Analysis: Costs, interest still weigh on balance sheets

Retailers suffered both from inflation and interest on debts

11/17/2022

Companies in this sample reported a combined sales revenue of R$1.6 trillion in the January-September period and boast a market capitalization of nearly R$2 trillion — Foto: Divulgação/B3

Companies in this sample reported a combined sales revenue of R$1.6 trillion in the January-September period and boast a market capitalization of nearly R$2 trillion — Foto: Divulgação/B3

On the last day of the third-quarter earnings season, it is already possible to glimpse the state of public non-financial companies.

Taking the benchmark stock index Ibovespa as a base and excluding banks, insurance companies, and holding companies – and also heavyweights Petrobras and Vale, so as not to distort the numbers –, there are about 70 companies that can tell the story of the quarter. It would not be necessary to do so, but it should be noted that this is a tiny sample of the Brazilian business world and about 20% of the total number of publicly traded companies.

They are the most traded stocks and, for this reason, are part of Ibovespa. They reported a combined sales revenue of R$1.6 trillion in the January-September period and boast a market capitalization of nearly R$2 trillion, considering Monday’s prices.

Costs, again

Once again, costs weighed considerably on the result. The situation has improved in relation to cost inflation, and the rise in raw material prices, especially after the start of the war in Ukraine. There has been a cooldown, but the levels are still high compared to last year.

The numbers tell this story. This group of companies increased their sales revenues by 10% in the quarter and 15% in the nine months (for reference, official inflation is 6.47% in the 12 months through October). Costs, however, are up 17% in the quarter and 20% in the nine months. Excluding administrative expenses, sales, marketing, fees, and so on, the calculator is unforgiving. The operating profit was down 30% in the quarter – and 15% lower through September. It is a still profitable sample, but with a downward trend. Of the companies selected, 15 reported a loss (about 20%), compared to 11 in the third quarter last year (15%).

Interest rates

Going down the earnings reports, one comes to the dreaded financial line items, usually scary in times of exchange rate instability. This is not the case now. One difference with previous quarters was that this time companies complained a lot more about interest rates, whose effects hit their cash flows.

Retail suffered both from inflation on the sales line and interest on debts, the remedy against inflation that increased financial expenses. In the report that accompanies the financial statements, Americanas summarized the operating situation: “Between July and September, a combination of factors in the macroeconomic scenario challenged retailing as a whole in the country. The industry raised prices sharply, reflecting inflationary pressure and high interest rates, and Brazilian households, in debt and with reduced purchasing power, stopped buying more expensive items.”

Besides scaring consumers, the high interest rates have taken a toll on the companies’ finances. Cash-and-carry chain Assaí reported a net financial expense of R$440 million, up 168%, which accounted for 3.2% of sales. According to the company, this result continues “being impacted by the high interest rate, with an increase of about three times the [interbank deposit rate] CDI in the period, and the higher volume of gross debt given the backdrop of high investments in expansion, in particular, the project of hypermarket conversions.”

It was not only retail, of course. Positivo Tecnologia faced problems with cost and interest rates as well. The manufacturer of computers and electronic voting machines increased sales by almost 30%, but costs advanced further and ate into the gross margin. Financial expenses took another chunk of the profit because of interest on higher debt, according to the company. In the Simpar group, which owns logistics and car-rental companies, the financial result was negative by R$1.25 billion, four times higher. The figure surprised the market and the effect was immediate: the shares closed down 8%.

By Nelson Niero — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Mosaic buys wind power from Casa dos Ventos

Fertilizer producer becomes first in Brazil to invest in self-production aiming to supply 30% of its energy needs

11/17/2022

Brazilian power company Casa dos Ventos and Mosaic Fertilizantes have signed a commercial agreement to supply 30 average megawatts (aMW) of wind power for 14 years from the Umari wind complex in Rio Grande do Norte state, starting in 2026. The value of the contract was not disclosed.

With the partnership, Mosaic becomes the first fertilizer company in Brazil to invest in the acquisition of wind power with the possibility of becoming a self-producer with the capacity to supply 30% of the contracted energy needs in the period from 2026 to 2039, besides providing stability in the supply.

