Real estate once again drawing attention despite political crisis

The acquisition of real estate assets is once again drawing the attention of asset managers focused on the industry, despite the intensification of the political crisis in the country. The asset managers look at the long term and get ready for the moment in which the economy resumes growth and starts heating up demand, mainly for warehouses and office space. There are those who are also interested in the residential segment. There are talks for new financing efforts, and those who already have firm funds available seek assets for disbursing part of them.

Even with the worsening of the political crisis, Hemisfério Sul Investimentos (HSI), Brazil’s largest platform for real estate private-equity funds, maintains its intention announced in January of disbursing between R$1 billion and R$1.5 billion in the purchase of assets this year. “It’s not a temporary hiccup that’s going to change our strategy, with which we remain optimistic,” said Thiago Costa, the HIS partner responsible for acquisitions. Resources for financing acquisitions are part of a $750 million fund for which financing was concluded one year ago.

HSI – which has R$10 billion in assets under management – is interested in warehouses, residential segment, office space and shopping centers. In the first quarter, HSI bought a finished warehouse and two under construction. In the residential segment, the asset manager has purchased land and announced in April a joint venture with Nortis, of businessman Carlos Terepins, for the development of residential projects of medium and high standards in the city of São Paulo, to be launched in early 2018.

“Short term volatility can’t mask long-term opportunities, says RB Capital partner, Marcelo Michaluá. RB’s main bet are well-located distribution centers. The company has R$2 billion in assets under management invested in real estate and infrastructure funds.

Hedge Investments announced that it plans to begin raising money in the second half through funds – totaling between R$1 billion to R$1.2 billion – for real estate investments in warehouses, office space and shopping centers. The financing will be carried out over 18 months.

André Freitas, a partner at Hedge, thinks the industry’s recovery will take place first in the warehouse segment, likely by the year’s end. Potential tenants have already begun to seek, Mr. Freitas said, construction projects built to suit. The asset manager hopes for an improvement in the office-space market in two years, but believes that the recovery for Triple A standard spaces could begin in 2018. The expectation for the shopping center segment is for the recovery to occur in three years.

Credit Suisse Hedging-Griffo (CSHG) — which has R$5 billion in real estate assets under management and oversees 45 ventures – has already announced that it plans to raise new capital through a real estate investment fund (FII). CSHG plans to double the total amount of assets under management within three years.

For Bruno Laskowsky, director for real estate assets at CSHG, the markets for commercial office space, shopping centers and warehouses are likely to resume growth in late 2018 or in 2019. This year the asset manager will focus on increasing profitability of office space, shopping centers and warehouses segments, with the reduction of vacancy and improvement of asset quality.

Brio, whose control is shared by Jereissati Participações and Sollers Investimentos will raise in the coming months more than R$100 million for investment in the medium-high and high-income residential segment. The asset manager focused on the real estate market spent three years practically in a holding pattern.

Brio plans to use the proceeds to buy stakes in medium-high and high standard residential projects in São Paulo, that are less dependent on bank financing. The asset manager believes the perspective the country will advance reforms justifies its expectation of economic recovery.

RBR Asset Management, which has R$700 million under management distributed in six investment vehicles, recently purchased its first corporate building in São Paulo for R$41.3 million. The asset manager intends to make new acquisitions of corporate properties for lease in well-located areas in the city.

In the residential segment, RBR purchased four plots — three of them with a profile suited to federal program My House, My Life — and will acquire four to six other areas this year. The payment of land will be made only after the projects’ development registration. “Brazil still brings many uncertainties, says one of RBR’s partners, Ricardo Almendra. Projects under the housing program will be launched this year, while ventures for the middle and upper-middle classes, starting in 2019.

Mr. Almendra said the investments planned for development are maintained, even with the worsening of the political crisis, but “filters for debt transactions have become more restrictive.” RBR purchases real estate receivables certificates (CRIs) and participates in the issue of these securities.

The coordinator for real estate investments at Provence, Vitor Morosine, says that the company’s perception is that there are more opportunities in the 2 and 3 income brackets of My House, My Life housing program, financed with resources from the Workers’ Severance Fund (FGTS), and high standard properties, which depend less on credit. “But what’s most important is that they are very good partners in what they do and that they have proven experience,” Mr. Morosine said.

