The meeting addressed major global tensions; Russian Foreign minister faced criticism over the war in Ukraine and the death of a dissident in prison

22/02/2024


Brazil’s Foreign Minister Mauro Vieira speaks during the G20 foreign ministers meeting in Rio de Janeiro, Brazil, Wednesday, Feb. 21, 2024 — Foto: Silvia Izquierdo/AP

Brazil’s Foreign Minister Mauro Vieira speaks during the G20 foreign ministers meeting in Rio de Janeiro, Brazil, Wednesday, Feb. 21, 2024 — Foto: Silvia Izquierdo/AP

The G20 foreign ministers’ meeting in Rio opened with Brazilian Minister Mauro Vieira emphasizing the need for reforms in global governance. In his Wednesday (21) speech, he criticized high military spending worldwide and the stagnation of multilateral organizations, aligning with President Lula’s past administrations’ traditional foreign policy.

The main agenda for the 41 delegations present—21 G20 members and guests—was current international conflicts, particularly the wars in Ukraine and Gaza. As anticipated by diplomats, Russia faced significant scrutiny, with its Foreign Minister Sergei Lavrov present at the meeting.

Valor sources privy to the closed-door discussions reported that the G7 countries (Germany, Canada, the U.S., France, Italy, Japan, and the UK) were particularly vocal in their criticism. They focused on the Ukrainian war and the death of Alexei Navalny, an opponent of Vladimir Putin, in an Arctic prison.

Other foreign ministers also expressed their concerns about the conflicts in Ukraine and Gaza. Regarding the Israel-Palestine conflict, most supported a two-state solution. Argentina, which has prioritized Israel in its foreign policy, also backed the creation of a Palestinian state. However, Foreign Minister Diana Mondino emphasized Israel’s right to self-defense.

On Thursday (22), discussions will shift to potential reforms in organizations like the UN, IMF, and World Bank. These reforms, along with combating hunger and climate change, are key priorities of Brazil’s G20 presidency.

In front of other foreign ministers, Mr. Vieira expressed concern over the annual military expenditure of $2 trillion, contrasting sharply with the meager contributions to humanitarian aid and climate change efforts. He pointed out that funds allocated for social assistance and development are barely $60 billion a year, approximately 3% of what is spent on arms.

“The disbursements for combating climate change under the Paris Agreement are barely $100 billion a year, which is less than 5% of military spending,” stated the Brazilian minister. “I can’t help but feel a lack of concrete action on these issues.”

Mr. Vieira, under the observation of his counterparts, reminded them that the G20 was originally intended to address economic and development issues but has become one of the few forums where countries with differing views can come together. Despite that, he urged for concrete action and critiqued the “unacceptable paralysis” of the UN Security Council regarding global armed conflicts.

Criticizing developed nations, he emphasized that the “Global South” demonstrates greater initiative in peace and cooperation. “The successful cases of peaceful cooperation in Latin America, Africa, Southeast Asia, and Oceania suggest that these regions’ voices should be given special care and attention in relevant forums,” he asserted.

Regarding Brazil’s stance on global tensions, Mr. Vieira declared that the country “rejects the pursuit of hegemonies, whether old or new.” He also encouraged fellow G20 members to reaffirm their commitments to the UN, “publicly rejecting the use of force, intimidation, unilateral sanctions, espionage, and mass manipulation of social networks.”

Debates on Brazil’s other G20 presidency priorities, such as fighting hunger and climate change, are slated for future group meetings. Throughout the year, numerous ministerial-level meetings will occur in Brazil, with most in Rio. Next week, São Paulo will host discussions between finance ministers and Central Bank presidents.

The G20 heads of state summit is scheduled for November in Rio. Typically, the G20 issues a joint statement only after the summit, so it’s unlikely there will be an official group statement at the end of today’s meeting. Mr. Vieira is expected to give a statement after the meeting concludes.

Notably absent from Rio are the main diplomatic representatives of two global powers: China and India. However, Brazil has received indications that Chinese President Xi Jinping will attend the leaders’ summit.

On Wednesday, after more than four hours of meetings at Marina da Glória on Rio’s south side, the ministers went to a dinner at Palácio da Cidade, which is the headquarters of the city hall. The dinner, hosted by Mayor Eduardo Paes, who is championing the slogan “Rio – Capital of the G20,” featured elements of Rio’s local culture. At the Marina da Glória event, a local vendor, known as a “mateiro,” served mate (a traditional South American drink) and Globo cookies—snacks that are iconic to Rio’s beaches—to the attending diplomats and journalists.

*Por Murillo Camarotto, Caio Sartori, Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
Foreign ministers begin two-day ministerial meeting under Brazilian presidency of the group on Wednesday

02/21/2024


Maurício Lyrio — Foto: Fernando Frazão/Agência Brasil

Maurício Lyrio — Foto: Fernando Frazão/Agência Brasil

Despite acknowledging divergences among G20 countries regarding the format of reforms at the United Nations, the Brazilian presidency of the group believes there is consensus regarding the need for a stronger UN to address international conflicts.

This analysis was made on Tuesday (20) by the Secretary of Economic and Financial Affairs of the Brazilian Ministry of Foreign Affairs, Maurício Lyrio, during the presentation of the agenda for the G20 foreign ministers’ meeting, which begins this Wednesday (21) in Rio de Janeiro.

The meeting is the first at the ministerial level under Brazil’s presidency of the group and will extend until Thursday (22). According to Mr. Lyrio, discussions will focus on ongoing international conflicts, such as the war in Ukraine and the conflicts in Gaza, as well as reforms in global governance, as previously reported by Valor in January.

Mr. Lyrio serves as Brazil’s sherpa in the G20, a term that designates a country’s representative at the international summit. The coordinator assesses that the current level of international conflicts creates unprecedented pressure on the composition and format of multilateral organizations such as the UN.

