Analysis: XP’s acquisition of Modal can be a masterstroke

Em troca de ações, XP compra 100% do Banco Modal por R$ 3 bilhões

The acquisition of Banco Modal by XP Inc. brings to the financial group founded by Guilherme Benchimol R$30.4 billion in assets under custody, 501,400 active clients and a portfolio line of credit of R$606.8 million, data from the third-quarter results show. It may seem little for XP, which was already near R$800 billion under its umbrella, with 3.3 million active clients and R$8.6 billion in collateralized credit operations. But far from being a negligible step in the consolidation of the investment market in Brazil, XP’s bid can be considered a masterstroke.

With the countless agreements closed by Modal, such as the sale of up to 35% of its capital to Credit Suisse in mid-2020, the digital bank was one competitor with the potential to cause problems to XP. In the premium segment, which serves customers with at least R$300,000 in assets, Modal had been offering asset allocation with the Credit Suisse brand. Modal’s mobile application made available 28 exclusive funds from the Swiss group’s private banking in Brazil and the plan was to reach 40 in the first quarter of 2022.

In a meeting with investors in mid-December, Modal CEO Cristiano Ayres said that more than just a pretty name, the presence of Credit Suisse was the way to offer financial advice similar to what is done with large fortunes. The relationship with the Swiss group also paved the way for Modal to take part in the syndicate of banks in capital market operations and distribute assets originated by the firm to its retail base.

The foreign partner’s seal of approval also helps draw independent and professional brokerage firms to the platform, Mr. Ayres said. Modal had been moving forward in this distribution channel since the acquisition of the research company Eleven, which already had relationships with several asset management firms, including competitors.

Another front in which Modal had been investing was in the so-called “B2B2C,” in which it offered financial services to various partners. It already had agreements with companies such as Rappi, Dotz and Conta Black.

Acquisitions made by Modal to create an “ecosystem of financial well-being” are also in line with the businesses where XP demarcated its territory, including financial education and training of professionals, whether in investments or technology.

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Prudential evaluates opportunities in new Latin American companies

A Prudential

The American insurance company Prudential has its eye on new companies in Latin America and Brazil. Through PruVen Capital, a venture capital asset manager created in late 2020, it has been evaluating businesses linked to innovation in the areas of insurance, asset management, healthcare, financial services, and technology.

With expected investments between $5 million and $10 million, PruVen is currently analyzing three startups in the region. The targets are operations able to catalyze changes within the group itself and that are “more or less consolidated for series A investments,” says Erick Kluft, head of strategy and risk at Prudential Financial in Brazil.

“We look for companies that, besides financial return, have some synergy with the group, that can contribute to growth, whether in products, distribution, new methods or operational control processes,” says Mr. Kluft. The idea is to have no more than a 30% stake in businesses that have already been tested in some way and have the potential to become “iconic”.

Prudential started to target businesses complementary to its core activity, with the intention to orbit in the world of innovation, in 2019, when the group’s leadership changed. It attracted as a founding partner to PruVen Ramneek Gupta, one of Robinhood’s angel investors, and who was for nearly a decade head of venture capital investments at Citi globally.

“We are very focused on services for small and medium-sized enterprises, especially insurance brokers. We believe that with more than 8 million such firms, growing at a rate of 660,000 new companies per year, there is a powerful opportunity to help those companies grow and manage their business with technology and tools typically available today only to the big guys,” says Mr. Gupta. “Couple that with the highly complex regulatory environment that small businesses face in Brazil and you have the ingredients for a substantial market opportunity.”

Mr. Kluft says that by the very nature of Prudential Financial’s business, the high interest rates in Brazil is unlikely to hinder investments in startups with proprietary capital. “The company has existed for almost 150 years,” he says. “It doesn’t think in the short term. Our work is to deal with life. I take care of my client from the first moment, when he needs a life insurance, until when he passes away, I’m there to close the cycle with his family.”

In Brazil, Prudential has been in business for more than two decades and is one of the leaders in the life insurance ranking. The group is present in over 40 countries and has $1.7 trillion in assets under management and over $4 trillion in capital insured.

