High interest rates make investment unviable, Ometto says

Cosan’s owner says restructuring process at Raízen, the company’s joint venture with Shell, is underway to reduce debt

05/30/2025 

Rubens Ometto Silveira Mello, founder of the Cosan group, said the restructuring process at Raízen, the company’s joint venture with Shell, is underway to reduce debt, and results should become visible in the coming months. The plan includes the sale of non-strategic assets to allow the company to focus on fuel distribution, sugar and ethanol production, and power cogeneration.

Mr. Ometto also mentions Cosan’s loss in its investment in Vale, a personal project of his to engage in the management of one of the world’s largest mining companies. “What hurt the most was that it was a personal endeavor. Vale is a fantastic company, a national pride. I had a lot to contribute.”

According to Mr. Ometto, the current interest rate level of 14.75% makes investments unviable. Cosan has an ongoing capex plan of R$10 billion to R$12 billion for the year. “If interest rates don’t come down, we will hold back on investments,” he warned.

Although he was critical of the government’s economic policy last year, Mr. Ometto said his relationship with President Lula “has always been very good.” “My criticism is intended to contribute to what’s best for the country. Lula is a consensus builder and will manage to align everyone’s ideas.” Read below the main excerpts from the interview with Valor:

Valor: How is Cosan’s restructuring process being conducted?

Rubens Ometto: The group is doing very well in the lubricants business (Moove), in logistics and railways (Rumo), in gas (Compass), and in land assets (Radar). In Raízen’s case, we are focused on correcting mistakes we made. We got distracted, and [the company] went down the wrong path.

Valor: What distractions?

Mr. Ometto: Raízen invested heavily in second-generation ethanol, acquired Biosev, and bought a fuel distribution refinery in Argentina. That increased leverage significantly. And with today’s high interest rates, this leverage greatly impacts Raízen’s balance sheet, and consequently, Cosan’s.

Valor: What measures are being taken?

Mr. Ometto: We are executing a turnaround. We replaced the entire executive board and brought in our best talents: Nelson Gomes [now CEO], Rafael Bergman [CFO and head of investor relations], and Leonardo Gadotti [vice president of mobility]. With this excellent team, results will follow soon. We are studying ways to address the company’s financial structure.

Valor: What does the solution involve?

Mr. Ometto: First, we are overhauling governance and improving workforce productivity. There was a lot of redundant work, and that is now being reorganized. Raízen had expanded into many areas, such as trading and electricity. We are refocusing on fuel distribution under the Shell brand and on sugar and ethanol production, along with power cogeneration. We are streamlining the company. As part of this strategic plan, we will divest non-core assets. That’s the focus.

Valor: Is the group moving away from its M&A-driven DNA?

Mr. Ometto: No, it’s the same. But today, with interest rates at 15%, M&A and asset purchases are unfeasible. Regardless of anything else, you have to be rational about where to invest. You can’t justify paying 15% interest; nothing yields a return over that. So, for now, we’ve paused, because it doesn’t make financial sense.

Valor: Part of the current leverage is attributed to the Vale investment.

Mr. Ometto: We got into trouble with the Vale deal. It was a personal investment project, and it hurt deeply. Not just because of the interest rates, the entire business became unviable. Cosan lost money. What hurt the most was that it was a personal endeavor. Vale is a fantastic company, a national pride. I had a lot to contribute, but I was blocked.

Valor: How?

Mr. Ometto: The shareholders were mostly from the financial sector. None had an entrepreneurial or industrial background, which is our expertise. There were top-tier investors, like Bradesco, Mitsui, a small government share through Previ, and other silent partners. I thought there was room to do a lot. I believe we made contributions, especially in governance ideas. But I had to step back, because there’s no way to sustain that kind of financial equation with 15% annual interest rates.

Valor: There was also controversy around the choice of president.

Mr. Ometto: I prefer not to discuss that.

Valor: How have high interest rates impacted the group’s businesses?

Mr. Ometto: All our businesses are well-structured, with leverage below 2, except for Raízen, which is around 3. Cosan can manage itself with the dividends it receives from its subsidiaries.

Valor: How is the U.S.-China trade war affecting the group?

Mr. Ometto: First, I think this trade dispute is absurd. But for our businesses, it’s actually beneficial.

Valor: Why is that?

Mr. Ometto: In agribusiness, Brazil is highly valued. The U.S. imposes tariffs on China, so China buys from Brazil instead. Rumo’s trains are overloaded. It generates huge demand. Agribusiness as a whole benefits.

Valor: How do you and your industry peers view the macroeconomic outlook?

Mr. Ometto: Everyone sees that interest rates must come down. No one thinks taxes should be increased. Fiscal balance is necessary. Those in government who have access to all the data must find a solution. Without fiscal discipline, interest rates won’t drop. I believe that’s what the government is working on. If rates come down in a technically sound way, the country will boom.

Valor: You have been vocal with criticisms of economic policy. What’s your current assessment?

Mr. Ometto: My relationship with the president has always been very good. I respect him a lot. Of course, honest relationships sometimes involve disagreements. And all my criticisms are meant to contribute to what’s best for the country. Lula is highly experienced. He has the ability to do a good job. He is a consensus builder and will manage to align everyone’s ideas.

Valor: What are the critical issues?

Mr. Ometto: He has the ability to do a good job, and I hope he succeeds. But Brazil’s problems aren’t solely up to him. There’s judicial instability. It’s improving, but the judiciary tends to overreach into the legislative and executive branches. Each institution’s boundaries must be clearly defined. Public security is another issue.

Valor: What’s your view on that?

Mr. Ometto: Crime and militia activity are growing. They are even trying to infiltrate the legislative branch. We also suffer from widespread tax evasion. That’s why we are pushing Congress to pass the bill targeting habitual tax evaders. It’s unfair competition. Regulatory agencies must be active and technical to prevent this. Of course, companies may occasionally struggle to pay taxes, but when evasion becomes a business model, that’s unacceptable.