“There is consensus on the need for a strong UN capable of facing global challenges. The final form of this update faces divergences, but the urgency we have today, with the level of conflicts returning to Cold War standards, generates pressure and urgency on the topic that did not exist before,” he said.

Mr. Lyrio emphasized that, in Brazil’s view, the UN needs to undergo effective reform to become a structural and effective instrument in conflict prevention.

“The Brazilian government’s defense of peace applies to all conflicts. But one thing is to work for peace, another is to have a structural action. [Today] We are putting out fires,” he said.

The statements were made amid escalating diplomatic tension between Brazil and Israel after President Lula compared the situation in the Gaza Strip to the Holocaust, prompting an immediate reaction from the Israeli government.

Asked whether President Lula’s statements could hinder Brazil’s role as a mediator in international conflicts, the government representative denied: “The peace call that the president has been making from the beginning is absolutely crucial.”

He even mentioned that the resolution for a humanitarian ceasefire in the conflict, presented at the UN Security Council, is a priority for the Brazilian government. When informed by reporters that the proposal had been vetoed, he expressed dissatisfaction. “I imagine there was a veto exercised,” he observed. The United States vetoed the proposition on Tuesday, for the third time since the beginning of the war between Israel and Hamas.

The meetings of the foreign ministers are taking place at Marina da Glória, in the southern zone of Rio. The discussions involve the 19 countries that are part of the group of the world’s major economies, the European Union, and the African Union, as well as countries and international organizations invited by Brazil. The Brazilian presidency of the G20 will hold a second meeting of foreign ministers in September, parallel to the opening of the UN General Assembly in New York.

*Por Paula Martini, Caio Sartori — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
Both governments trade accusations on social media after Israeli Foreign minister called on Brazilian president to retract comparison to the Holocaust

02/21/2024


Rodrigo Pacheco — Foto: Marcos Oliveira/Agência Senado

Rodrigo Pacheco — Foto: Marcos Oliveira/Agência Senado

In another day of escalating tensions between Brazil and Israel, government ministers of President Lula and Prime Minister Binyamin Netanyahu exchanged sharp criticisms on social media on Tuesday. The Israelis accused Mr. Lula of “denying the Holocaust” and persisted in demanding a retraction of his remarks, while members of the Brazilian government denounced the dissemination of “fake news” and characterized the statements from Tel Aviv as “unacceptable” and “outrageous.”

Domestically, the Lula administration is also grappling with the political implications of the crisis. Senate President Rodrigo Pacheco suggested that Mr. Lula apologize for the statement that sparked the diplomatic rift, while opposition lawmakers plan to file a motion for Mr. Lula’s impeachment.

Tuesday’s exchange of accusations began after Israeli Foreign Minister Israel Katz mentioned Mr. Lula’s profile in a publication in which he demanded a retraction from the Brazilian government for comparing Israel’s actions in Gaza to the Holocaust. “Millions of Jews around the world are waiting for your apology. How dare you compare Israel to Hitler?” wrote Mr. Katz in Portuguese on X.

On the same day, the official profile of the State of Israel responded sarcastically to a post from another account, unrelated to the diplomatic crisis, which asked: “What comes to mind when you think of Brazil?” The official profile of Israel shared the post with its followers, adding a question: “Before or after @LulaOficial went full on Holocaust denier?”

Brazil’s Minister of the Secretariat of Social Communication (Secom), Paulo Pimenta, responded to the provocation. Also on social media, he accused the Israeli foreign minister of spreading “fake news” against President Lula. Additionally, he stated that the Netanyahu administration thrives on the conflict with the Hamas terrorist group, which controls the Gaza Strip, to maintain power.

“At no time did the president criticize the Jewish people, nor did he deny the Holocaust. Lula condemns the massacre of civilians in Gaza by Netanyahu’s far-right government,” the Brazilian minister said.

At the end of the day, Foreign Minister Mauro Vieira also reacted to Mr. Katz’s comments. He called them “unacceptable,” “untrue,” “unusual”, and “outrageous.” He also accused the Israeli government of creating a “smokescreen” to cover up a massacre of the population of the Gaza Strip.

“In addition to trying to sow divisions, it is trying to increase its visibility in Brazil to create a smokescreen to cover up the real problem of the ongoing massacre in Gaza, where 30,000 Palestinian civilians have already died, mostly women and children, and the population is subjected to forced displacement and collective punishment,” Mr. Vieira said.

Amid another day of tensions, the debate surfaced on the Senate floor. Also serving as the President of the National Congress, Rodrigo Pacheco argued that President Lula made a “misguided” statement by comparing Israel’s actions in Gaza to the Holocaust.

“We are confident that this misguided remark does not represent the true purpose of President Lula, who is a world leader known for building dialogues and bridges between nations,” Mr. Pacheco said, before calling on President Lula to retract. “This is why we believe that a retraction of this statement would be appropriate,” he added.

The mention of the issue agitated the Senate session. Omar Aziz, a member of the governing coalition, asked how the President of the Senate could characterize what was happening in Gaza. He also defended Mr. Lula for “looking at what is happening” in the region.

Mr. Pacheco replied that he was not “creating a controversy” or “reprimanding” the president.

The leader of the government in the Senate, Jaques Wagner, also defended the president’s remarks but surprised by admitting that he had advised Mr. Lula to abandon the comparison with the Holocaust. Mr. Wagner, who is Jewish, said that he told Mr. Lula that he would “remove” the passage from the president’s speech.

“I’ve been a friend of President Lula’s for 45 years, and it was natural for me to pay him a visit yesterday [Monday] and say: I’m not going to take a word of what you said, except at the end, because in my opinion, you can’t bring up the Holocaust episode for any comparison, because it hurts the feelings, including mine, of family members lost in that episode,” he explained. “So, President [Pacheco], I want to tell you that I agree with you because I don’t think the comparison is appropriate,” he added.