Source: Valor Econômico

Analysts see possibility of 100-basis-point rate cut in July

The minutes of the latest Monetary Policy Committee (Copom) meeting reiterated aspects already addressed by the Central Bank last week, but sounded slightly dovish, that is, leaning to rate cuts, in relation to the statement of the decision of cutting the rate by 100 basis points. This way, it maintains alive the possibility of repeating the 100-basis-point cut in the Selic benchmark rate at the July’s meeting, analysts say.

In a sign of that, interest rate futures traded on B3 fell on June 5, the largest drop in 11 days. The difference between the interbank (DI) rates of January 2019 and January 2018 declined by half, to 7 basis points on Tuesday from 16 basis points in the previous day. The 9 point-decline was the steepest in two weeks. In practice, this shows the market sees greater chances of stability in the Selic over the next year. Recently the interest rate curve had embedded a 100 basis-point gain in the policy rate in 2018.

For some analysts, the document released on June 5 seemed a Central Bank (BC) attempt to secure more flexibility in the monetary policy decisions. The reason would be precisely the scenario of uncertainty which, according to the Copom recommended last week, “not predicting the possible pace to be adopted in the future.”

In paragraph 19 of the minutes, the Copom makes clear that the current conditions give room to the continuity of the monetary easing and that this understanding already takes into account the risks to the baseline scenario and the estimates of length of the cycle.

A little later, in paragraph 22, the members say they consider “adequate” a “moderate” reduction of the pace of rate cuts. But they stress that this pace will continue depending on how the economic activity performs, on the balance of risks, on possible reassessments of the estimate for length of the cycle and on inflation projections and expectations.

In general, the market has still been avoiding changing dramatically its expectations for GDP and inflation. According to the median of projections in the BC’s Focus survey, the market reduced the expected GDP growth in 2018 from 2.5% on May 16 — before the eruption of the political crisis — to 2.4% late last week, the latest available data.

In the same period, the forecast for inflation index IPCA in 2017, for example, was lowered to 3.9% from 3.92%. And the projection for 2018 rose slightly (to 4.4% from 4.37%), but still below the midpoint target, of 4.5%.

Source: Valor Econômico

Petrobras and Banco do Brasil join governance model of state companies

The two largest state-controlled companies listed on the Brazilian stock market, Petrobras and Banco do Brasil, have decided to adopt initiatives to shield their governance by joining additional commitments for good practices. Both requested exchange operator B3 for a certificate of inclusion in the program Highlight in Governance of State Companies.

Petrobras went further and announced it is beginning studies to join B3’s Level 2 of corporate governance, the segment with the strictest requirements for companies that have preferred shares.

Yet this is not the first time that the oil company has made such a move. Fifteen years ago, in 2002, when Pedro Parente, now its chief executive, was chairman of the board, Petrobras adopted all measures for this migration, but had the initiative vetoed by the Office of the Attorney General of the National Treasury (PGFN).

Together, Petrobras and Banco do Brasil account for about 11.5% of the Bovespa Index and have nearly R$260 billion in market capitalization, out of a total of R$2.24 trillion for all companies in that bellwether index.

Of voluntary participation, B3’s program for state companies — launched over a year and a half ago — establishes a series of guidelines to try and raise the governance, control and transparency level of these companies.

For the program certification, the company must comply with requirements such as having and disclosing guidelines about the composition of board, management and fiscal council. Moreover, it must have policies on diversity of experiences and skills and the minimum of 30% of independent board directors.

State companies also need to establish and publicize internal mechanisms to avoid that their managers act in benefit of public policies that go beyond the public interest defined in the creation of the company and in its social objectives.

The concern with the governance of state-controlled companies gained relevance after Operation Car Wash uncovered a giant corruption scheme at Petrobras, whose estimated loss in the company’s financial statements was at least R$6.2 billion. The importance of the matter made Congress pass the Law of Responsibility of State Companies (Law 13,303) in June 2016.

The board of Banco do Brasil in December approved joining B3’s program for state companies. On July 5, the bank’s shareholders will vote on the matter in an extraordinary general meeting.

Petrobras has not yet released dates, but already said it has adopted all measures required by B3 for state companies. “For us to be able to apply for the governance program of state companies, we’ve worked for more than a year. Now, we will begin the process related to Level 2,” Mr. Parente said in a press conference. He said the company would study which measures need to be implemented.

The current management wants to show the governance established at the company is what best serves the interests of Petrobras and its shareholders. “We will create conditions so that what happened in the past will not happen again in the future.”