Valor: The habitual tax evader bill has been on the industry’s agenda for a while.

Mr. Ometto: It’s not just our sector. In fuel alone, tax evasion reaches almost R$20 billion. If you add cigarettes, beverages, and food, total evasion in Brazil amounts to R$120 billion to R$150 billion annually. That would practically solve the fiscal deficit.

Valor: Is there progress on this agenda?

Mr. Ometto: The bill is set for a Senate vote. I hope it gets approved in June. Then it will move to the Lower House. It’s crucial not just for our sector but for Brazil as a whole.

Valor: Are lawmakers receptive?

Mr. Ometto: There’s controversy, of course—some are in favor, some are against. However, I see broad societal support. I will speak with Lula. We maintain a relationship of respect and dialogue.

Valor: How would you define your current relationship with the government and President Lula after last year’s criticisms?

Mr. Ometto: I’m not a politician. I’m a businessman, a Brazilian, a patriot. I express my views, sometimes too openly for a businessman. But that’s my nature. My criticism is not personal or partisan. We made major investments during Lula’s first and second terms, as well as during Dilma’s government, and we are investing now under his current administration. Our capex is about R$10 billion to R$12 billion per year. It’s enormous. In railways alone, we’re spending R$6 billion. I would invest even more if interest rates weren’t so high. We must solve the financial equation.

Valor: Is Cosan considering reducing investments?

Mr. Ometto: If rates don’t come down, we will hold back on investments. We’re completing projects already underway. But starting new investments doesn’t make sense. Why work like crazy, hire people, and fight for returns when you can earn 15% by doing nothing, sitting in air conditioning? Paying interest doesn’t wait for weekends or holidays.

Valor: Do you have any specific agenda to discuss with the government?

Mr. Ometto: No. All our investments are financed through the market. Some have BNDES support, following the bank’s technical rules.

Valor: How is your relationship with the economic team?

Mr. Ometto: We speak often by phone. A good time to catch [Finance Minister Fernando] Haddad is on Sundays, when he’s in São Paulo. I also have a good relationship with [Aloizio] Mercadante [head of Brazilian Development Bank, BNDES] and [Alexandre] Silveira [minister of mines and energy]. I get along well with all of them.

Valor: Even after the harsh criticisms?

Mr. Ometto: They weren’t harsh; they were disagreements. I agree that I may have been a bit too eloquent.

Valor: Do you think the situation has improved compared to last year?

Mr. Ometto: Things are calming down. Take the controversy over the IOF [Tax on Financial Transactions], for example. It was rushed, not properly discussed, and people are rightly complaining because it raises financial costs even more.

Valor: So, you’re against the tax increase?

Mr. Ometto: Yes, I’m against it. But I recognize the government is trying to find solutions. It’s hard to give advice without seeing the full picture. They are working hard to figure it out. Lula has always been capable of building consensus and listening to different viewpoints. That’s a strength.

Valor: How do you see the outlook for 2026?

Mr. Ometto: I think we’ll see polarization again.

Valor: You don’t believe in a third way?

Mr. Ometto: It’s possible, but it’s tough. The forces will likely be split; one side with the Workers’ Party and the other with [Jair] Bolsonaro or whoever he endorses.

Valor: You’re one of the biggest campaign donors. How do you choose whom to support?

Mr. Ometto: We support candidates whose views align with ours and who can have an influence on the political landscape.

*By Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Lower House speaker offers fiscal plan to avoid IOF tax hike

Ten-day deadline set as Congress leans toward overturning financial tax presidential decree

 

 

 

05/30/2025 

Amid threats from Congress to overturn the presidential decree raising the Financial Transactions Tax (IOF), Lower House Speaker Hugo Motta (Republicans Party) gave the federal government a ten-day deadline on Thursday (29) to present an alternative proposal. Mr. Motta called for the direct involvement of President Lula in the negotiations for long-term structural measures. Possible alternatives, he said, include passing an administrative reform, reviewing tax exemptions, and reassessing the earmarking of government revenues.

Mr. Motta warned that the country’s fiscal situation is making it “ungovernable” and pushed back on the possibility that the government might take the dispute to court: “That would only worsen the atmosphere here in the House,” he said.

Earlier on social media, Mr. Motta said the ten-day deadline had been agreed upon in a meeting the previous day with Finance Minister Fernando Haddad, Institutional Relations Minister Gleisi Hoffmann, and Senate President Davi Alcolumbre (Brazil Union Party). He emphasized that the government’s alternative plan must be “something lasting, consistent, and not just a fiscal patchwork aimed solely at increasing revenue and hurting the country.”

“I stressed the widespread dissatisfaction among deputies with the federal government’s plan to raise taxes. I also made clear that the mood here is to overturn the IOF decree in the House,” he wrote.

“We have been defending the need to review tax exemptions because Brazil cannot handle the sheer number of exemptions it has today. We need to discuss earmarked revenues and an administrative reform to bring more efficiency to the public sector. Only that will help improve the economic environment.”

On Wednesday night, after the meeting, Mr. Haddad said he had explained to Congress leaders that the IOF hike would be necessary in 2025 due to the difficulty of finding alternatives that could be implemented immediately—without the required 90-day or one-year waiting periods applied to other tax increases. However, he signaled openness to discussing long-term structural measures to replace the IOF hike starting in 2026.

In this context, Mr. Motta pledged to consider creating a working group to draft a proposal to review tax benefits.

When asked if there is now political momentum for revising tax breaks, Mr. Motta said only that this was his sense. Valor reported on Thursday that such tax expenditures could surpass R$800 billion in 2025.

The push to overturn the IOF hike through legislative decree gained momentum during the week, as the main parties from the Centrão bloc signaled their support.

In one of the most tense moments of the press conference, Mr. Motta was asked about government leaders’ remarks suggesting that parliamentary amendments could be blocked if the IOF increase is struck down. He criticized what he described as efforts to “demonize” the amendments and said Congress is fully aware that cutting the tax hike could trigger their suspension.