Despite Mr. Pacheco’s suggestion, Mr. Lula’s aides are dismissing behind the scenes any possibility that he will apologize for the comparison. Moreover, Valor has learned that the government does not intend to respond to Mr. Pacheco, so as not to turn the dispute with Israel into a fight with Congress.

Opposition legislators are organizing a response to the episode. Congresswoman Carla Zambelli said she would file a motion for Mr. Lula’s impeachment on Wednesday. She argued that Mr. Lula had committed a crime of responsibility by “committing an act of hostility against a foreign nation, exposing the country to the risk of war or endangering its neutrality.” The motion has the support of 121 lawmakers, but privately congresspeople who signed the motion say the proposal has no chance of moving forward.

(Raphel Di Cunto contributed reporting.)

*Por Renan Truffi, Fabio Murakawa, Murillo Camarotto, Julia Lindner, Caetano Tonet — Brasília, Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
Measure wasn’t on wealth managers’ radar; government aims to safeguard income and prevent insurer imbalances

02/21/2024


Debora Mendeleh — Foto: Divulgação

Debora Mendeleh — Foto: Divulgação

The restrictions on exclusive and restricted pension funds mark a continuation of government efforts to curtail tax avoidance practices among the ultra-wealthy. This initiative began with the biannual tax—known as the “come-cotas”—which targeted fixed-income, multimarket, and foreign exchange portfolios, as well as closed investment vehicles tailored for wealth management. Along with this came the introduction of a tax on offshore entities, along with restrictions on the issuance of real estate and agribusiness credit bills and certificates: real estate credit bills (LCI), real estate receivables certificates (CRI), guaranteed real estate letter (LIG), agribusiness credit bills (LCA), and agribusiness receivables certificates (CRA), a move aimed at stemming the tide towards tax-exempt securities.

The series of measures reached a new milestone on Monday evening during an exceptional meeting of the National Private Insurance Council (CNSP), which introduced a prohibition on the establishment of exclusive family pension plans for individual accounts exceeding R$5 million, effective immediately. This development, which wasn’t anticipated by the investment community, emerged amid broader discussions on open pension plan reforms during a public hearing.

According to a source closely monitoring the situation, this specific regulation was proposed by the Ministry of Finance as a strategic addition to the regulatory framework. The prompt for this action was an announcement by a leading financial institution about a new exclusive pension fund, raising concerns over the use of such structures solely for tax postponement. Additionally, there was apprehension within the insurance sector regarding the potential impact on pension fund balances from a substantial influx of capital.

With a combined total of approximately R$750 billion in exclusive and restricted closed-end funds, plus an additional R$1 trillion in overseas investment structures, the pension fund emerged as a key target for the reallocation of assets following the introduction of new tax legislation at the end of the previous year.

Debora Mendeleh, the head of distribution at Principal Claritas, interprets the government’s strategy as a dual effort to safeguard revenues while simultaneously stemming the tide of investments into funds that do not truly serve the purpose of accumulating long-term savings. She remarked, “It seems there was a realization akin to ‘Houston, we have a problem,’ leading to a proactive approach to address the issue head-on, given the pension fund presented an evident solution for these assets.”

While it appears that existing family-established pension funds, which have already been contributed to, will not be impacted by the new regulation, a definitive guideline from the Superintendency of Private Insurance (SUSEP) is still awaited. Current estimates suggest that approximately R$60 billion is held within these specialized structures.

Resolution 464, as detailed in Brazil’s Official Federal Gazette, sets forth specific criteria concerning the allocation of assets within pension plans and related investment funds. Specifically, it stipulates that when the calculated reserves for future benefits (PMBaC) for an insured individual exceed R$5 million in a single plan or in a specially created investment fund (FIE) linked to that plan, the assets cannot be exclusively or predominantly allocated to that individual and/or their immediate family members. Immediate family is defined to include a spouse, domestic partner, or relatives by blood or marriage up to the second degree of kinship.

A plan or FIE is deemed primarily dedicated to a single policyholder or a select group of policyholders if the reserves designated for an individual or the group—either individually or collectively—surpass “more than 75% of the total PMBaC of the plan or allocated to the FIE, respectively.”

In essence, the regulation prohibits the formation of new exclusive investment vehicles where individual balances exceed R$5 million. According to Ms. Mendeleh, “The core objective here is to prevent unchecked expansion through the shifting of mandates, ensuring that the pension fund remains true to its intended purpose as a means for accumulating long-term savings.”

The recent directive from the National Council of Private Insurance (CNPS) concerning exclusive pension funds caught industry stakeholders off guard, as acknowledged by Carlos André, President of ANBIMA, the body representing capital and investment markets. During a media luncheon, Mr. André remarked, “From a business standpoint, this decision eliminates certain opportunities. However, it’s premature to ascertain its full impact.”

Similarly, the National Federation of Private Pension and Life (FENAPREVI), which advocates for the personal insurance and open private pension sectors, was taken by surprise. Edson Franco, president of FENAPREVI, noted that while the published text is still under review and awaits further regulatory details, he emphasized that “leveraging exclusive closed-end funds for capital raising has never been a tactical focus for the industry.”

Mr. Franco highlighted the sector’s decade-long growth model that has propelled its assets to R$1.4 trillion by 2023, amounting to 13% of Brazil’s GDP. This growth has been driven by the attraction of long-term investments, distinct from general investment strategies. He acknowledged that while some market participants might have considered exploiting this avenue, pursuing fiscal advantages has not aligned with the sector’s growth strategy. Mr. Franco stated, “Our focus remains on identifying alternative pension savings solutions to the public system.” He also compared pension assets’ share of GDP in Brazil to other nations, pointing out that at 25%—including the R$1.3 trillion in closed-end funds—Brazil’s ratio is significantly lower than in countries like the U.S., where it exceeds 100%, and Chile, at around 60%.