For Casa dos Ventos, the model of partnerships for self-production with large companies strengthens the generation branch, which accumulates 1.7 GW of assets under construction and in operation dedicated to the free market. This attracts electro-intensive partners in search of long-term contracts to escape market oscillations. In parallel, the company maintains a project development area almost exclusively for the joint venture with TotalEnergies.

The Umari wind complex construction began in 2021 and will have 45 wind turbines from Vestas with a total capacity of 202.5 MW. It is smaller than the mega-projects that Casa do Ventos has been implementing but it is capable of avoiding the annual emission of about 405,000 tonnes of CO2 equivalent into the atmosphere.

The park will be ready in 2024, but it is expected to sell energy in small contracts until it starts supplying energy to Mosaic in 2026. Lucas Araripe, head of new businesses at Casa dos Ventos, said that the expected production of the park is about 100 aMW of physical guarantee. There is still 70% of the park’s available energy left, which is being negotiated with other interested companies.

“The total investment in Umari is R$1.3 billion. We imagine that approximately 30% will be with company’s own resources and the rest in long-term financing. We have the option of three financing lines: the Brazilian Development Bank (BNDES), Banco do Nordeste (BNB) and tax-exempt bonds that we can issue to the market”, says the executive.

Felipe Klemperer, vice president of Transformation and Procurement at Mosaic Fertilizantes, stresses that the company had been concerned about diversifying the portfolio to reduce dependence on hydroelectric power and diesel, besides having long-term protection for an industrial consumer. He foresees energy cost reductions that can vary between 10% and 15%.

“We have a demand for 130 aMW. Within our operations we have cogeneration and in the sulfuric acid production process we also produce energy internally, about 30 MW. For the other 100 MW we go to the market. As of 2026, 30 MW will be supplied by this new investment,” he explains.

A fundamental input to guarantee food security, fertilizers are essential, especially for Brazil, a country with a vocation for agribusiness and one of the largest food producers in the world. However, an important point for the reduction of emissions in the food chain is nitrogen fertilizer, a key factor in the direct and indirect emission of greenhouse gases.

Globally, Mosaic Company has announced goals of zero net emissions of greenhouse gases by 2040, and the deadline includes operations in Brazil. One of the ways to accelerate the decarbonization process without having to resort to the more comfortable model of compensation via carbon credits is the investment in renewable sources of non-hydro origin.

The executive says that he will be able to reduce by 30% the so-called “scope 2” emissions (indirect, from the electrical energy acquired for use). “We are working to increase the cogeneration potential with a repowering of our generators,” says Mr. Klemperer.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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BNDES, Petrobras earmark R$44m for mangroves

Matchfunding was launched at COP26 last year and is expected to raise R$686m

11/17/2022

Bruno Aranha — Foto: Leo Pinheiro/Valor

Bruno Aranha — Foto: Leo Pinheiro/Valor

Brazilian development bank BNDES and Petrobras announce on Thursday, at COP27, in Egypt, the first call for proposals of the Floresta Viva (Forest Alive) program, a collective financing program for the restoration of Brazilian forests and biomes. The initial selection, of R$44.4 million, will invest in up to nine projects in the area of mangrove and sandbanks restoration on the coast of the country.

The match funding led by the BNDES was launched at COP26 last year and is expected to raise R$686.27 million through the adhesion of 15 companies and the bank’s own contribution of R$250 million. Each company participated with a slice and only Petrobras, the main partner, committed to injecting R$50 million over five years. Besides the oil company, mining company Vale and transnational companies such as Heineken and Nestlé, whose adhesion was announced at COP27, are also participating, said Bruno Aranha, the bank’s head of environment credit.

The project’s first call for proposals is aimed at non-profit civil associations, private foundations, and cooperatives. In this first phase, the proposals must contemplate the restoration of at least 200 hectares of area, a total of 1,800 hectares of mangroves and sandbanks located in the three macro-regions defined in the National Action Plan for the Conservation of Threatened Species and Socio-Economic Importance of the Mangrove Ecosystem (PAN Mangrove), prepared by the Chico Mendes Institute for Biodiversity Conservation (ICMBio). They are the so-called North Coast, as well as the area from the Northeast to Espírito Santo and the South and Southeast.