Mr. Motta also said that taxing betting platforms—an idea backed by some sectors of the government—“is among the alternatives” being considered to create fiscal space, although he gave no further details on how this would be implemented.

*By Murillo Camarotto, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com

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Stronger ethanol market drives Evolua back to profitability

Joint venture of Copersucar and Vibra boosts earnings on better price curve, 18% rise in demand, and plans to expand supply base

 

 

 

05/28/2025

Driven by strong demand for hydrous ethanol—the type that competes directly with gasoline—and a more predictable price curve throughout the 2024/25 harvest, Evolua Etanol closed the season in the black. The company, Brazil’s largest ethanol trading firm, had posted a loss in the previous cycle (2023/24) but ended the most recent season with profits surpassing expectations.

The joint venture between Copersucar and Vibra posted a net profit of R$187.8 million in 2024/25, reversing a R$91.8 million loss in the previous cycle. The company reported a return on invested capital (ROIC) of 42%—“one of the highest in the sector,” CEO Pedro Paranhos told Valor.

Unlike the 2023/24 season, when improving sugarcane crop conditions led to a continuous decline in ethanol prices, the 2024/25 harvest featured a more stable supply outlook. This resulted in a more typical price pattern, with lower prices during harvest and higher prices in the off-season, which favored Evolua’s strategy of carrying product into non-production months.

Moreover, strong supply made hydrous ethanol more competitive than gasoline for most of the season, boosting biofuel consumption. Demand rose 18% compared to the previous cycle.

The company’s gross revenue grew 15% to R$12 billion, while ethanol volume traded remained stable at 9.6 billion liters, representing a 25% share of Brazil’s ethanol market.

About half of that volume still comes from Copersucar-affiliated mills, but Evolua is working to expand its reach. In the past season, it began forming partnerships with independent ethanol producers. In February, it signed its first such agreement — with Agro Serra mill in São Raimundo das Mangabeiras (Maranhão state), which supplies 80% of the state’s anhydrous ethanol.

“Our main strategic pillar is to grow by building new partnerships with producers,” said Mr. Paranhos. He noted that Evolua is “in talks with several producers to expand its supply base.”

The trader aims to prioritize partnerships with mills in regions where it currently has limited presence—such as the Central-West, North, and Northeast—and with corn ethanol plants, which are not part of Copersucar’s current network.

While it works to expand its supply base, Evolua expects to keep pace with market growth in the current 2025/26 season. Mr. Paranhos projects a 2% increase in Otto-cycle fuel sales—slightly below the 2.6% growth recorded last season—which should drive ethanol sales, whether hydrous or anhydrous (used as a gasoline additive).

In the biofuels sector, expectations are high that the federal government will officially raise the mandatory ethanol blend in gasoline from 27% to 30% in July. Initial projections had anticipated the move between April and May, when distributors sign ethanol contracts. Despite the delay, Mr. Paranhos said the market has already priced in the change.

He added that a drop in hydrous ethanol production will make room for the increased output of anhydrous ethanol needed to meet the new mandate. However, sugar production is unlikely to be reduced to favor ethanol, since sugar remains more profitable than the biofuel.

Mr. Paranhos estimated that total ethanol demand (hydrous and anhydrous) will reach around 35 billion liters this season, roughly in line with last year. He also expects Evolua to maintain its 17% share of Brazil’s ethanol exports.

*By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Azul restructuring puts Gol merger talks on back burner

Sources say airline is now focused on pushing forward reorganization as quickly as possible

 

 

 

05/28/2025 

The discussions between Azul and Gol shareholders regarding a potential merger have been put on hold following Azul’s announcement on Wednesday (28) that if filed for Chapter 11 bankruptcy reorganization in the United States, according to sources familiar with the matter. The filing was reported first by Valor on Tuesday.

People close to the situation say the company now aims to complete its Chapter 11 process by the end of this year, since the group has already secured debtor-in-possession (DIP) financing and exit funding from investors. Yet, the same sources warn Azul must navigate the complexities of U.S. bankruptcy proceedings, which are often fraught with unexpected challenges and disputes.

The prospect of a merger between Azul and Gol has been a prominent topic in the aviation sector since mid-January, when a memorandum of understanding was announced by Azul’s shareholders and Abra, the holding company that controls Gol and Avianca. Since then, Azul has been more actively pursuing the merger discussions, while Gol and its shareholders have been focused on concluding their own Chapter 11 process.

With Gol’s restructuring expected to conclude by June 6, attention now turns to Azul. The airline has announced that it has raised $1.6 billion in DIP financing from creditors and investors. Azul also plans to eliminate approximately $2 billion in debt from its balance sheet by the end of the process, including the removal of lease liabilities with the support of AerCap, the group’s main lessor.

Azul’s restructuring plan includes a 35% reduction in its fleet, allowing the company to return aircraft that are currently challenging to operate. For instance, large aircraft like Airbus models face maintenance part shortages, complicating flight operations.

One of Azul’s strategies has been to invest in ACMI (aircraft, crew, maintenance, and insurance) contracts, which involve hiring a company to provide aircraft and crew. The ACMI model was approved by Brazil’s National Civil Aviation Agency (Anac) at the end of last year, and Azul initiated an agreement with Portuguese company EuroAtlantic. Another source close to the matter indicated that Azul is also working to bring another partner into the ACMI operation in Brazil: another Portuguese airline called Hi Fly.

This partnership has been utilized by Azul to address component shortages. In the first quarter, Azul experienced up to a 3% loss in seat capacity in a single month due to supply chain issues, particularly affecting larger aircraft.

The most surprising aspect of the deal involves investments from American Airlines and United Airlines, both U.S. competitors, which are expected to invest up to a combined $300 million in Azul upon the completion of the process. Azul’s documentation states that these investments are subject to certain conditions, though it does not specify what they are.