For Carlos André of ANBIMA, who also serves as the executive vice president of Santander’s wealth management division, the constraints placed on exclusive pension funds represent another phase in the ongoing transformation of the financial market. This shift is in response to several challenges, including the phasing out of tax deferrals on exclusive and restricted closed-end funds, the implementation of taxes on offshore entities, and restrictions on the issuance of tax-exempt securities.

Exclusive pension funds were anticipated to become an essential avenue for reallocating assets from closed-end funds, in addition to managed portfolios and various other investment vehicles. Mr. André points out, “Open pension funds are equipped to accommodate such transitions, but exclusive closed-end pension funds present an appealing option as well. The industry is actively exploring a range of solutions tailored to these specific client needs.”

Two months into the enactment of policies targeting affluent families, Mr. André observes a nuanced investor response. The decision-making process, he notes, isn’t solely influenced by tax considerations. Despite the opportunity at the end of the previous year for investors to recalibrate their gains in local closed-end funds to benefit from a preferential 8% tax rate, the anticipated shift in asset allocation has been gradual. With tax payments stretched out until March, the market has yet to witness significant movements.

Evandro Bertho, co-founder of Nau Capital, characterizes the recent regulatory actions as a concerted effort to target the affluent investor segment. “There’s definitely a tightening of regulations. All these measures target the affluent investor,” he remarks, suggesting that “the capital flow towards exclusive investment vehicles prompted a similar response from regulators as seen with other recent changes.”

Mr. Bertho views the government’s strategy as an attempt to preserve the essence of pension funds as vehicles for long-term savings. He explains, “Historically, exclusive [pension] funds were seldom utilized, as the advantages they offered were marginal compared to those of closed-end funds.”

Furthermore, Mr. Bertho highlights the continuity of succession planning benefits across both traditional and exclusive pension plans. He notes, “Instead of altering the tax regulations of pension funds—which would adversely affect the smaller investor—the decision was made to restrict exclusive plans exceeding R$5 million. This ensures they remain within the broader category of pension savings plans.”

Mr. Bertho acknowledges the potential for the newly introduced rule to apply retrospectively to investment vehicles established prior to the enactment of Resolution 464. In a preliminary reading, the orientation for investors to consider reallocating a portion of their investments to non-exclusive pension funds. “The main drawback is the inability to directly purchase assets and leverage specific [tax] advantages. The shift necessitates moving from direct bond investments to DI funds managed by third parties, and investing in companies like Petrobras and Vale through equity funds. While this adjustment may diminish the tailored experience of exclusive funds, the overarching pension strategy continues to provide valuable benefits,” he explains.

Ms. Mendeleh, of Principal Claritas, concurs, pointing out that transitioning from exclusive to pooled (or condominium) funds does not pose significant challenges for shareholders. In pooled funds, investors can benefit from a 10% tax rate [after a decade, under the regressive tax table], a more favorable rate compared to the 15% tax on multimarket funds after 720 days and the same rate on equity fund redemptions, albeit without the semi-annual “come-cotas” tax. The trade-off, however, is the loss of investment strategies tailored to individual family needs. “Achieving this level of personalization is more complex within a pooled fund context,” she notes.

Natalia Destro, the head of wealth planning at Julius Baer Family Office, emphasizes the impact of the CNPS resolution on family-oriented pension funds. The regulation necessitates a strategic pivot for those who previously aimed to capitalize on such funds. “While families can still invest in open-ended [pension] funds, they must now defer to the fund manager’s judgment, losing the ability to personally adjust their investment allocations or profiles. Should the need arise to modify their investment strategy, they would need to transfer to a different fund,” she states.

Gustavo Biava, co-founder and investment director at ID Gestora, overseeing R$5 billion in assets, concurs with the sentiment that the government is tightening the reins on these investors, “who are unfamiliar with the constraints of come-cotas and are actively seeking out new options.” Mr. Biava points out that, besides managed portfolios of tax-exempt securities such as incentivized debentures, CRIs, and CRAs, which have seen a significant influx of capital in recent months, these investors are increasingly considering structured products. These products offer unique tax benefits and include real estate funds, investment funds in credit rights, Fiagros focused on the agribusiness sector, and infrastructure funds, all of which present distinctive income tax treatment advantages.

*Por Adriana Cotias, Liane Thedim — São Paulo and Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
Foreign ministers’ meeting marks start of ministerial conferences under Brazilian presidency

19/02/2024


The Brazilian presidency of the G20 begins this week with ministerial meetings, the most important moment before the heads of state’s summit scheduled for November. On Wednesday and Thursday, Rio de Janeiro’s Marina da Glória will host the foreign ministers of the world’s largest economies. Next week, São Paulo will host a meeting of G20 finance ministers and central bank governors.

As Valor reported in January, the main topics on the foreign ministers’ agenda will be international conflicts, such as the wars in Ukraine and Gaza, and the reform of global governance, which is one of the three priorities of Brazil’s G20 presidency. The other two axes throughout the year are the fights against hunger, inequality, and climate change.

President Lula, who was in Africa last week, delivered a message on the two key aspects of this week’s meeting in Rio. “There must be a new geopolitics at the UN. The veto power of countries must be abolished, and the members of the Security Council must be pacifist actors, not war-mongering actors,” he said.

U.S. Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov have confirmed their presence in Rio. Relations between the United States and Russia, which have been strained by the war in Ukraine, which turns two years on Saturday, were further inflamed last week by the death of Vladimir Putin’s main opponent, Alexei Navalny, in an Arctic Circle jail. U.S. President Joe Biden said there was “no doubt” about Mr. Putin’s responsibility in the episode.

In Rio, Mr. Lavrov will hold a meeting with Brazilian Foreign Minister Mauro Vieira. Along with the representatives of France, Spain, Indonesia, and Mexico, the Russian is considered one of the “most likely” on the Brazilian minister’s list of bilateral appointments, according to Itamaraty sources.