Mr. Parente also stressed that, with the steps taken toward a more effective governance, he expects the company to have more favorable financing terms. “We do expect it to bring benefits such as funding costs etc.” he said, adding that the improvement in costs that the company has been noticing now reflects more “the entirety of the effort” and not a specific matter.

In 2002, when it tried to join Level 2, Petrobras faced a big discussion about two rights granted to preferred shareholders in that special listing segment and obtained from the stock exchange, at the time, the permission for some exceptions.

The company would not establish in its bylaws the tag-along right for preferred shareholders, as Level 2 demands — the right that secures to shareholders the control premium through a mandatory offer in case of sale of most of the voting stock.

João Nogueira Batista, who was chief of investor relations in 2002, explained that it was established that, as a company controlled by the federal government, this debate would have to be carried out in Congress as part of a discussion about privatization, if it were to happen.

The other big issue, which led to the PGFN veto, was about voting rights for preferred shares in some special matters, like mergers, alterations of shareholder rights, modifications of social object, dividend policy, among others.

The president of the Securities and Exchange Commission of Brazil (CVM), Leonardo Pereira, said that Petrobras joining Level 2 would be a very relevant development for the Brazilian market. “An excellent message to the other state companies,” he said.

Mr. Nogueira Batista said joining the governance segment would work as a sort of shielding to Petrobras’s shareholders, something that was also pursued during his term — even though the migration had not materialized.

In the attempt of lowering barriers that emerged at the time, Mr. Nogueira Batista said a solution was to adopt a set of governance guidelines that the board would have to follow in certain circumstances, in a sort of code of conduct, in place of establishing in the bylaw the voting right for preferred shareholders. Mr. Cunha said that code was entirely modified and the original is nowhere on the internet.

Source: Valor Econômico

Temer focuses on economy in attempt to remain in office

In the decisive week for new chapters of the crisis — likely to be aggravated by the plea bargain of Rodrigo Rocha Loures and the disclosure of new wiretaps conducted by the Federal Police at the request of the prosecutors’ office — President Michel Temer is doubling down on the economic recovery, and on the lack of a consensus name to replace him, to gain muscle and stay in office. He ordered his economic team to formulate a new “package of kind policies” he intends to announce in coming days.

The Palácio do Planalto, the presidential office, expects to gain time to adopt the measures and accelerate the economic recovery. In this line of action, the timetable outlined by the government includes the labor reform’s passage on June 1st, on the Senate’s floor, and the first vote on the pension reform on the Chamber of Deputies’ floor on June 13.

Aiming to keep the economy producing good news, Mr. Temer ordered new policies with popular appeal from the minister of Planning, Dyogo Oliveira, who worked actively with his team during the weekend. The Office of the Chief of Staff and the government leader in Congress, Senator Romero Jucá (PMDB of Roraima), are also involved in designing the plan.

On another front, Mr. Jucá will command the strategy to vote on labor reform on June 6 on the Senate floor. This plan will entail passing it in the morning in the Economic Affairs Committee and on the same day, in the afternoon, taking it to the floor. To do that, Mr. Jucá will have to get the signature of most leaders of the allied parties in an urgency requirement.

This mechanism suppresses analysis steps at the Social Affairs Committee and at the Constitution and Justice Committee. In the case of the PMDB, Mr. Jucá will face the resistance of leader Renan Calheiros (Alagoas), who advocates a broad discussion of the bill in the thematic committees. On the other hand, he will have the support of the president of the Constitution and Justice Committee, Senator Edison Lobão (PMDB of Maranhão), who has remained faithful to Mr. Temer, at the request of ex-President José Sarney.

In the Chamber of Deputies, the offensive of the governing leaders also targets the economic agenda. The government will try to pass a bill that would allow foreign stake in airlines up to 100%, a from businesses that has been supressed for several years. Another effort will be made at the resumption of talks to try and vote, on June 13, on the pension reform in a first round.

The goal is to show that Mr. Temer maintains political strength in Congress. Presidential aides reject the notion of some leaders, even of the PSDB, that the reforms would go through without Mr. Temer in the presidency. They claim Mr. Temer is the only politician amid the crisis with the necessary skill and ability of political coordination to push through controversial policies in Congress in a situation of turbulence.

One example they recall is the recent vote on the bill to validate tax incentives, which had 405 votes on the floor of the Chamber of Deputies’ last week and untied a legal knot that had persisted for decades.