United Airlines has been a partner of Azul and holds a stake in the company. Conversely, American Airlines is a significant partner of Gol and is a shareholder in the Brazilian airline. Therefore, market expectations were that American Airlines would invest in Gol’s restructuring, which did not occur.

Azul was the only major airline in Brazil that had not sought restructuring in U.S. courts following the pandemic’s impact. In the first quarter, Azul’s debt reached R$31.35 billion, a 50.3% increase compared to the same period the previous year.

Sources close to the matter emphasized that Azul anticipates a swift process in court, with the possibility of completion still this year. However, Chapter 11 proceedings are known for their unpredictability and potential complications.

Gol, for instance, entered Chapter 11 on January 25, 2024, with an initial expectation to complete its restructuring within a year. In 2024, the company faced conflicts with bondholders and had to negotiate to prevent them from hindering the process.

By late 2024 and early 2025, currency volatility and U.S. tariff increases led Gol to project a definitive exit from Chapter 11 on June 6—six months after the original deadline, yet still a relatively quick process.

LATAM underwent a particularly tumultuous Chapter 11 process from 2020 to 2022, amid disputes between creditors and shareholders over control of the company. LATAM’s main shareholders were the Cueto family, Qatar Airways, and Delta Air Lines, who collectively held about 46% of its capital. After the process, their stakes were diluted: the Cueto family retained 5%, Delta 10%, Qatar 10%, Sixth Street Partners 28%, and Strategic Value Partners 16%.

LATAM’s process differed from those of Azul and Gol, as the airline began its restructuring without having secured DIP financing or exit funding. Nonetheless, sources noted that LATAM’s Chapter 11 experience served as a learning opportunity for future airline restructurings and helped Gol expedite its negotiations.

*By Cristian Favaro and Felipe Laurence, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Justice minister warns of policing challenges in Bioceanic Route

Mercosur ministers to discuss regional security implications of proposed transcontinental link next week in Argentina

 

 

 

05/23/2025

Brazilian Justice Minister Ricardo Lewandowski warned on Thursday (22) that the Bioceanic Route, a flagship South American integration project, will present significant challenges for local police forces. The potential impacts will be discussed at a meeting of Mercosur justice ministers scheduled for May 30 in Buenos Aires, Argentina.

“I believe this will be an extraordinary step forward for the region’s economy, but it will also bring important challenges for local police forces, and I think this will be one of the topics discussed at the meeting,” the minister said at a press conference in Brasília.

The Bioceanic Route incorporates a segment of the South American Integration Corridors initiative, which is led by the Ministry of Planning under Minister Simone Tebet. The goal is to boost regional trade flows and improve access to Pacific ports.

According to Mr. Lewandowski, while the integration offers clear economic benefits, it will also create “a series of security challenges, because we will have kilometers of highways shared between neighboring countries, and we will have bridges,” he noted.

He said the project would require coordination and the construction of new posts for Brazil’s Federal Police (PF), Federal Revenue Service, and Federal Highway Police, as well as the deployment of police forces from neighboring nations.

The Buenos Aires meeting will also include the signing of cooperation agreements. “Our goal is to make police cooperation and supervision even more effective in combating the threats posed by organized crime along the tri-border area,” Mr. Lewandowski said.

His remarks came during the opening ceremony of the fourth Interpol Meeting for South American Police Chiefs. The event focused on outlining a concrete plan that will define priorities, actions, and mechanisms for tackling transnational crime.

Attendees included police chiefs from Argentina, Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, Suriname, Uruguay, and Venezuela, as well as senior officials from Interpol, including Secretary General Valdecy Urquiza.

Mr. Lewandowski emphasized that defeating transnational organized crime requires joint efforts and resource-sharing, including coordinated intelligence, doctrine, equipment, technologies, and operations among law enforcement agencies.

“I have advocated for improving mechanisms for information exchange among South American police forces. We must work to integrate databases, encourage the sharing of intelligence, and promote coordinated policing actions,” he stated.

The Bioceanic Route was also discussed during President Luiz Inácio Lula da Silva’s recent trip to China, where the Brazilian government sought support for the Bioceanic Railway—an initiative that would facilitate grain exports from Brazil through the port of Chancay in Peru.

The Chancay port, financed by China, was inaugurated by Chinese President Xi Jinping last November. A Pacific exit would significantly shorten the shipping time for Brazilian exports to Asian markets.

By Sofia Aguiar and Renan Truffi — Brasília

Source: Valor International

https://valorinternational.globo.com

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Heeding banks, CMN cuts LCI and LCA minimum terms to six months

Regulatory change takes effect immediately with resolution’s publication; banks had warned of potential funding shortages

 

 

 

 

05/23/2025

Responding to pressure from financial institutions, Brazil’s National Monetary Council (CMN) has shortened the minimum maturity term for agribusiness credit bills (LCAs) and real estate credit bills (LCIs) from nine to six months. The measure, which takes effect this Thursday with the publication of the resolution, follows warnings from banks about shrinking funding sources—especially for the real estate sector—as savings account withdrawals accelerate.

With the Selic benchmark interest rate elevated, demand for these tax-exempt instruments—previously concentrated in private credit funds—has surged throughout 2024. According to data compiled by B3 at Valor’s request, the combined outstanding volume of LCIs and LCAs has reached R$1 trillion.

In a statement, the Central Bank said the decision reflects the importance of these instruments for financing the real estate and agribusiness sectors. Until February 2024, the minimum maturity for LCIs was three months. That month, the CMN extended it to 12 months as part of broader changes to the rules governing tax-incentivized securities. The term for LCAs, which have a similar risk-return profile to LCIs, was increased from three to nine months. In August, following criticism, the CMN reduced the LCI term to nine months to correct the asymmetry. At the time, the Brazilian Association of Real Estate Credit and Savings Entities (Abecip) called the move positive but said a return to the three-month term would be ideal.