Source: Valor international

https://valorinternational.globo.com/

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Commodities dominate exports even in São Paulo

Commodities: o que é e como funciona?

Commodities are grabbing an increasing share of exports across nationwide. In all regions, products related to agribusiness or the extractive industries ended the year dominating foreign sales. Soybeans have become the champion of shipments in ten states, crude oil or oil products are in the lead in three federative units and iron ore is now the main product exported in three others.

According to data from the Secretariat of Foreign Trade (Secex), the share of the manufacturing industry in Brazilian exports shrank to 51.3% in 2021 from 63% in 2010. This category also covers agribusiness products that undergo some type of industrial processing, such as meat, pulp and refined sugar.

Even São Paulo, Brazil’s most industrialized state, has its export basket led by commodities. Sugar ($5.6 billion last year) and crude oil ($4.3 billion) — whose production has soared in recent years because of the pre-salt layer — are the two goods most sold abroad. Embraer aircraft, the first purely industry item, came in third and contributed $2.3 billion.

In Paraná, passenger vehicle — which come at the front among manufactured goods outside agribusiness or extractive industry — are only the eighth most exported product. Also in eighth are shoes in the state of Rio Grande do Sul. Both states had soybeans as a prominent product in 2021.

For economist Paulo Gala, professor at the School of Economics at Fundação Getulio Vargas, the fact that the Brazilian map is now dominated by commodities allows for two thoughts. First: no state manages to have a sufficiently sophisticated exports agenda to have highly technological products — instead of grains, oil or minerals — as sales champions. Second: the Brazilian industry is predominantly focused on the domestic market and still lacks greater global competitiveness.

In his view, only a few micro-regions of the country — around cities like Campinas, Piracicaba (both in São Paulo), Caxias do Sul (Rio Grande do Sul) and Betim (Minas Gerais) — managed to transform themselves into “islands” of innovation and productivity, with leading industries. No wonder, he adds, they are among the municipalities with the highest per capita income.

“Only a few hubs have sophisticated export-oriented industries driving the local economy, but these hubs don’t come to dominate a entire state,” Mr. Gala said. “What brings jobs, income and reduced inequality is the production of complex goods. They require research and development, technology, patents. Embraer, WEG and Marcopolo are counterexamples of our incapacity for commercial insertion in the world,” he said.

According to the professor, not even the weakened real since the beginning of 2020 has been enough to avoid the loss of space of the industry in exports, compared to agribusiness and mineral extraction. “The weakened real helps price competitiveness, not quality competitiveness. The real exchange rate is at its lowest level in the last 20 years, but we need a much heavier science and technology policy and industrial stimulus,” he said.

The domination of commodities has intensified, said José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB). He estimates the deficit in manufactured products at $70 billion to $80 billion. On Monday, Secex unveiled a record balance of $61 billion in the balance of trade last year – obviously counting all kinds of products, not only those related to industry.

In his view, Brazil is now excessively dependent on three products (soy, oil and iron ore), which represent around 40% of total shipments, and on a single market (China) that buys 32% of our exports.

“In the 1980s, people complained a lot about the dependence on the United States, but the American market absorbed around 25% of Brazilian exports and there was more product diversification. At that time, eight of the ten main export items were manufactured goods. Now, the top 15 are commodities.”

In descending order, the 15 main products sold by Brazil last year were: iron ore, soybeans, crude oil, refined sugar, beef, soybean meal, fuel oils, chicken meat, pulp, semi-finished products or ingots of iron and steel, coffee, gold, corn, cotton and copper.

Therefore, Mr. Castro links the recent trade balance surpluses to the favorable price environment, not to the support of public policies. “The Brazil cost is still very high and the government has ended Reintegra [a program that reimburses companies for part of the taxes paid along the production chain], in addition to having reduced resources for financing exports, under Proex.”

Source: Valor international

https://valorinternational.globo.com/

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Companies unveil $500bn of investments by 2030

Find Investments To Meet Your Financial Goals – Forbes Advisor

Companies are likely to take a wait-and-see approach regarding investment decision-making this year. But some segments, benefited by structural reforms or boosted by international prices, will put their money to work.