In the hypothesis of his removal, however, the Planalto’s Plan B is the candidacy of Chamber Speaker Rodrigo Maia (Democrats, DEM, of Rio de Janeiro), in the Electoral College. He is an appealing name for the deputies, who have more votes in the college, because it opens the post of house speaker.

Another name that emerged over the last few days for a potential Congressional in-house election was of Senator Armando Monteiro (Brazilian Labor Party, PTB, of Pernambuco), former minister of Development in the Rousseff administration. A moderate with good positioning in the business world, Mr. Monteiro would be an option to the interim president of the PSDB, Tasso Jereissati, of Ceará.

Source: Valor Econômico

Government tries again to pass state bankruptcy law

The government presented to Chamber of Deputies President Rodrigo Maia (Democrats, DEM, of Rio de Janeiro) the new state financial recovery bill, a fundamental part of bailout efforts to Rio de Janeiro, Rio Grande do Sul and other states. The proposal was supposed to be forwarded to Congress still on Monday, 23rd February, and defines several austerity measures that states have to adopt in exchange for halting payments of their debt to the federal government, refinancing bank debts and borrowing more to balance accounts.

The so-called Fiscal Recovery Regime would allow states to halt repayment of loans from public and private-sector lenders by up to 36 months, and renegotiate them under the same terms of their debt to the federal government, if the state requests to join the program. “We are using the same concept from the bankruptcy law for the fiscal recovery of states,” an official says. It serves as a kind of warning to banks better review the financial situation of each state before extending new loans while also protecting the federal government from having to shoulder the entire bill.

The proposal includes a mandate allowing banks that lend in anticipation of privatization revenue to appoint a board member “whose role will be contributing to the divestment plan’s success.” The privatization of Rio de Janeiro’s water and sanitation company, Cedae, which will count on a guarantee from Banco do Brasil, is one example of this mechanism.

Known as the states’ bankruptcy law, the bill represents the government’s second attempt to secure a bailout for barely solvent states after failing last year to convince the Chamber to keep the austerity demands.

Regarding December’s failed proposal, whose austerity measures were removed by deputies, the new draft evolved them by referencing more explicitly the Fiscal Responsibility Law (LRF) and granting exemptions for cases when states are forbidden from taking new loans.

The bill also forces states that file for bankruptcy to prove that legislation demanded in exchange (like authorizing privatizations and raising pension dues) already is in effect, meaning the federal government will not allow new borrowing that creates high risks to the Union, which guarantees the loans, and to banks.

The new bill removed the possibility of cutting hours and pay of government workers from states that join the process. The measure was included in the December bill and remains controversial. It’s currently under review by the Federal Supreme Court (STF).

Demands on states to liquidate leftover spending and debts every six months through auctions were also removed. The new draft lets the fiscal recovery plan decide the auctions frequency. The new version also blocks withdrawing deposits in court, except those allowed by complementary law 151, of 2015, which deals with cases linked to the public sector. Even in this case, the withdrawals are not allowed until states can keep at least 30% of the amount deposited.

States also will have to lower payroll spending to join the program. The original draft mentioned three criteria: lower net current revenue than consolidated debt; current revenues lower than fixed costs; and higher spending than available cash from non-constitutionally mandated expenditures. The new draft clarifies the first and second items (including which period and the law that sets the criterion) and replaces the second item with payroll spending of at least 70% of current revenues collected before filing for bankruptcy protection. Those criteria try to prevent that all states end up joining the program, which could generate an unbearable cost to the Union.

The bill also creates a supervisory council for the program, with three fixed members and three alternates. Three new jobs will be created at the highest federal pay level (DAS 6, of R$15,500) for them. States will not participate in the council, whose members will be appointed by the ministries of Finance and Transparency.

The council members will have access to all states’ financial data and can recommend revising or even suspending contracts in case of rule violation. They will have to file monthly reports on the fiscal situation of each state and a final report on the entire process.

Source: Valor Econômico S.A.

Brazil set to keep aggressive pace of rate cuts to salvage economy

Brazil’s central bank will likely maintain its aggressive pace of interest rate cuts on February 22nd despite some calls to further step up monetary easing to rescue an economy mired in recession.

The bank’s 9-member monetary policy committee, known as Copom, will likely cut its benchmark Selic rate BRCBMP=ECI by 75 basis points to 12.25 percent, according to all but one of the 54 economist previously surveyed by Reuters.

Unions and business groups have demanded a cut of 100 basis points to reduce some of the world’s highest borrowing costs, which they say could undermine a still feeble recovery.