Issuance volumes of LCIs and LCAs initially dropped after the changes—from R$30.7 billion in January, near historic highs, to between R$11 billion and R$14 billion by September. LCAs, in particular, plummeted from R$45 billion to a range of R$21 billion to R$24 billion. By December, issuances rebounded to R$26.5 billion in LCIs and R$39.6 billion in LCAs, closing the year with an impressive R$392.6 billion and R$517.2 billion in total outstanding, respectively. This upward trend has continued in 2024, with monthly volumes hovering around R$25 billion for LCIs and R$31 billion for LCAs. As of the end of April, outstanding balances stood at R$560.4 billion in LCAs and R$440 billion in LCIs.

Marilia Fontes, founding partner at Nord Investimentos, said the market has adapted to the longer terms of these income tax-exempt instruments for individuals. As a result, demand resumed even at the nine-month threshold. “Default rates haven’t risen significantly, so banks continue lending to these sectors, which sustains issuance,” she explained.

She also pointed to the taxation of closed-end exclusive funds as a factor driving investors toward tax-exempt securities like incentivized debentures. Additionally, there has been a marked shift from equity and multimarket funds. “That’s why we’re seeing risk premiums narrow,” Ms. Fontes said. In 2024, average returns stood at 95% of the CDI, but have since fallen to 85%-87% of the CDI.

“The restriction last year was a step in the right direction, but it wasn’t sufficient in an environment of uncertainty and high interest rates,” said Mr. Jean-Pierre Cote Gil, credit portfolio manager at Vinland Capital.

The CMN also revised the issuance rules for agribusiness receivables certificates (CRAs), real estate receivables certificates (CRIs), and agribusiness credit rights certificates (CDCAs) to ensure the securities are used specifically for their target sectors. The resolution stipulates that they may not be backed by debt instruments where the debtor, co-debtor, or guarantor is “a legal entity whose primary business activity is not in the real estate sector, in the case of CRIs, or in the agribusiness sector, in the case of CRAs and CDCAs.”

*By Gabriel Shinohara, Liane Thedim and Rita Azevedo, Valor — Brasília, Rio de Janeiro, São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Economists back budget cut, warn credit may suffer under new tax hike

While the R$31.4 billion budget freeze boosts fiscal credibility, experts say the higher financial transaction tax could deter credit and long-term savings

 

 

 

05/23/2025

Most economists welcomed the government’s decision to freeze R$31.4 billion in expenditures. Still, they expressed concern that the increase in the IOF—Brazil’s Tax on Financial Transactions—could have negative effects by making credit more expensive.

The figures released in the government’s Bimonthly Revenue and Expenditure Report show that controlling mandatory spending remains a major challenge, even after the fiscal package signed into law by President Lula at the end of 2024, said Manoel Pires, associate researcher and coordinator at the Fiscal Policy Observatory of FGV’s Brazilian Institute of Economics (FGV Ibre).

“When presenting the report, the government pointed to an increase of more than R$30 billion in mandatory spending. That’s a lot. There’s more spending on pensions, the BPC [a social benefit for low-income elderly and disabled individuals], and subsidies. And we already have a fiscal framework that allows real spending growth of 2.5% per year,” said Mr. Pires. “Mandatory spending rising far above that obviously puts pressure on other government expenditures.”

According to Mr. Pires, the freeze improves the government’s chances of hitting its primary result target for the year: a zero balance, with a tolerance range of ±0.25% of GDP. “What the government did was a relevant early-year fiscal adjustment to raise the likelihood of meeting the target and, consequently, reduce the market pressure that usually builds when targets are missed,” he said.

Regarding the IOF increase, Mr. Pires acknowledged that while it helps raise revenue, it also creates negative side effects. “It brings in more revenue and raises the chances of meeting the target, but the downside is the cost to credit operations, which are likely to feel the impact.”

Economically, raising the IOF is not a sound measure—ideally, this type of tax wouldn’t exist, as is the case in many other countries. But fiscally, it supports the government’s efforts to meet its target, he added.

Carlos Kawall, founding partner of Oriz Partners, said the R$31.4 billion spending freeze was more substantial than expected. However, he argued it does not amount to a “genuine fiscal effort” because it came alongside lower revenue projections and higher estimates for mandatory expenditures, partly accommodated through credit openings allowed under the new fiscal framework.

“Let’s be honest, they never really promised anything. At one point, it seemed like they might surprise us by delivering something. But in reality, expectations were low—and they met those expectations,” Mr. Kawall said.

The government revised down its revenue projection for the 2025 budget, with net revenues falling R$41.7 billion. This drop mainly came from so-called “administered revenues.” During the report’s presentation, technical staff said that the revision included eliminating projected revenues from CARF (Administrative Council of Tax Appeals) settlements and scrapping expected gains from a proposed increase in the Social Contribution on Net Profit (CSLL) for banks, which had been planned to offset payroll tax relief.

The CSLL hike was proposed and included in the 2025 budget bill, but has not been approved. As for the administrative tax appeals court CARF revenues, they fell short of expectations last year, and there was skepticism they would meet projections this year.

On the spending side, Mr. Kawall noted an increase of R$23.2 billion in primary expenditures subject to the fiscal cap. Part of that was accommodated through a R$12.4 billion extraordinary credit, tied to the difference between projected and actual inflation for 2024, as allowed by the fiscal framework. This made room for more mandatory spending, but still required an additional R$10.6 billion to be blocked.

Mr. Kawall believes the IOF hike will help with revenue and the 2025 budget, as it is immediately collected and not shared with states or municipalities. However, it will likely “generate market noise and come at a cost.” One key concern is private pensions: a 5% tax on contributions above R$50,000 to VGBL plans could discourage savings. In some foreign exchange transactions, a 3.5% IOF rate “is also excessive and could be seen as currency control.”

Economist Rafaela Vitória of Inter Bank said that the spending freeze, along with unspent funds from prior budgets, should help meet the 2025 fiscal target. She noted that the R$31.4 billion freeze exceeded market expectations of around R$15 billion.