The amount of almost R$50 million will be divided equally between BNDES and Petrobras. According to the social responsibility management of the oil company, the contracts are expected to be signed in the first quarter of next year. Those interested have until January 31 to submit proposals. Institutions that have been legally constituted for at least two years and have proven experience in executing ecological restoration projects are eligible to participate.

“The projects can be certified for the emission of carbon credits and the intention is that they will be distributed among the partners in proportion to their donations. In this sense, the fund allows a great laboratory for national and international companies about the certification process of projects for carbon credit emission”, explains Mr. Aranha.

According to the general manager for social responsibility at Petrobras, Rafaela Guedes, it was in this context that the commitment between the oil company and the development bank was made. She highlights the importance of mangroves, a transitional ecosystem between the terrestrial and marine environments, with great potential for carbon storage. The vegetation — which is also a source of income for local communities — suffers from intense degradation due to the intense economic and real estate exploitation of the Brazilian coast.

To select the projects and monitor the application of resources, Petrobras and the BNDES selected the Brazilian Fund for Biodiversity (Funbio) as the professional manager of the project through a public call concluded in April. The contract is for seven years, a term that can be extended with new partners are added.

*By Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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CLI is still hitting the gas in port segment

With new partner, and after acquisition of terminal at the port of Santos, company seeks to unlock expansion in Itaqui

11/16/2022

Helcio Tokeshi — Foto: Ana Paula Paiva/Valor

Helcio Tokeshi — Foto: Ana Paula Paiva/Valor

CLI, the logistics and infrastructure company controlled by IG4 Capital and Australia’s Macquarie Asset Management, is preparing to play in the big leagues in 2023 after buying two port terminal concessions in Santos from Rumo. The company has also seen recently better operational numbers in Itaqui – it is a partner in Maranhão Grain Terminal (Tegram).

The deal with Rumo was concluded on Monday. Supported by a R$500 million capital increase fully subscribed by Macquarie Infrastructure Partners V (MIP V), a transaction that marked the entry of the Australian company as a partner, CLI took over 80% of terminals T16 and T19 for R$1.4 billion. Rumo kept the remaining 20% stake. The terminals, which are operationally seen as a combined facility, can handle 16 million tonnes per year divided equally between grain and sugar.

With the capital increase, Macquarie, one of the largest global investors in infrastructure, with a portfolio of nearly $800 billion, took over 50% of CLI. In the Port of Santos, 7.5 million tonnes of sugar and 4.2 million tonnes of grains (soy and corn) are expected to be handled in 2022, and in Itaqui, the volume is projected at 4 million tonnes of grains, up from 2.8 million tonnes last year, when exports were hampered by a harvest loss – in Itaqui as a whole, grain exports are expected to reach 13 million tonnes this year.

“With the prospect of record soybean and corn harvests in this 2022/23 crop, the scenario for operations in Santos and Itaqui next year is very favorable,” said Helcio Tokeshi, director and partner at IG4. “It is proof of the positive results that can be generated by our business model.” In this model, the company works with all interested trading companies, and what determines the success of the partnership are the services offered and the efficiency of the operation.

In Itaqui, contracts with trading companies were recently renewed for periods between two and three years, and if there are no harvest losses, the company expects a strong increase in exports of soybeans and corn, said Marcos Pepe Bertoni, CLI’s chief operating officer. That is why the company and its partners in Tegram – Glencore, Terminal Corredor Norte (linked to the trading company NovaAgri) and ALZ Terminais Portuários (controlled by Amaggi, Louis Dreyfus Company and Zen-Noh Grain) – continue planning to start the “phase 3” of the terminal expansion, to increase static storage capacity to 900,000 tonnes from 500,000 tonnes.

For this third phase, said Mr. Pepe, investments are expected to range between R$500 million and R$ 600 million. From CLI’s standpoint, there is financial leeway to pay its part of the foreseen investments, since the investment made in Santos provided the entrance of a large asset in the structure, without debt, which reduced the company’s leverage.