Mr. Blinken, meanwhile, will visit Mr. Lula in Brasília before landing in Rio, where, according to the U.S. government, he will discuss the partnership “for workers’ rights, cooperation in the transition to clean energy, and the celebration of the bicentennial of diplomatic relations between Brazil and the United States.”

Only four countries will not send their top diplomat. China—second only to the U.S. in terms of GDP—will not send Wang Yi, who was in Brazil a few weeks ago on a schedule with Foreign Minister Mauro Vieira. India’s Foreign minister, in turn, will participate in the Raisina Dialogue—a local conference on geopolitics. Italy and Australia, countries where domestic politics have taken over the ministers’ agenda, are not sending a foreign minister or equivalent.

The logistics of the two-day meeting in Rio is complex. A hotel in Copacabana will be closed to accommodate 11 of the approximately 40 delegations. In addition to the official members of the group, countries, and international organizations have been invited, such as the members of Mercosur and the UN’s Unesco and FAO.

At Marina da Glória, where the ministers will meet, eight bilateral conference rooms have been set up, as well as a chamber for diplomatic delegates to follow the video talks, and a press area for up to 400 media professionals. Part of the material used in the construction will be donated to Rio’s public schools after the event. The bilateral meetings will also take place downtown at the Itamaraty Palace, which was the headquarters of the Foreign Affairs Ministry between 1899 and 1970 until it was transferred to the new capital Brasília.

Another important meeting on Thursday will be the Ibas (India-Brazil-South Africa Dialogue Forum). These countries are part of the BRICS and will take turns chairing the G20: the Indians last year, the Brazilians this year, and the South Africans after Brazil.

As is customary at G20 ministerial meetings, there will be no document issued in Rio with the guidelines resulting from the talks. The tendency is for Mauro Vieira to make a statement at the end. Against the backdrop of global turbulence, especially with Russia, there will also be no official photo of the foreign ministers at the end of the meetings.

The mayor of Rio, Eduardo Paes, and Mauro Vieira will host a dinner for the foreign ministers at the Palácio da Cidade, the city hall, on Wednesday. In terms of security, in addition to the Federal Police, there will be 200 Federal Highway Police escorts and a special Military Police program “that will extend to the neighborhoods of Copacabana, Botafogo, and Glória, as well as the main access routes to the venue,” according to the state government.

*Por Caio Sartori — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
Netanyahu calls president’s remarks “shameful and serious” and announces recall of Brazilian ambassador

02/19/2024


Peesident Lula — Foto: Marcelo Camargo/Agência Brasil

President Lula — Foto: Marcelo Camargo/Agência Brasil

President Lula sparked a diplomatic crisis with Israel on Sunday by comparing Israel’s actions in Gaza to those of Adolf Hitler against the Jews and calling the attacks on Palestinians genocide. In response, Israeli Prime Minister Binyamin Netanyahu called Mr. Lula’s words “shameful and serious” and said he would recall Brazil’s ambassador to the country for a reprimand scheduled for this Monday.

“I wonder what the size of these people’s political conscience is, and what the size of their hearts of solidarity is, that they can’t see that what is happening in Gaza is not a war, but a genocide,” Mr. Lula said at a press conference in Addis Ababa, Ethiopia, where he was attending the African Union summit. “What is happening in Gaza and to the Palestinian people does not exist at any other time in history. In fact, it existed: when Hitler decided to kill the Jews.”

The president had already raised the tone of his criticism of Israel since he managed to negotiate the rescue of Brazilians prevented from leaving Gaza. Palestinian officials estimate that nearly 29,000 people were killed in Gaza by Israel in response to Hamas attacks on October 7.

Mr. Netanyahu immediately pushed back the remarks, saying that comparing Israel to Nazi Holocaust and to Hitler “cross a red line,” he wrote on his X account “Israel is fighting for its defense and to guarantee its future.”

Mr. Lula’s remarks were also criticized by Israeli President Isaac Herzog and Chancellor Israel Katz. “Accusing Israel of committing a holocaust is outrageous and abhorrent,” said Defense Minister Yoav Gallant.

Mr. Katz said afterwards that “President Lula is persona non grata in Israel until he takes it back.”

Mr. Gallant also accused Brazil’s president of defending Hamas. According to the Al Jazeera network, the terrorist group said it “appreciated” Mr. Lula’s remarks comparing the Gaza conflict to the Holocaust, calling the comments an “accurate description” of what the Palestinians face.

In light of the announcement that Brazil’s ambassador to Israel, Frederico Meyer, has been summoned, the internal orientation in the Foreign Affairs Ministry is to wait and avoid aggravating the crisis. The idea is to listen to the diplomat’s report on the meeting with Mr. Netanyahu, scheduled for this Monday, and to assess the next steps.

For Oliver Stuenkel, professor of international relations at the Getulio Vargas Foundation (FGV), Mr. Lula’s comparison goes beyond criticizing Mr. Netanyahu’s government and should negatively affect his image in the eyes of the West.

Mr. Lula’s comments are attracting attention abroad, Mr. Stuenkel said, because the comparison with the Holocaust “goes far beyond” criticizing Israel, accusing it of violating international law and even accusing it of committing genocide.

“After all, the Holocaust, unprecedented in human history, is very different from other genocides because Germany developed an industrial scale strategy to exterminate 6 million Jews.”

In the West, the comment will be seen by many as “inflammatory and anti-Semitic” and will negatively affect the Brazilian president’s image, Mr. Stuenkel said.

“In the Global South, however, where criticism of Israel is more common in the context of the Gaza war, the comparison may be seen as an exaggeration, but it probably shouldn’t be viewed with the same concern as in the West,” he added.