Basic sanitation, logistics, energy, oil and steelmaking are in the front line, according to company executives and business plans unveiled in documents delivered to the capital market regulator.

These companies, mostly large players on the stock exchange, can be a safe haven for a capital market that is coming off a drop in 2021 while international peers have seen all-time highs.

More than $500 billion in investments have been announced until 2030, according to a preliminary survey by consulting firm Deloitte. The highlights are the petrochemical and steel industries, and projects linked to oil and gas. These are investments unveiled for the medium to long term, with the prospect of a larger volume of allocation of funds this year than in 2021.

Petrobras, Brazil’s largest company by revenues, unveiled in November a $68 billion business plan for the 2022-2026 period – up 23% from the previous one – focused on exploration and production of oil and natural gas. In this period, the divestments foreseen by the state-owned company will be between $15 billion and $25 billion, which in theory paves the way for new investments from the companies that will take over these assets. That has been happening in recent years amid Petrobras’s effort to reduce its debt pile.

In the basic sanitation industry, large figures are also expected. Between 2022 and 2026, water utilities Sabesp (São Paulo), Copasa (Minas Gerais), Sanepar (Paraná) – the three largest listed companies in the sector – and Corsan (Rio Grande do Sul), which is expected to go public this year, have unveiled combined investments of R$45.5 billion, up 67% from the amount spent between 2017 and 2021.

That’s almost eight times what they had on hand at the end of September, and compares with combined assets of R$81 billion and net equity of R$43 billion in the same month. The market capitalization of the three public companies totaled R$37 billion at the beginning of this year. Corsan’s stock offering, a privatization on the stock exchange, may raise R$1 billion.

“Corsan will be the first opportunity of this new cycle to enter the sector through the stock exchange. The basic sanitation market has many gains to be extracted, and there is a lack of companies to invest in, so Corsan can be a vehicle for a future expansion across Brazil,” Fábio Abrahão, head of infrastructure, concessions and public–private partnership at the Brazilian Development Bank (BNDES), told Valor last month.

According to the new regulatory framework, from July 2020, the companies will have to provide drinking water to 99% of the population and sewage collection and treatment to 90% by December 31, 2033, which would finally take the country out of its secular backwardness in this sector. Since the approval of the framework, at least R$42.2 billion have been guaranteed by the companies that participated in the auctions organized by the federal government, including that for Rio de Janeiro-based Cedae.

Basic sanitation will be a highlight, credit rating agency S&P Global Ratings said, but it is part of a broader spectrum of the role of infrastructure in attracting investments in the coming years, which goes beyond short-term issues such as elections.

“Infrastructure investors are not short term. Infrastructure is a very deficient field, and taking on this risk is actually taking on Brazil risk,” said Julyana Yokota, an infrastructure analyst at S&P.

Another important road for capital inflow in the communications infrastructure is the fifth-generation mobile network (5G). The auction held in early November will bring R$47.2 billion, according to the National Telecommunications Agency (Anatel), considering fixed concession payments and investments to be made over the term of the contracts.

As expected, Brazil’s largest operators – América Móvil’s Claro, Telefónica and Telecom Italia’s TIM – had a prominent role, but the market will also have new players, which brings more money to the table. Of the 15 bidders, 12 bought frequency blocks, 7 of which are newcomers.

One is Ceará-based Brisanet, which won three lots. A few months earlier, the company went public and raised R$1.25 billion, most of it earmarked for network expansion, according to the prospectus of the IPO.

Mining and steelmaking will continue to have a substantial weight this year – on the stock exchange, trade balance and investments. Vale, Brazil’s largest exporter, set aside $5.8 billion for this year, up 7.4% year-over-year. The mining company’s projection, made in a meeting with analysts in late November, is to maintain capital expenditures around $5 billion to $6 billion per year. The forecast is to reach, by the end of next year, 370 million tonnes of iron ore production capacity, which may recover the levels of demand and price seen in the first half of last year if a Chinese recovery comes after the pandemic comes to an end.

CSN Mineração expects a balanced world iron ore market in 2022, with reduced restrictions on steel production in China and a small increase in supply. The investment planned for this year, about R$5 billion, is 70% higher than that of 2021.