*By Fernando Lopes — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Road auction wave likely to continue in 2023

Companies does not expect drastic changes, but highlight challenges

11/15/2022

Marco Aurélio Barcelos — Foto: Roque de Sá/Agência Senado

Marco Aurélio Barcelos — Foto: Roque de Sá/Agência Senado

The toll road industry foresees that the wave of concessions will continue after 2023 with the newly elected governments — both federal and state. In the view of companies and specialists, the challenges will be different: the first one is to attract new investors, in order to execute the huge volume of projects — the initiatives being structured across the country add up to at least R$90 billion. Another obstacle will be resolving the several still open regulatory liabilities.

“The concessions policy is the least of our concerns. We have the prospect of continuity not only of the portfolio but also of the regulatory improvements implemented,” said Marco Aurélio Barcelos, head of the Brazilian Association of Highway Concessionaires.

Despite the uncertainties surrounding President-elect Luiz Inácio Lula da Silva’s picks for the infrastructure sector, private-sector companies believe that the highway segment will hardly face drastic changes since it is more consolidated.

Historically, the projects made during the Workers’ Party administrations gave priority to the reduction of fares, so there could be a change in this aspect, said Lucas Sant’Anna, a partner at Machado Meyer.

On the other hand, there is a view that the lessons learned will be incorporated. In addition, governments, in general, will have to make an effort to draw interested parties, given the proliferation of projects around the country. In this context, analysts say that concessions with structural problems or regulatory risks will struggle.

“There should be intense competition between federal and state assets,” said Claudio Frischtak, a partner at the consulting firm Inter.B.

At the federal level, factors such as the improvement in environmental policy and relations with countries like China and those of the European Union are likely to have a great positive weight in attracting new investors, according to Mr. Frischtak. On the other hand, it will be important to control macroeconomic turbulence. Besides, joining the Organization for Economic Cooperation and Development would be a great incentive, he said.

As far as the states are concerned, Mr. Frischtak evaluates that there are two essential factors: the strengthening of regulatory security and the formation of a broad concessions program. “The company will not enter a region to operate a single asset. It will seek a logic of economy of scale.”

The attraction of new players to the highway market last year has been a concern. Some newcomers, however, have already emerged in auctions, such as the Italian INC, Monte Rodovias, the consortium formed by Equipav and Perfin, and some associations between medium-sized construction companies. In addition, analysts say there are several other groups — including financial, foreign, and companies from other segments — mulling over entering the Brazilian market.

Besides the auctions, the next governments will have to face another challenge – regulatory liabilities.

For Marcos Ganut, a partner at Alvarez e Marsal, a source of concern is the problematic concessions started in the Rousseff administration, which reach the end of one more administration without a solution.

The path of friendly devolution — which has already many cases of adhesions — is the target of doubts. Changes in the rules previously agreed upon may generate even more insecurity in the model, according to him. In addition, the pioneering case of the sale of Odebrecht’s Rota do Oeste to the Mato Grosso government could open a new chapter in the discussion, says Mr. Ganut. “Today there is no signaling [from Lula’s team] on the subject, but it is a point of attention.”

Besides the older problems, there are all the regulatory liabilities left by the pandemic, points out Mr. Barcelos.

“The current federal government was right to give a strong response to the fall in demand during the crisis. Now, in a second moment, there are all the effects of Covid on the price of inputs. If this issue is not resolved in this administration, the next one will have to answer the questions.”

In the São Paulo government, Mr. Barcelos notes that the pending issues are more extensive. “There were important advances in this government, which solved old problems. Now, what remains are all the pandemic issues. It is necessary to start discussions about Covid. In the federal agency, rebalances for the drop in demand are already being implemented, but they have not even begun to be discussed in São Paulo. It’s time to have an answer, both for the demand issue and for the inflation of inputs,” he said.

*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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It’s too early to celebrate slower inflation, Central Bank president says

Persistence is needed to reach targets, according to Roberto Campos Neto

11/15/2022

Roberto Campos Neto — Foto: Tânia Rego/Agência Brasil

Roberto Campos Neto — Foto: Tânia Rego/Agência Brasil

Central Bank President Roberto Campos Neto said Tuesday that although much of the recent improvement in inflation is the result of government measures, “leading indicators show a qualitative improvement.”

