, the Appellate Body is paralyzed, without any of its seven permanent judges, because Washington blocks the appointment of new arbitrators. As long as this legal fact (which no one had foreseen) persists, WTO members have the possibility to circumvent the condemnations established by the panel and avoid changing the measures considered irregular.

Brazil will now follow the example of the European Union, with the unilateral retaliation mechanism. As long as the Appellate Body does not function, and the convicted country does not participate in a parallel arbitration mechanism, Brasília will impose what negotiators call the precautionary principle to protect the interests of domestic producers.

A group of 25 WTO members, including the European Union (27 countries), tried to alleviate the problem of the Appellate Body blockade by creating a plurilateral parallel arbitration system. The disputes between its participants thus have a final decision. For example, the most recent dispute opened by Brazil, against the European Union, involving barriers to chicken meat in the European market, is guaranteed to have a decision implemented, because both participate in this plurilateral mechanism.

India and Indonesia do not participate in this plurilateral mechanism. In 2019, when Brazil denounced India for illegal policies to support the sugar sector, which affect international prices, the Itamaraty mentioned that expert estimates pointed to losses of up to $1.3 billion for Brazilian exporters per year.

In the case of Indonesia, calculations are that Brazil could sell up to 3,000 tonnes of chicken meat a year in the initial phase, if restrictions were lifted. But the Indonesian government has resisted for years.

Brazil won, without actually seen results, a dispute against the Asian country in 2017. A WTO panel found Brazil right that year. Indonesia had until July 2018 to implement the judges’ recommendations. It made some changes that Brazil considered insufficient.

Another panel was then formed to examine the implementation of the judges’ recommendations, and Brazil won again by proving that Indonesia maintained restrictions on Brazilian exports. Indonesia then appealed “to the void” in December 2020, knowing that the WTO Appellate Body does not work.

India and Indonesia are now among the countries that most subsidize agriculture in the world. And the paralysis of the WTO Appellate Body actually ends up benefiting them. “Brazil continues to work actively for the re-establishment of the Appellate Body and for the full development of WTO rules and reform, including in agriculture and subsidy disciplines, in accordance with terms and mandates established since the Uruguay Round,” said Mr. Sarquis.

The paralysis of the Appellate Body caused by the Americans “is very serious, it gives the impression that the U.S. no longer wants the WTO, as a system of rules and multilateral disciplines, agreed upon, applied, with a litigation process which obliges the losing party to comply” with the decision, notes Pascal Lamy, former WTO director-general.

He recalls that this obligation to respect decisions, under penalty of retaliation, is what distinguished the WTO from other organizations whose rules are more or less applied and in which the countries, when they lose a case before the International Court of Justice in The Hague, for example, keep the sovereignty to apply or not the result.

In Mr. Lamy’s view, the U.S. is obsessed with China and wants to be able to strike unilaterally without being tied to WTO rules and decisions of its Appellate Body. This American absence causes a degradation of the multilateral system, and more countries seek unilateral arsenals.

Source: Valor international

https://valorinternational.globo.com/

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