In a meeting with investors in early December, chief financial officer Pedro Oliva said he expects ore to be traded between $100 and $120 a tonne this year. At the peak of what was seen as a new commodities boom at some point, the price was over $200.

In the steel industry, prices are expected to remain at levels much higher than recent years, even with the adjustments already put in place, said Luis Fernando Martinez, executive director at CSN, at the same event. The steelmaker foresees investments of R$4.1 billion this year, up from R$2.8 billion in 2021.

Competitor Gerdau foresees capacity increase investments in Brazil of $500 million starting in 2024. This year, the company will invest $130 million in the North American operations and $140 million in specialty steel.

(André Ramalho, Rafael Rosas and Ana Paula Machado contributed to this story.)

Source: Valor international

https://valorinternational.globo.com/

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Warehouses are in for another heated year

Why multi-story warehouses are coming to America

The warehouse segment is in for another heated year, with multi-billion investments and high demand for leasing. E-commerce companies, retailers and the pharmaceutical industry are in the front line, and there is a search for areas for storage, exchange and distribution of products from in places as diverse as the city of São Paulo – Brazil’s largest market – and states like Minas Gerais, Bahia and Pernambuco.

Warehouse gross absorption, an indicator of new leasing contracts, grew 19% last year in the state of São Paulo, to 2.75 million square meters, data by consultancy CBRE show. Net absorption, which is the difference between leased and vacated areas, expanded 22%, to 1.56 million square meters. The consolidated figures for Brazil have not yet been disclosed, but CBRE expects that gross absorption has exceeded 5 million square meters. Both indicators meant all-time highs. Vacancy fell 1.4 percentage points in 2021, to 12.3%.

The volumes seen in the state of São Paulo and in Brazil are likely to remain flat in 2022, said Fernando Terra, senior director of industrial and logistics for Latin America at CBRE.

On the one hand, a slowdown in e-commerce is not expected, Mr. Terra said. On the other hand, most of the main companies in the segment have contracted a substantial volume of large warehouses in the last two years. “Certainly, the big players will take smaller areas,” he said. At the same time, e-commerce players that arrived recently in Brazil, like Shopee and Alibaba, are likely to pick larger warehouses.

As the vacancy rate of warehouses fell, the next effect of the heated demand will be higher rental prices, said Giancarlo Nicastro, CEO of SiiLA, a consultancy focused on real estate. In view of the high new inventory expected for the Brazilian market, however, there may be some increase in the share of vacant spaces in relation to the total.

“The year starts with scheduled delivery of 3.7 million square meters in Brazil, an all-time high. Even if the total reaches only 2.6 million square meters, the vacancy rate tends to rise a little,” Mr. Nicastro said. The announced figures are usually adjusted later, he said. In 2021, the initial projection of new warehouse stock was 3.38 million square meters, but the real volume was 2.2 million.

There may be some delay in construction works, said Mariana Hanania, head of research and market intelligence in Brazil at Newmark. Part of what is under construction is already leased, she said, so there is no risk of oversupply. “Even as there was an important growth in stock, vacancy is falling,” the executive said. In the state of São Paulo, deliveries of projects have occurred mainly in regions with almost no vacancy, and a relevant part of the new stock results from the expansion of already existing projects, she added.

Amid the heated demand, warehouse developers continue to disburse large amounts to expand their assets. Bresco plans to invest R$1 billion this year as part of a plan to have a portfolio twice as large by 2024. In 2021, its assets totaled R$3.2 billion.

The consortium formed by Credit Suisse, BTG Pactual, Construtora São José and Fram Capital, which will develop a set of warehouses on land that once belonged to Ford in São Bernardo do Campo, São Paulo, estimates to start deliveries in a year’s time and to finish it by 2024. Total investments in the purchase of the land, permits and construction work are estimated at R$1.3 billion.

Although most of the segment’s funds are destined for locations up to 30 kilometers from the city of São Paulo, there has also been the development of projects in other states. “Those who live in Pará or Amazonas also want to receive the product in one day, just like in São Paulo. This results in an avalanche of investments,” said Celina Antunes, CEO at real estate company Cushman & Wakefield.