However, she also highlighted a significant upward revision in spending—an additional R$25.8 billion—mostly in pensions and BPC payments. “The latest report suggests total spending will grow by more than 4% above inflation in 2025, likely exceeding 19% of GDP.”

Ms. Vitória acknowledged greater transparency in accounting for mandatory spending, but said managing the growth of such expenditures remains a challenge. “On the revenue side, the updated projections were realistic, which is a positive, but the announcement of new taxes like the IOF hike shows the government is still leaning on revenue increases to cover rising expenses.”

Economist João Leme of Tendências Consultoria said next year will be the real test, as the electoral calendar will pressure spending. “The main concern is whether the new fiscal framework can hold in 2026, when election-year incentives could push spending higher amid slower economic growth, inflation still above target, high interest rates, and structural issues in spending trends that could even lead to a complete squeeze on discretionary spending.”

Mr. Leme said the government’s announcement was positive, as it showed a genuine concern with meeting the fiscal target, even if only at the lower end. He noted that revised assumptions for key variables—like average key interest rate Selic, inflation (IPCA), and Brent crude oil prices—brought the government’s numbers closer to market consensus, which enhances the budget debate.

Economist Italo Faviano of consultancy Buysidebrazil said the report signals a shift in how the government is handling revenue and spending, indicating a concern for a healthier fiscal path. “It was expected that instead of large freezes late in the year, we’d see smaller, more consistent freezes throughout. But what we got was R$30 billion right out of the gate, which was what was needed for the year as a whole.”

Sergio Vale, chief economist at MB Associados, said a more ambitious administration might only come in 2027 to seriously reform expenditures. He acknowledged that the government anticipated criticism about last year’s overestimated revenues. “The effort is significant, but it’s at the lower end of what’s needed.”

“We’re still talking about another year of a high deficit—over R$70 billion. Combined with high interest rates, this will push public debt close to 80% of GDP,” Mr. Vale said. He criticized the IOF hike as “a bad tax, typically used in emergencies.” “We’ve been in a fiscal emergency since 2022, and the core issue is the government’s failure to create a truly durable fiscal regime.”

Tiago Sbardelotto, economist at XP, said the report exceeded market expectations with a larger-than-expected freeze and signaled a shift in the government’s approach. “The report was based on more realistic assumptions,” he said. Realistic budgeting alone doesn’t ensure fiscal sustainability, but it’s a prerequisite, he added. The biggest surprise, according to Mr. Sbardelotto, was the R$20.7 billion in spending containment, while the R$10.6 billion in blocked funds was in line with expectations.

On the spending side, Mr. Sbardelotto noted a significant revision in pension spending. “They seem to have factored in a partial reduction in the backlog,” he said. A recent Valor report showed that the Social Security waiting list nearly doubled in one year. However, he said, BPC spending projections still seem “somewhat disconnected.”

Santander economist Ítalo Franca said the report offered positive signs for meeting the 2025 primary result target. Since the government raised the spending cap by R$12.4 billion, due to the difference between projected and actual inflation, Mr. Franca estimated the “net fiscal effort” at R$18.9 billion. That’s above market expectations and even above Santander’s upper-bound scenario of R$15 billion.

Given this, he said, achieving the 2025 target range looks feasible. On the spending side, pension benefits were in line with projections, even assuming a partial reduction in the claims backlog.

*By Anaïs Fernandes, Marsílea Gombata, Marta Watanabe, Michael Esquer  and Alex Braga Jorge  — São Paulo

Source: Valor International

https://valorinternational.globo.com

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Brazil bans online health and teaching degrees

New rules require more in-person classes across higher education formats

05/20/2025

After four delays, President Lula signed on Monday (19) the decree establishing the new regulatory framework for distance learning (EAD) in higher education. The changes will also affect hybrid and in-person learning, reshaping the entire sector. Institutions will have two years to comply.

The strictest rules target undergraduate degrees in health and teacher education. These programs can no longer be offered entirely online. Teaching degrees must now include at least 50% of coursework in person. Nursing programs will be allowed only in traditional classroom settings. Other health-related degrees will require a minimum of 30% in-person classes.

“I believe the measures are positive, even if overdue. Distance learning is certainly a way to expand access to higher education—this has been the case in other countries—but it must be quality education. There’s no point in reaching remote areas if the education offered is poor,” said Claudia Costin, former global education director at the World Bank.

Ms. Costin noted that half of all students in distance learning programs drop out, and course quality is a major factor in that decision.

Nonprofit organization Instituto Península also supports the new requirement for 50% in-person attendance in teaching degrees. “Hands-on experiences, including internships and community engagement, shape good teachers. Practice is essential,” said Mariana Breim, the institute’s director of educational policy.

Education Minister Camilo Santana has raised concerns about the quality of training in health and teaching programs since he took office, particularly regarding the large number of students enrolled in online programs. In the 2022 college entrance cycle, about 80% of new students in teaching degrees chose online courses. For nursing degrees, 190,000 students were enrolled in remote programs, compared to 241,000 in in-person programs at private institutions.

“High-quality distance education is a powerful and strategic tool for expanding access to higher education. It plays a key role in meeting the goals of the National Education Plan, which expired last year and remains unmet,” said Mr. Santana at the decree signing ceremony.

The sector often argues that online education helps democratize college access, offering more affordable tuition (roughly a quarter of the cost of in-person programs), flexible schedules for working adults, and opportunities for students in towns without college campuses. Brazil has nearly 2,300 municipalities without in-person higher education offerings. However, only 10% of EAD students actually live in these areas.

The decree also introduces formal regulation of hybrid programs—those combining online and in-person elements—which have seen the fastest growth in recent years but previously lacked official classification. These were often just standard online programs with an increased number of in-person activities.

Meanwhile, for in-person degrees, the share of coursework that can be completed remotely will be reduced from 40% to 30%. Degrees in medicine, law, psychology, and dentistry will continue to be delivered exclusively in classrooms.