Regarding the summoning of the Brazilian ambassador to Israel for talks, Mr. Stuenkel said that this is a gesture used in diplomacy to express annoyance, but added that others could be more serious, such as recalling the Israeli ambassador to Brasília for consultations.

On the domestic front, the opposition and the Brazil-Israel parliamentary front also reacted to Mr. Lula’s remarks. The leader of the Progressive Party (PP) in the Senate, Ciro Nogueira, former chief of staff in the Bolsonaro administration, called Mr. Lula’s statements a disgrace.

“President Lula, comparing the Holocaust to Israel’s military response to the terrorist attacks it has suffered is shameful,” Mr. Nogueira posted on social media. “The Holocaust is incomparable and can never be trivialized. On behalf of Brazilians, we apologize to the world and all Jews,” he added.

An official statement from the Brazil-Israel Parliamentary Group condemned the president’s remarks as “biased and dishonest.” “Inconsistent statements like these and others in recent days show historical ignorance and a lack of balance in the presidency of our country,” the group said.

The president of the Workers’ Party, Congresswoman Gleisi Hoffmann, said that Mr. Lula’s statement was “directed at the extreme right-wing government of Israel, and not at the Jews or the Israeli people,” denouncing Mr. Netanyahu’s reaction as “manipulation.”

*Por Vinicius Assis, Andrea Jubé, Daniela Braun, Anaïs Fernandes — Addis Ababa, Brasília, São Paulo

Source: Valor International

https://valorinternational.globo.com/
Change comes after tax credit that prevented a larger drop in 2023 earnings

02/16/2024


Heineken’s taxation department must be dealing with mixed feelings regarding Brazil’s taxation system. After having been granted a tax credit in the country last year, which helped the company reduce a drop in its global profits, Heineken is preparing for the impact of changes recently approved in Brazilian tax legislation in 2024.

According to calculations unveiled on Wednesday (14) with the brewery’s financial report, the average effective rate paid by Heineken worldwide will increase from 26.8% in 2023 to 29% in 2024—and Brazil’s new legislation is cited by the company as the main cause. But the company has not revealed which changes will cause the biggest problems.

One change that could affect the beer industry in Brazil is the creation of a selective tax, which will replace the Industrialized Products Tax (IPI) with higher rates for products that could be harmful to health or the environment, such as cigarettes and alcoholic beverages, which already happens with the IPI. However, a supplementary law still has to approved by Congress to define the new tax rates. The new tax will not come into force in 2024.

The expected increase in the tax burden for Heineken will come shortly after the company was granted €661 million in tax credit in Brazil. According to the company, the amount helped to partially offset exceptional expense increases in 2023. Last year, Heineken posted €2.3 billion in net earnings, down from €2.7 billion in 2022.

The company did not specify in its financial statements what such tax credit refers to. According to the company, such credit is not related to the annulment of an infraction notice of nearly R$900 million in the Administrative Council of Tax Appeals (CARF) of 2023. The decision recognized the right to use premium to reduce Business Income Tax (IRPJ) and Social Contribution over Net Profit (CSLL) amounts. The fine refers to the acquisition of the Schincariol Group by Kirin Holdings (now Heineken, which inherited the dispute). Heineken acquired Brasil Kirin in 2017 for €664 million.

The original story in Portuguese was first published on Valor’s business news website Pipeline.

*Por André Ítalo Rocha — São Paulo

Source: Valor International

https://valorinternational.globo.com/
Falling interest rates, while helpful, are not yet enough to significantly improve companies’ financial situation, but outlook is expected to improve this year

02/16/2024


Ricardo Jacomassi — Foto: Gabriel Reis/Valor

Ricardo Jacomassi — Foto: Gabriel Reis/Valor

Even with the onset of the monetary easing cycle, the country has yet to witness a significant improvement in the situation of companies, which are struggling with declining sales and gross profit margins. A study by the Center of Capital Market Studies (Cemec-Fipe) reveals that the number of publicly traded companies unable to cover their financial expenses with their cash generation is high, and the indicators are likely to deteriorate in the coming months.

That is the result of a period of still high-interest rates. However, the survey indicates that spending on financial charges shows a “clear downward trend,” while the drop in profits is less severe. According to Carlos Antonio Rocca, coordinator of Cemec-Fipe, the scenario should begin to improve this year.

The current picture presented by the study is challenging: the default rate for businesses remained high, at 3.58% in November last year, more than double the rate at the end of 2020 (1.45%). Consultancies specializing in debt restructuring report that demand from companies seeking renegotiation with creditors, a buyer or partner, or court-supervised reorganization has increased significantly. Experts named construction, retail, and agribusiness among the most problematic sectors.

“The number of inquiries we’ve been receiving from companies with debts of more than R$200 million has risen considerably,” stated Ricardo Knoepfelmacher, founder of RK Partners, a firm specializing in restructuring. A survey by the consultancy indicates that, on average, working capital credit rates have decreased by three percentage points from January 2023 to last month, from 30.3% to 27.3% per year, indicating still quite high levels. Concurrently, the capital market remains very selective following the cases of Americanas and Light at the beginning of last year.

In accordance with the scenario indicated by Cemec, the RK study shows that among publicly traded companies, 27% have generated less profit than what they need to pay in debt this year—the highest percentage in the consultancy’s history, which started in the first quarter of 2019. “It takes 18 to 24 months for the decrease in interest rates to affect companies’ accounts. So 2024 is still going to be a tough year,” stated Mr. Knoepfelmacher. He notes that 15% of these companies have leverage exceeding six times their cash generation. “More than three times is already considered a very high level with the Selic at its current level.”

Ricardo Jacomassi, partner and chief economist at TCP Partners, observes that companies’ cash flow remains very tight. “Costs have risen with the increase in the Selic rate and haven’t fallen yet. At the same time, sales performance hasn’t improved enough for cash generation to cover debts,” he explained. To alter this scenario, he suggests, revenues would need to return to their 2019 levels. A report by the company, which monitors 60 sectors, forecasts a 6% rise in requests for court-supervised recovery this year compared to 2023, when, according to data from Serasa Experian, reorganization filings surged by 68.7% to 1,405, the highest number since 2020.