A rapid drop in inflation, which could end the year below the 4.5 percent official target, has strengthened the case for a bolder rate cut after the bank surprised markets by cutting more than expected at its last meeting.

The recent appreciation of the real currency BRBY has analysts betting on more aggressive rate cuts ahead.

“We think there is a growing case for a bolder cut of 100 basis points– if not now, then at the next policy meeting,” economists with BNP Paribas wrote in a note to clients.

Central bank chief Ilan Goldfajn has signaled policymakers would maintain the current pace of rate cuts, but that future monetary easing would hinge on the approval of austerity reforms to ease inflationary pressures.

Brazil’s recession, the worst in its history, has left millions unemployed and bankrupted hundreds of companies, raising pressure on Goldfajn to lower rates.

Facing a grueling fiscal crisis President Michel Temer is relying on falling interest rates to exit a recession that threatens to stretch into a third year.

However, the sharp drop in inflation has sparked a debate inside his administration over whether the government’s 2019 inflation target, decided in June, should be set at a lower level. That could slow the pace of monetary easing.

Brazil introduced an inflation rate target in 1999. The current 4.5 percent goal was first adopted for 2005, originally with a tolerance margin of plus or minus 2.5 percentage points. In 2015, the government narrowed the range to plus or minus 1.5 percentage points.

Source: Reuters Brazil

Brazil’s inflation likely to drop below 5 percent in mid-February -poll

Brazil’s inflation rate probably eased below 5 percent in mid-February for the first time since 2012, a poll showed, putting the central bank very close to its long-missed target and keeping the door wide open for interest rate cuts.

Consumer prices as measured by the IPCA-15 inflation index probably rose 4.99 percent in the 12 months through mid-February, down nearly 1 percentage point from mid-January, according to the median of 25 estimates.

Prices probably rose 0.50 percent from mid-January, up from an increase of 0.31 percent in the previous month, according to the median of 29 forecasts in the poll.

The numbers will be released on February 22nd, the same day the central bank is expected to slash interest rates by another 75 basis points to a two-year low of 12.25 percent, according to a separate poll.

Falling inflation and interest rates are expected to help the economy pull through its two-year-long recession. That would bring relief for President Michel Temer, who is working to garner support for austerity measures in Congress.

The central bank’s inflation target is 4.5 percent. With consumer prices slowing more rapidly than expected, most economists expect the government to reduce the goal for 2019, according to a Reuters poll last week.

Source: Reuters Brazil

Heineken takes battle to AB InBev in Brazil with $1 billion Kirin deal

Heineken NV (HEIN.AS), the world’s second-largest brewer, agreed on February 13th to buy the loss-making Brazilian breweries of Japan’s Kirin Holdings Co Ltd (2503.T), boosting its presence in the world’s No. 3 beer market.

The Dutch brewer will become the second largest beermaker in Brazil, with a share of about 19 percent, behind market leader Anheuser Busch InBev SA (ABI.BR). Including debt, Heineken said it would pay 1.025 billion euros ($1.09 billion) for Brasil Kirin.

For Kirin it marks a departure from the Brazilian market, having paid some $3.9 billion in 2011 for 12 breweries, a business which has subsequently lost market share and seen raw materials costs rise due to a weak currency and rampant cost inflation.

Kirin said that Brazil’s economic risks and a stagnant and competitive beer and soft drink market meant there were “limitations” to making Brasil Kirin profitable. Kirin said the unit made an operating loss of 284 million reais in 2016.

Brazil’s economy is set to enter a third year of recession in 2017, but Heineken said that the nation’s beer market was attractive in the longer term, with a premium segment growing faster than the market as a whole.

The acquisition will increase Heineken’s presence in the north and northeast of Brazil, allow it to boost sales of the premium lagers Heineken and Sol and yield cost savings.

It already has five breweries in Brazil from its 2010 acquisition of the beer business of Mexico’s FEMSA (FMSAUBD.MX).

“None of the normal ratios work because it’s loss-making, but it’s a very attractive price,” said Trevor Stirling, beverage analyst at Bernstein Research.

COMPETITION

Credit Suisse Group AG advised Heineken on the deal.

Some analysts have also said the deal is important as it makes Heineken a stronger rival in a heartland of global beer leader AB InBev just as the latter has pushed into Heineken’s markets elsewhere through its takeover of SABMiller.