Distance learning programs must now include at least 20% of coursework as in-person or live online sessions, and all exams must be taken in person at designated locations.

The new regulatory framework aims to bring order to a market that experienced explosive and often disorderly growth following the pandemic. Brazil’s private distance education sector now serves 4.7 million students online, compared to 3.2 million in traditional classroom settings. In 2023, the number of first-year students in online courses was twice that of in-person programs.

This rapid growth has led to abuses by some institutions. Although regulations require that students complete exams, lab work (especially in health and engineering), and internships in person, it is not uncommon to find students taking exams online, conducting lab activities in virtual environments, and completing internships remotely. In such cases, students may complete a four-year degree without any face-to-face interaction, often leaving them unprepared for professions that demand social and interpersonal skills.

Going forward, exams must be taken in person and proctored by qualified instructors. For live online classes, enrollment will be capped at 70 students per class, and a certified teacher in the relevant field must be present.

While private institutions dominate the distance learning sector, public universities remain cautious. Only about 200,000 students are currently enrolled in online programs at public universities, compared to 1.9 million in in-person programs.

The Education Ministry also plans to inspect the physical locations, or learning centers, associated with online programs, where students are supposed to complete their in-person coursework. Many of these sites lack proper infrastructure, such as labs, libraries, and classrooms. Some operate with multiple institutions under one roof, offering little more than a storefront.

Roughly 50,000 learning centers are registered with the ministry, but it’s estimated that half are not adequately equipped. The sector is repeating the trajectory seen in 2008, when the first boom in distance education prompted the ministry to shut down 1,300 under-equipped centers.

At that time, the government banned the opening of new online programs and student slots for nearly a decade, which led to market concentration and high valuations for established players. In 2011, Kroton paid R$1.3 billion for Unopar, then the leading online education provider.

In 2017, the market reopened, and institutions were allowed to open between 50 and 250 centers per year. The number of centers skyrocketed to the current 50,000. In 2024, the Education Ministry again froze new courses, slots, and centers until the new decree was published, while also increasing in-person requirements for pedagogy and teaching degrees.

*By Beth Koike, Sofia Aguiar and Renan Truffi — São Paulo and Brasília

Source: Valor International

https://valorinternational.globo.com/

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Legal disputes involving publicly traded firms on the rise in Brazil

Stock market slump and new litigation funders fuel surge in cases

05/20/2025

Legal disputes involving publicly traded companies in Brazil are on the rise as more businesses struggle financially due to the prolonged period of high interest rates and the emergence of specialized firms funding lawsuits through alternative investments. A key factor behind the trend is the sharp decline in share prices, driven by high risk aversion and the tight monetary environment.

To illustrate the surge, 1,760 new cases were filed in 2024 at the 1st Business Law and Arbitration-Related Disputes Court of the São Paulo Court of Justice (TJ-SP), up 8.4% from the previous year.Compared to 2021, the number more than doubled, rising 104%, according to a survey by law firm Yazbek Advogados for Valor. At the 2nd Business Court, filings totaled 1,782 last year—an 11.6% increase from the previous year and a 124% jump over three years. Arbitration chambers estimate that around 90% of cases involve corporate disputes.

Otavio Yazbek, a former director of Brazil’s Securities and Exchange Commission (CVM) and partner at Yazbek Advogados, said the rise in litigation is a consequence of Brazil’s cyclical economy. “They’re highly correlated. In times of market stress, economic relationships that started off well begin to deteriorate,” he explained.

Mr. Yazbek noted that the surge has become more apparent in recent years, especially after the Operation Car Wash probe, which marked a turning point in the legal landscape, prompting law firms to specialize in disputes involving listed companies. That was also when associations emerged that now lead many of these legal battles.

He added that lawsuits today are “multifaceted,” often extending into criminal courts and prompting complaints with the CVM, Brazil’s capital markets regulator.

The rise isn’t limited to high-profile cases like Americanas. At Toky (formerly Mobly), a dispute involves the founders of Tok&Stok, who attempted a takeover through a public tender offer (OPA) to gain control of the company. The case went not only to court but also to the CVM.

At Oncoclínicas, special situations fund manager Latache has petitioned the regulator to trigger a mandatory OPA due to a change in control. Other minority shareholders are also reportedly considering court action.

At Grupo Azzas, tensions between its two main shareholders—Alexandre Birman of Arezzo and Roberto Jatahy of Grupo Soma—have raised the possibility of a split due to business disagreements. While both parties have hired legal counsel, no court proceedings have begun.

Minority shareholders

Shareholder disputes also featured prominently during this year’s annual general meetings, particularly in board elections. One case involved Hypera, where EMS owner and rival Carlos Sanchez tried to appoint representatives, while Hypera’s main shareholder, João Alves de Queiroz Filho, opposed the move and raised the issue with Brazil’s antitrust authority, CADE.

“The stock market is down, companies are suffering, paying fewer dividends, and naturally, litigation increases,” said Guilherme Setoguti, a litigation partner at Monteiro Castro & Setoguti. He added that Brazil’s capital markets have matured, leading to more active minority shareholders.

“In the past five years, we’ve seen specialized funds defending their positions,” he noted. He also pointed to the evolution of the litigation funding market, with so-called special sits firms financing legal actions. “Litigation finance has matured in Brazil, creating the financial conditions for parties to pursue claims,” he said.

Some arbitration cases backed by litigation funds involve major companies such as Braskem, Vale, and Petrobras. These cases remain confidential under arbitration rules.

A growing number of companies undergoing bankruptcy protection also explains some of the disputes. More than 20 publicly traded companies are currently in court-supervised reorganization, as previously reported by Valor. In Agrogalaxy’s case, creditors challenged the recovery plan. In the textile firm Teka, creditors are in court seeking to prevent its bankruptcy.