Mr. Knoepfelmacher, however, points out that the indicators for court-supervised reorganization filings are not fully representative, considering the country has 21 million companies, almost 7 million of which have at least one overdue debt. “In a year and a half, many won’t be able to pay and will need to renegotiate their debts. Court-supervised reorganization is a bitter pill to swallow, with high costs for lawyers and administrators. We’ve handled 128 restructurings in recent years, and only 29 have been court-supervised reorganization.”

Mr. Jacomassi mentions that there has been an increased demand at the start of the year from companies seeking a buyer or partner to inject capital, in market terminology, the so-called “distressed M&A,” a situation also observed by Salvatore Milanese, founding partner of Pantalica Partners and an expert in company recovery and restructuring. He recalls that he used to prepare an average of three to four proposals a week. Since January, this number has escalated to eight to 10 a week. The demand is for diagnoses to extend debt and the pursuit of a merger or acquisition. Judicial recovery, he asserts, is the last resort. “In these cases, the sale of all or part of the company is not at the price the controlling shareholders would prefer, but it prevents the disastrous outcome of court-supervised reorganization.”

Mr. Milanese includes the call center sector in the list of sectors to be concerned. Mr. Jacomassi adds the hospital health sector, described as “highly leveraged and with tight cash flow,” along with the printing industry (label printing, etc.). He notes that agribusiness suffered due to the drop in international commodity prices, while raw materials had already been purchased at higher costs. “Improvement should only begin in November. We’re not optimistic for 2024.”

The study from Cemec reveals that after reaching its most recent high of 23% in the fourth quarter of 2021, the growth rate of financial expenses varied by only 0.1% in the 12 months ending in the third quarter of 2023. This calculation excludes Petrobras, Eletrobras, and Vale, as their size would skew the figures.

Simultaneously, the decline in cash generation is less severe: from -5.2% in the first quarter of last year to -1.7% in the third quarter. However, the gross profit margin (24.8%) was at its lowest since the 12 months ending in the first quarter of 2016, when it hit the same level.

Reflecting such a situation, the so-called financial expense coverage ratio has almost stopped declining, hovering around 1.8 for the 12 months up to the second and third quarters of 2023. This index reflects a company’s ability to cover the interest on its debts with cash generation and is calculated from the ratio of EBITDA to financial expenses. The higher this ratio, the more comfortable the company’s situation. Mr. Rocca clarifies that when it falls below 1, it indicates financial difficulties.

In 2019, around 11% of large and medium-sized companies (with revenues between R$90 million and R$300 million) had this index below 1, according to the Cemec report, which encompasses 337 companies. In the first quarter of 2023, amid high interest rates and a credit crunch, these percentages rose to 19.2% and 16.9%, respectively.

By the third quarter, following improvements in capital market conditions and the beginning of the monetary easing, the figure dropped to 14.5% among large companies, typically the first to show signs of improvement, indicating a potential return to 2020 levels. However, among medium-sized companies, the proportion of those unable to cover their financial expenses with cash generation remained high, at 20.7%.

“The expectation is that this index will continue to decline among large companies, but we have to wait and see, as there is considerable variation between sectors. Services, for instance, are still thriving, but industry and industrial retail continue to face challenges, unable to increase their margins,” notes the report.

Mr. Rocca anticipates a recovery in the availability of bank credit and debt securities in the capital market, coupled with expectations of relative stability in commodity prices and a decrease in financing costs from domestic and international sources. This trajectory is expected to continue with projections of a decrease in the Selic rate.

“We’re going to end the year with much lower interest rates and, by 2025, rates around 8%. This factor directly impacts a company’s results and is significant for cash generation,” said Daniel Lombardi, managing partner at G5 Partners. He notes that many companies have already restructured to reduce interest rates, while others are in the process of doing so this year. “The most uncertain factor is demand. We saw signs at the end of last year that things weren’t going well, with lower-than-expected sales on Black Friday and Christmas. However, demand should improve over the year,” Mr. Lombardi added.

Phillip de Macedo, partner and private credit portfolio manager, emphasizes that in this recovery scenario, the trend of turning to the capital markets is irreversible and increasing. “Last year was marked by credit events, and we started more cautiously. The credit scarcity eased over the year, and the crisis left clear lessons. Now, it’s a matter of calibration.”

*Por Liane Thedim — Rio de Janeiro

Source: Valor Intenational

https://valorinternational.globo.com/
ADNOC and Petrobras are expected to complete their processes within three weeks

02/16/2024


Sultan Al Jabber — Foto: Hollie Adams/Bloomberg

Sultan Al Jabber — Foto: Hollie Adams/Bloomberg

The two due diligences running in parallel at Braskem, one by the Abu Dhabi National Oil Company (ADNOC) and the other by Petrobras, have made progress and should be completed in two or three weeks, Valor has learned. As a result, the Braskem sale process could enter a new phase, according to sources.

The due diligence of Petrobras, the Brazilian petrochemical company’s second-largest shareholder with 36.1% of the total capital, started before that of ADNOC, but both “continue,” a source familiar with the matter said. This phase is expected to be completed by early March.

Before making its own bid for Braskem, ADNOC was in competition with management company Apollo for the asset, and a preliminary due diligence was even launched. Apollo withdrew from the negotiations between August and September last year after encountering opposition to its participation in the deal.

The audit process was discussed at a meeting this week between Petrobras CEO Jean Paul Prates and ADNOC President Sultan Al Jabber, who is also the United Arab Emirates Minister of Industry and Technology. Mr. Prates was in Abu Dhabi, the capital of the United Arab Emirates.