“It is early to celebrate. We need to persist in fighting inflation. We need to persist in reaching the targets because this is the best way to contribute to sustainable growth,” he said at the Lide Brazil Conference, in New York.

Mr. Campos Neto stressed that “probably the external backdrop will help” Brazilian inflation, with global deceleration and monetary tightening.

The head of the monetary authority said that the Central Bank identified “relatively quickly” the persistent nature of inflation and was the first to raise interest rates.

“We have had better growth in recent years, especially in 2022. It is worth a warning that part of what was done in terms of interest rates will take effect in 2023. The global economy will slow down, so we expect growth in 2023 to be a little lower,” he said.

Mr. Campos Neto also stressed that Brazil can benefit from the new global reality. “We have a large labor market with a huge consumer market, and we are one of the few countries in the Americas with the capacity to produce renewable energy in large quantities,” he said.

“We should avoid an unbalanced tax increase and remember that overtaxing capital contributes to decreased productivity. It’s a problem we see globally,” he added.

*By Larissa Garcia — Brasília

Source: Valor International

https://valorinternational.globo.com/
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U.S. unveils investment in nickel, cobalt in Brazil

Announcement is part of White House’s strategy to reduce dependence on value chains dominated by China

11/15/2022

TechMet’s nickel mine in Piauí — Foto: Divulgação

TechMet’s nickel mine in Piauí — Foto: Divulgação

U.S. President Joe Biden unveiled Tuesday that the country will make a new investment of $30 million in the mining company TechMet for processing strategic minerals nickel and cobalt in Brazil. The move is part of the White House’s strategy to reduce dependence on value chains dominated by China.

Mr. Biden also announced several other investments in Indonesia, India, and Honduras under the Partnership for Global Infrastructure and Investment (PGII) program, an initiative by which the G7, which brings together the largest industrialized economies, wants to counter China’s Belt and Road initiative.

On the sidelines of the G20 summit in Bali (Indonesia), President Biden together with European Commission President Ursula von der Leyen, Indonesian President Widodo, leaders and ministers from Argentina, France, Canada, India, Japan, Korea, Senegal, and the United Kingdom sought to highlight the plan to “finance transformative infrastructure.”

As for Brazil, the U.S. president said that the U.S. International Development Finance Corporation (DFC), building on previous support, will invest $30 million of equity in TechMet Limited for the development of “a critical minerals mining platform of nickel and cobalt in Brazil, bolstering supply chain resilience for the renewable energy transition.”

According to a statement from the White House, TechMet’s Brazilian mine produces sustainably sourced nickel through an extraction process that is less water- and carbon-intensive than traditional methods. “This nickel is estimated to be near the lowest quartile of carbon intensity for global nickel production,” the White House said. Nickel is important for the electric car industry.

London-based TechMet was founded in 2017 by Brian Menell, a South African with mining experience in Africa, to invest in metals needed for clean energy technologies and battery recycling, according to Financial Times. Admiral Mike Mullen, a former U.S. Joint Chiefs of Staff chairman, is on its advisory board.

TechMet’s mine is in Piauí. Critical minerals such as rare earths, lithium, cobalt, and niobium are essential to many modern technologies and to national and economic security. They are found in products from computers to home appliances. And they are key inputs in clean energy technologies such as batteries, electric vehicles, wind turbines, and solar panels.

A study by the European Union points to Brazil as the world’s largest producer of niobium, with 92% of the total. The product is used for high-technology applications, including capacitors and supercomputers. In addition, the country produces 13% of the world’s bauxite, for the production of aluminum; 8% of natural graphite, used for batteries and material for steel production; and 9% of the world’s tantalum, which is used for superalloys and compensators for electronic devices.

During the Trump administration, the United States defined a list of 35 ores considered critical to economic and national security. This year, the Biden administration has launched actions to increase U.S. production. The U.S. estimates that global demand for these critical minerals will skyrocket by up to 600% in the coming decades, and for minerals such as lithium and graphite used in electric vehicle batteries, demand will increase even more – by about 4,000%.