Financial stress

Luís Flaks, a corporate law partner at BMA, said that during financial stress, his firm sees a rise in certain types of cases. These include shareholder lawsuits against capital increases that would lead to dilution, as well as liability claims against executives and disputes over shareholder voting conflicts.

He also pointed to an increase in administrative litigation, such as complaints filed with the CVM, and noted that more shareholders are now resorting to legal action to recoup losses.

Diogo Rezende de Almeida, a partner at Galdino, Pimenta, Takemi, Ayoub, Salgueiro e Rezende de Almeida, agreed that lawsuits tend to increase during financial crises. “In this environment of court-supervised or pre-bankruptcy proceedings, with companies restructuring debts, reviewing contracts, and renegotiating terms, creditors are turning to the courts to enforce their rights,” he said. At the same time, he added, companies are seeking ways to avoid enforcement actions.

Another sign of a maturing capital market, Mr. Almeida said, is the growing number of companies with dispersed ownership, pushing minority shareholders to assert their rights.

Mr. Yazbek pointed out that Brazilian law places limits on shareholder lawsuits. One example is the interpretation that only the company—not individual shareholders—can be compensated for damages. “This conservative reading of the law discourages direct shareholder actions,” he said. In the fund industry, however, this interpretation does not apply, which has led to a growing number of lawsuits.

Toky, contacted by Valor, said its board “aims to generate value for shareholders and other stakeholders.”

Grupo Azzas responded that “its key shareholders, Alexandre Birman and Roberto Jatahy, maintain an ongoing dialogue to improve governance.” In a statement, the company said that “despite the ongoing conversations, no transaction has been finalized between them, and the separation or breakup of the business is not under discussion.” It reiterated that “it does not comment on market rumors and remains focused on executing its strategic guidelines, which have delivered excellent results, as shown in the company’s consolidated first-quarter 2025 earnings.”

Teka issued a statement, saying that “with an estimated debt of R$4 billion and a breach of the court-supervised reorganization plan, the company is facing a situation of deep insolvency.” It added, “The court-appointed administrator has acted impartially and responsibly to ensure the legality of the process, transparency in its handling, and the continuation of operations, with special attention to workers’ rights, in strict compliance with its legal duties.”

The other companies mentioned in this story did not comment.

*By Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Brazil’s poultry exports to 17 countries suspended following avian flu outbreak

Temporary bans follow detection of H5N1 in commercial flock in Montenegro, Rio Grande do Sul

 

 

05/20/2025

Brazil’s poultry exports have been suspended to at least 17 countries after the detection of a highly pathogenic avian influenza (H5N1) outbreak in a commercial breeding farm in Montenegro, Rio Grande do Sul. The Ministry of Agriculture reported that, as of Sunday, nine countries had suspended imports, a number that has since increased.

Countries including Mexico, South Korea, Chile, Canada, Uruguay, Malaysia, and Argentina have formally notified Brazil of their decision to halt all poultry imports. In response, Brazilian authorities have ceased issuing international health certificates for exports to China, the European Union, South Africa, Russia, Peru, the Dominican Republic, Bolivia, Morocco, Pakistan, and Sri Lanka, in compliance with sanitary protocols.

The UK, Cuba, and Bahrain have suspended imports specifically from Rio Grande do Sul, while Japan has restricted imports solely from Montenegro. An embargo on shipments from a10-kilometer radius of the farm has been imposed by countries such as Singapore, the Philippines, Jordan, Hong Kong, Algeria, East Timor, India, Lesotho, Myanmar, Paraguay, Suriname, Vanuatu, and Vietnam.

At a press conference on Monday, Agriculture Minister Carlos Fávaro stated that complete disinfection of the affected farm is expected by Tuesday, May 20. This would initiate a 28-day monitoring period starting Wednesday, May 21. If no new cases are detected during this time, Brazil could declare itself free of the disease by mid-June. Mr. Fávaro emphasized that some countries may resume imports before the 28-day period concludes, depending on their assessment of the situation.

Mr. Fávaro acknowledged the difficulty in estimating the commercial impact of the suspensions but expressed confidence in a swift resolution through transparent negotiations. He reiterated that Brazil determines the start of the 28-day period and, absent new cases, can self-declare freedom from the disease to the World Organisation for Animal Health (WOAH).

As of the evening of May 19, four suspected cases were under investigation: two in commercial flocks in Ipumirim, Santa Catarina, and Aguiarnópolis, Tocantins; and two in backyard flocks in Salitre, Ceará, and Estância Velha, Rio Grande do Sul. Preliminary tests in Aguiarnópolis have returned negative for H5N1, according to the Tocantins Agricultural Defense Agency (Adapec).

Mr. Fávaro also addressed concerns about domestic poultry and egg prices, citing the 2024 Newcastle disease outbreak in Rio Grande do Sul, which had minimal market impact. He noted that 70% of Brazil’s poultry production serves the domestic market, suggesting limited price volatility.

Regarding financial resources, Mr. Fávaro indicated that additional budget allocations are not currently necessary for avian influenza control measures. However, sources within the Ministry of Agriculture suggest that a budget reinforcement of approximately R$100 million may be considered, pending evaluation by the Secretariat of Agricultural Defense.

Mr. Fávaro highlighted that the United States, a key market for Brazilian egg exports, has opted not to impose a blanket ban, instead restricting only genetic material imports from Rio Grande do Sul. He interpreted this as a sign of confidence in Brazil’s containment efforts.

In response to the outbreak, Brazilian states have implemented preventive measures. Santa Catarina, the country’s second-largest poultry producer, has banned the entry of live birds and eggs from 12 municipalities in Rio Grande do Sul. Goiás has declared a preventive animal health emergency to enhance surveillance, while São Paulo has conducted inspections of farms that received poultry or eggs from Rio Grande do Sul in May.

The Ministry of Agriculture continues to monitor the situation closely, aiming to restore international confidence and resume normal trade relations as swiftly as possible.

*By Rafael Walendorff — Brasília

Source: Valor International

https://valorinternational.globo.com/

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