The acquisition, dependent on approval by Brazil’s antitrust agency, is expected to close in the first half of the year.

Shares of AB Inbev’s local unit, Ambev SA, gained 0.5 percent to 17.22 reais in São Paulo, a sign the transaction allayed concerns of an imminent price war in the short run.

In the long term, however, “the reading of this news could be negative, because Ambev will have to cope with a stronger competitor,” a client note by Banco BTG Pactual’s trading desk said.

Separately, Kirin said it would take a 51 percent stake in a beer company in Myanmar. The company, Mandalay Brewery Ltd, will be 49 percent owned by Myanmar Economic Holdings. Kirin and Myanmar Economic Holdings already run already another beer joint venture, Myanmar Brewery Ltd.

Kirin also said it had ended capital alliance talks with Coca-Cola Group (KO.N), though the two companies would continue to discuss a potential operational partnership.

($1 = 3.1145 reais)

($1 = 0.9386 euros)

Source: Reuters Brazil

Exclusive: Carlyle’s Brazil developer battles mounting client, creditor lawsuits

A Brazilian land developer controlled by Carlyle Group LP (CG.O) investment vehicles is buckling under mounting client and creditor lawsuits and an unsustainable debt load, highlighting legal risks facing global buyout giants in Latin America’s No. 1 economy.

The survival of Urbplan Desenvolvimento Urbano SA increasingly depends on creditors’ willingness to restructure 450 million reais ($145 million) of asset-backed securities, and the unlikely reversal of hundreds of rulings allowing clients to cancel land purchases.

Urbplan, which develops residential lots by laying out basic infrastructure, is the target of more than 2,000 lawsuits nationwide, half of them in São Paulo state. Most of them come from clients who want their land purchases annulled, saying Urbplan halted work during a two-year shareholder dispute.

As creditors question a three-year, Carlyle-led turnaround that has prepared about 70 delayed projects for delivery, bankruptcy protection could be the only solution for Urbplan to cope with Brazil’s harshest recession ever and onerous debt servicing, two people familiar with the matter said.

The situation highlights how global private-equity firms have struggled to navigate Brazil’s complex legal and business environment. Courts tend to hold executives and shareholders personally responsible for corporate tax and labor claims.

In recent months, at least one creditor has asked a São Paulo judge to declare the developer insolvent due to alleged fraud, while another has sought to publish the names of Urbplan and Carlyle’s Brazil executives in newspapers, as a way to expose their links to Urbplan’s woes, documents reviewed by Reuters showed.

A spokesman for Washington, D.C.-based Carlyle told Reuters the fraud accusations “are false, baseless and reckless” and would be disputed and defeated if pursued in court. Urbplan and Carlyle declined to comment on a possible creditor protection filing.

PROMINENT PLAYER

The recession has magnified the risks facing investments by private equity funds. Reuters reported in October that KKR & Co Inc’s (KKR.N) first-ever investment in Brazil has turned into a battle over mismanagement allegations.

Perhaps the most prominent among the buyout titans that planted flags during Brazil’s boom a decade ago, Carlyle has had setbacks too. Reuters reported in July that it sold lingerie maker Scalina SA after a failed debt restructuring effort.

A web of Carlyle-run real estate investment funds bought Urbplan when valuations were stretched, the currency was overvalued and interest rates were falling.

The buyout giant paid Brazil’s Scopel family about $100 million for a 60 percent stake of Scopel Desenvolvimento Urbano Ltda in 2007 in its first foray into the country. Five years later, Carlyle took full control of Scopel and renamed it Urbplan, following a $100 million capital injection.

Under Carlyle, Urbplan embarked on an ambitious debt-fueled expansion, often running afoul of complex local urban development rules, two former employees told Reuters. Between 2007 and 2012, Urbplan raised about 700 million reais from the sale of real estate receivable-backed bonds.

The rift between Carlyle and Urbplan creditors has escalated since then, even after the Carlyle investment vehicles, clients and co-investors injected $160 million in fresh equity, lent the developer about $91 million and advanced more than $110 million in additional funding, one of the people said.

The money has proved insufficient to revive Urbplan, which remains mired in high debt and litigation costs, the same person added.

The Carlyle spokesman said Urbplan has “substantially completed its pending projects and fulfilled these obligations” largely thanks to investment from the private equity firm.

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RECESSION

As of the end of last year, about 50 percent of client receivables that Urbplan had packaged into debt were more than 90 days overdue, the first person said.