Log Commercial Properties is the country’s most geographically diversified warehouse company. Considering finished projects and works in progress, it has facilities in 39 cities. The company expects to invest R$900 million this year. “We will have a very active year, with record investments and revenues. We will deliver almost 500,000 square meters of GLA [gross leasable area], most of it with construction already started,” CEO Sergio Fischer said. From the total to be concluded, 70% to 80% is already leased.

There may be an excess supply of warehouses in two years, considering that technological advances for cargo movement may result in the need for fewer square meters, said Nessim Sarfati, founder of Barzel Properties Gestora de Recursos. “But there is still much space for absorption of warehouses.”

Bruno Mendonça, a real estate market analyst at Bradesco BBI, expects more demand than supply of projects. But just like other segments of the real estate market, the one of warehouses has been impacted by the pressure of input costs, according to him.

Walter Cardoso, CEO at consultancy CBRE, believes that purchases and sales in the warehouse market are likely to fall this year after reaching R$8.7 billion in 2021, an all-time high. The potential drop would be driven by higher interest rates and lower fundraising by real estate investment funds. If an entire portfolio of warehouses is traded, however, the 2021 figure may be surpassed, Mr. Cardoso said. The executive also said that, in election years like this one, instability usually prompts a “flight to real estate.”

Source: Valor international

https://valorinternational.globo.com/

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Inspectors’ work-to-rule campaign impacts agricultural exports

The consequences of the work-to-rule campaign of federal agricultural inspectors in the production, export and import of agribusiness products and inputs are beginning to impact players in the sector. Leaders report “concern” about delays in the sanitary certification or customs clearance processes, but the impacts are still unknown.

Cargoes of agricultural products, some destined for China, are stopped at ports. There are already lines of trucks at border depots in Foz do Iguaçu (Paraná) and Dionísio Cerqueira (Santa Catarina) with items imported from Argentina and Chile.

Exporters are pressuring the inspectors and consider the measures as “procrastinating.” A letter from the Brazilian Beef Industry and Exporters Association (Abiec), sent to member companies last week, says that the essence of the auditors’ mobilization “is to create even more encumbrance and stoppages.”

In September, during an operation by the inspectors, Abiec obtained a provisional ruling to force the continuity of “services of inspection of industrialized products and the issuance of health certificates” until the judgment of the writ of mandamus. According to the organization, the decision also supports companies in the work-to-rule campaign. The letter, obtained by Valor, states that Abiec associates should guide any federal agricultural tax auditors “creating difficulties in the fulfillment of its legal obligations” to resume his ordinary activities with base in the court order.

“When pointing out difficulties to the production, the association itself does not realize that the biggest difficulty is its intimidating posture. After all, the inspectors are under no obligation to comply with a court decision received through unofficial means, such as, for example, the statement prepared by the association,” says a letter signed by Janús Pablo, head of Anffa Sindical, the auditors’ union. The union says that the mobilization is not a strike and that it strictly follows the principle of legality. Any “intimidation” of private agents must be reported, according to the text.

“We are worried. While we support the auditors’ right, we need to maintain production and export. I’m sure the auditors will be sensitive to understand the need to avoid delaying production too much,” said Ricardo Santin, president of the Brazilian Animal Protein Association (ABPA).

There are still no official surveys on the impacts of the work-to-rule action. Auditors heard clarify that the intention is not to harm society, but to be able to sensitize the government to improve the category’s working conditions. The Ministry of Agriculture did not immediately reply to a request for comment.

In a meeting at the end of December, professionals affiliated with the Anffa Sindical decided not to strike or stop working. However, they adopted the work-to-rule campaign, in which they comply with the statutory deadlines for the activities and are limited to working eight hours a day, without carrying out extra hours or shifts.

The measure is a way of putting pressure on the federal government for salary adjustments and new public hiring tests to make up for the deficit in civil servants. Agricultural auditors are also studying handing over positions, similar to what other mobilized federal categories want, such as Central Bank and Federal Revenue employees.