On the social network X, Mr. Prates said Thursday (15) that the meeting with Mr. Al Jabber was a “continuation of the negotiations that began last year” for the joint analysis of opportunities in offshore natural gas exploration and production, refining, petrochemicals and fuels, as well as the analysis of Braskem’s accounts.

While Petrobras evaluates whether to stay in the petrochemical company, increase its stake, or sell its shares, ADNOC made a new non-binding offer in November to buy control of Braskem held by the former Odebrecht for R$37.29 per share, or R$10.5 billion. Novonor’s total stake is 38.3%.

The proposal was also presented to the parent company’s creditors—Bradesco, Itaú Unibanco, Santander, Banco do Brasil, and Brazilian Development Bank (BNDES)—who hold Braskem shares as collateral for debts of around R$14 billion.

For the sale of the petrochemical company to proceed, ADNOC must submit a binding offer (with a commitment to buy) after due diligence. At that point, Petrobras will be able to indicate its position in the transaction. ADNOC and Novonor declined to comment.

In another post on X, Mr. Prates said the visit to the Arabian Gulf countries will end in the next two days in Qatar, where the Petrobras delegation will meet with Qatar Energy and visit one of the largest liquefied natural gas (LNG) terminals in the world.

Petrobras has been negotiating with the Mubadala Fund for the re-entry of the Mataripe refinery, a step that the market sees as a revision of the opening of the fuel market. It has also commented on a possible return to fuel distribution, without implying a buyout of Vibra Energia, formerly BR Distribuidora.

Earlier in the day, Mr. Prates met with executives from Aramco, where Petrobras executives discussed the possibility of joining forces “in designing a new vision for the fuel and lubricants retailing and distribution market.” According to Mr. Prates, after meeting with Aramco President Amin Nasser, agreements and visits between Petrobras and Aramco will be scheduled by March.

*Por Stella Fontes, Fábio Couto — São Paulo, Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
Local investors expected to gain ground in 2024 amid capital market reaction

02/16/2024


Daniel Wainstein — Foto: Carol Carquejeiro/Valor

Daniel Wainstein — Foto: Carol Carquejeiro/Valor

The share of foreign capital in mergers and acquisitions (M&A) in Brazil increased last year, reaching the highest percentage in at least seven years.

In 2023, cross-border transactions accounted for 50.1% of a total of 371 operations, according to a survey carried out by Seneca Evercore for Valor. In the second half of the year alone, the share was 54.5%—out of a total of 156 operations—the highest half-yearly proportion since 2016. According to the study, since 2014 there have been 5,061 M&A deals in Brazil, 47% of which involved foreign buyers.

Investment bankers point out that the larger share reflects an improvement in Brazil’s risk perception, especially when compared to its emerging peers, which has also resulted in a greater number of mandates in the first weeks this year.

The trend should continue in 2024, although Brazilian buyers are also expected to show more strength this year, driven by a more functional capital market and the return of initial public offerings.

“We believe that, based on what we observe in the market and our own pipeline, the first half of 2024 will be even stronger than the last half of 2023 and should reveal even greater predominance of international investors,” said Daniel Wainstein, a partner at Seneca Evercore.

According to the executive, the increased participation of foreigners in M&A deals in the country is a consequence of the improvement in Brazil’s risk perception after the fall seen last year. “That is combined with a relatively low unemployment rate, inflation under control so far, a decrease in Brazilian interest rates and a downward trend in the U.S. likewise, and Ibovespa [Brazil’s benchmark stock index] at record highs,” he notes.

According to Dealogic, a consultancy that tracks financial market data worldwide, the same trend is observed in an analysis by financial volume. Last year, of a total of $37.9 billion in transactions, $17.8 billion came from cross-border operations, or some 47%, the largest share over the recent years.

The strength observed last year was driven by large-scale operations, such as the sale of shares of Vale’s base-metals unit, AESOP, and The Body Shop, the last two carried out by Natura as part of its business restructuring. In all three cases, the operations occurred largely abroad, but are included in the local M&A volume as they involve domestic companies.

The same trend has been observed in the investment bank sector, with foreign investors actively seeking assets in Brazil. “At the beginning of the year, we saw foreign investors interested in learning about transactions in Brazil, including the Arab and Chinese. But we have mandates at both ends, not only from foreigners wanting to invest in Brazil, but also from foreign companies leaving the country due to strategic decision,” said Leonardo Cabral, head of Santander’s investment bank in Brazil.

Fabio Medeiros, the head of Morgan Stanley’s investment bank in the country, points out that the participation of foreign investors last year is even clearer in transactions worth more than $100 million. In this section, 70% of the total were cross-border transactions. “It is the highest number since official records began, and the same as in 2016,” he said. According to the executive, that can be explained by Brazil’s attractiveness compared to its emerging peers. “Each country has its own challenges. We have our own, but they don’t scare foreigners so much.”

For this year, Mr. Medeiros believes that local transactions will gain traction again and will share the M&A pie with the foreign capital. Such expectation is also based on the forecast of improvement in the capital market in Brazil, with the expected return of IPOs in the local market. IPOs help fuel companies’ cash, boosting their interest in acquisitions.

Diogo Aragão, Brazil head of M&A at Bank of America, says the capital market is more functional this year, not only for equity, but also for local and international debt, which helps take operations off the drawing board. “The scenario has made companies feel more comfortable in starting a transaction,” he notes. According to him, new transactions are arriving at the negotiation table, while others, previously on hold, are taking up again.

“When you look abroad, Brazil is well positioned. Falling interest rates and stability in the exchange rate and in the political scenario create conditions for investors to take the country more seriously,” the BofA executive said.

Roderick Greenlees, global head of investment banking at Itaú BBA, says that, in general, operations involving foreign capital are large and have a long-term horizon. According to him, several conversations are underway, with new mandates at the beginning of the year, including the participation of foreign investors.

*Por Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/