Creditors, who earn annual returns of around 30 percent on some of Urbplan debt, claim the company’s woes are due to mismanagement, fraud and embezzlement, according to some of the lawsuits to which Reuters had access.

One of the lawsuits demanding that Urbplan be declared insolvent alleges the Carlyle-backed management shakeup prevented the developer from staying current on payments to bondholders.

Another claims that Urbplan’s management sold a pool of property receivables to several Carlyle-controlled distressed debt funds at below-market prices.

Carlyle denies the accusations.

According to José Luiz Bayeux Neto, an attorney representing creditors led by securitization firm Gaia Securitizadora SA in the lawsuits, “related-party transactions between Urbplan and vehicles controlled by Carlyle Group in the past couple of years need to be thoroughly explained.”

($1 = 3.1200 reais)

Source: Reuters Brazil

Brazil’s busiest week for IPOs in years marked by mixed fortunes

Brazil’s busiest week for initial public offerings in nearly four years ended on February 10th with mixed results for issuers, faced with wariness among foreign investors toward Latin America’s largest equity market amid fallout from political turmoil.

Rent-a-car company Movida Participações SA and medical laboratory Instituto Hermes Pardini SA launched their IPOs despite pressure for lower prices. But tough market conditions led Movida’s rival Unidas SA to scrap its own listing on February 10th.

Aside from overlapping IPOs between the rental car rivals, the pricing of a large 4.1 billion real ($1.32 billion) follow-on offering by CCR SA (CCRO3.SA), Brazil’s No. 1 toll road operator, might have hampered demand for the IPOs, four people familiar with the deals said.

Investors stung by a string of deals in recent years that failed to deliver promised returns are wary of IPOs in Brazil. Just over a third of the 138 IPOs priced in the past decade yielded returns above Brazil’s interbank lending rate, Thomson Reuters data showed, with the remainder losing part or all of the amount initially invested.

This week was the busiest for local equity offerings since April 2013. Movida’s shares, which plunged on February 8th – their first day of trading – have since recovered and booked a 2.7 percent gain on the week.

Extending the current wave of offerings hinges on President Michel Temer’s ability to push ahead with ambitious reforms to lower the country’s risk perception, bankers said.

“This week showed we are still in a buyers’ market and investors still feel more comfortable taking existing risk than new one,” said one of the people, who asked for anonymity to speak about the transactions.

BALANCING ACT

Stronger equity markets and companies’ need to fund growth or reduce debt are the “fundamental catalysts in place” sustaining IPO activity in Brazil and Latin America this year, according to Pedro Martins, chief Latin America equity strategist for JPMorgan Securities.

However, companies seeking to tap the local equity markets face a balancing act: how to offer acceptable risk and return as Brazil enters a third straight year of economic recession and global market turmoil escalates under U.S. President Donald Trump’s trade protectionist stance, bankers said.

Such uncertainty is keeping foreign investors – traditionally the main buyers of Brazilian IPOs – on the sidelines. Foreigners snapped up only 15 percent of the Pardini deal, a fraction of the 67 percent participation ratio they had about a decade ago, the people said.

The mixed results of this week’s IPOs may shed light on how a list of long-awaited listings should come to market. Those companies include airline Azul Linhas Aéreas Brasileiras SA, securities firm XP Investimentos SA and the Brazilian unit of France’s Carrefour SA.

The companies declined to comment.

A new wave of IPO requests should resume in late March or early April and stretch for longer should market conditions prove favorable, bankers at Itaú BBA SA and Banco Bradesco BBI SA, the country’s largest equity underwriters, recently told on an interview.

Movida’s IPO on February 6th raised a smaller-than-expected 645 million reais, after controlling shareholder JSL SA was forced to lower the deal’s pricetag. A member of JSL’s controlling family subscribed about 15 percent of the deal to ensure its completion, Reuters reported, citing sources.

On February 9th, Hermes Pardini clinched about 878 million reais at a price slightly above the floor of the suggested price range.

At the floor of the price range, investors bid the equivalent of three times the amount of shares on offer, Reuters reported earlier in the day, citing sources.

In the case of Unidas, shareholders Gávea Investimentos Ltda, Vinci Partners and Kinea Investimentos Ltda shunned a suggestion from bankers to cut the price and secure demand for the IPO. They are working on ways to help the shareholders exit their combined 45 percent stake in Unidas, the people said.

Source: Reuters Brazil.