Upon returning from the year-end break at the Ministry of Agriculture earlier this week, the employees told their managers that, following the statutory deadlines and fulfilling the eight hours of daily services, from Monday to Friday, the next export certificates would only be issued in five days.

The inspectors continue to act within the law, according to the union, following the deadlines set out in rules and regulations, but the high demand and lack of civil servants hinder the processes. “If meatpackers inspectors limit themselves to working eight hours a day, it will already cause inconvenience. As it is, it would be enough to comply with the procedural deadlines and the working day to cause delays,” another source told Valor.

The union calls for the end of “strenuous workdays, of unpaid overtime, at the end of continuous and exhausting work from Sunday to Sunday.” The category does not know how many overtime hours were worked. The Ministry of Agriculture stopped releasing the balance. Anffa requested it by letter, but got no answers.

Source: Valor international

https://valorinternational.globo.com/

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Braskem gears up to sell shares on B3

The banks participating in the consortium chosen by Braskem to sell the shares of the Brazilian petrochemical company on the stock exchange are working to conclude the secondary offering by the end of January, three sources familiar with the matter say. The idea is to raise between R$9 billion and R$10 billion by selling the company’s preferred stocks (PNs).

The offering on the stock exchange will involve only the PN shares of Novonor (formerly Odebrecht) and Petrobras, the two shareholders that are part of the Brazilian petrochemical company’s controlling shareholders block.

The move is crucial for Novonor to pay a good part of what it owes to the creditor banks. The group’s total debts to them amount to around R$15 billion. The group went into judicial reorganization in June 2019, with debts of nearly R$100 billion.

A source familiar with the creditors is optimistic about raising around R$10 billion, but the consortium is working with a more conservative figure of R$9 billion. Participating in the syndicate of banks to make the operation on the stock exchange are Bradesco, BTG Pactual, Citi, Itaú, JP Morgan, Santander and UBS-BB, under the coordination of Morgan Stanley.

Sources familiar with the matter told Valor that the efforts of the syndicate of banks will be to make the secondary offering in Brazil and abroad — there is an expectation that institutional funds, which are already minority shareholders in the Brazilian group, will take part in the offering.

Braskem’s market capitalization closed at R$ 42.4 billion on Wednesday. The company’s preferred shares closed the day at R$53.77, down 4.8%, but up 160% in one year. Common shares closed at R$52.85, down 3.9% in the day, but up 137% in 12 months, according to Valor Data.

Novonor holds 38.4% of the company’s capital and, Petrobras, 36.15%. The plan is to start with the sale of preferred shares, with 20% of the capital. The expectation is that, after this operation, the petrochemical company will migrate to Novo Mercado, the strictest governance segment of B3.

The plans to sell shares on the stock exchange gained strength after the search for a buyer for the petrochemical company did not result in an attractive proposal. Morgan Stanley, with a mandate from Novonor, was looking for one or more buyers, but the process did not bring the expected result.

At the same time, Petrobras hired J.P. Morgan to advise it on the sale of its stake in Braskem and had already signaled that it was looking for an exit along the lines of what it did with the former BR (now Vibra Energia), with more than one operation on the stock exchange. The Brazilian state-owned company is getting rid of assets that are no longer considered strategic to its business.

Sources connected to Novonor’s creditors told Valor that the sale on the stock exchange is the best alternative, since there was no firm proposal for the purchase of Braskem as a whole, only in slices. The divestment is foreseen in Novonor’s judicial reorganization plan, whose shares in Braskem were given in guarantee to creditor banks — Bradesco, Itaú, Santander and Brazilian Development Bank (BNDES), besides Caixa Econômica Federal.

The largest producer of resins in the Americas, Braskem is likely to end 2021 with historic numbers — the company moved up to December the payment of R$6 billion in dividends for the current year. The Brazilian petrochemical company is on track to achieve all-time high annual net revenue of R$100 billion, almost double that seen in 2019 and 71% higher than in 2020.

Braskem, Novonor and Petrobras declined to comment.

Source: Valor international

https://valorinternational.globo.com/

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Votorantim takes another step to leave steel market

Metalshub - Mercado Global do Aço - Visão Geral de 2019 e Previsão para 2020

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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