The United States has signaled to Brazil interest in having preferential access to the Brazilian production of critical ores, amid growing rivalry with China and the quest to reduce dependence on strategic commodities.

This year, Brazilian representatives, in meetings held in Washington in August, responded that the Americans are welcome, including to make a difference in investments in this sector, but that Brazil did not intend to privilege partners.

In Bali, the president of the European Commission noted that the U.S. initiative will allow countries to join forces to meet the growing demand for renewable energy. The community bloc has its Global Gateway Strategy, a strategy designed to promote sustainable projects, with €300 billion in investments in third countries in the coming years.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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Free energy market draws large corporations

With 90 million consumers on the radar, trend includes banks, trading firms, oil companies, and even phone carriers

13/11/2022 9:06PM  Updated 10 hours ago

The power industry is about to undergo transformations expected to change the way most Brazilians buy electricity. With the possibility of consumers freely choosing their supplier, national and international companies of varied sizes and segments are preparing strategies. They include Vitol (energy), Raízen (energy), Santander (bank), and BTG (bank).

Brazil has about 10,700 free consumers, but the rebound of the process of opening the electricity market will create potential market of 90 million consumer units and R$400 billion per year.

The trend paves the way for new competitors, such as banks, retail traders, power generation companies, oil companies, and even phone carriers offering customized services to compete with independent firms that are pioneers in the free market.

This opening is centered on bill 414/2021, about the modernization of the electricity sector, and in the public consultations and ordinances of the Ministry of Mines and Energy. The government proposes that all high-voltage consumers will be able to choose their power supplier as of January 1, 2024.

This would be the starting point of the largest expansion of the free market since its creation in 1995. Nearly 106,000 additional consumers would have the option of joining the free trade environment.

Rodrigo Ferreira — Foto: Leo Pinheiro/Valor

Rodrigo Ferreira — Foto: Leo Pinheiro/Valor

While the regulated market is consolidated in about seven economic groups operating in monopoly fields, the free market draws new players every year, said Rodrigo Ferreira, head of the Brazilian Association of Power Trading Companies (Abraceel).

According to Mr. Ferreira, a wider opening is a matter of time, since it is one of the main requests of the electric sector, there is political will for this to happen, and global giants are already mobilizing.

“It is a market of R$400 billion a year that grows up to 1.5% above the GDP. It is a segment with clear rules and legal security. The regulated market does not attract new players. In the free market, the agents’ pulverization is large and has been attracting new national and international players to the sector every year,” says the executive.

The most recent player was Vitol, one of the largest independent oil and oil products trading companies in the world, which launched its Brazilian energy trading subsidiary. The company received an initial injection of R$108 million and the backing of the parent company.

“Brazil is the largest power market in South America, with over 70 gigawatts of demand and several large players,” said Murilo Soares, chief trading officer at Vitol Power Brasil. “As an energy commodity trading company, we will not have a specific focus on the power sources we will trade.”

In the context of the energy transition, oil companies combine renewable projects and emission cuts. Hydrocarbons will still be present at least until 2050, but the mixed strategy of investing in renewables in the free power market (ACL) may be a revenue prospect at this time for the competitiveness of sources and to align with the principles of the environmental, social and governance (ESG) agenda.

An example of this is TotalEnergies. The French company bought a 34% stake in Casa dos Ventos for more than R$3 billion in a joint venture that intends to jointly develop, build, and operate the 6.2 GW portfolio. Besides positioning Total in renewables, the acquisition brings capital and credit capacity to the partnership. As for Casa dos Ventos, the association with the oil company will allow the expansion of its generation arm and its strategy of supplying energy to large customers in the free market.

The Portuguese company Galp had been operating in Brazil only in oil and gas, focusing on the pre-salt, but recently unveiled projects totaling 4.8 GW in renewable energy and may invest $5 billion over the next 10 to 15 years.

Galp’s power business has been in place in Brazil for less than a year, but the strategy includes being present in the free market dealing with final consumers, said Paulo Tarso Araújo, the company’s head of trading in Brazil.

“We are setting up a team and operating in the market for large and medium consumers, and getting ready for the next step, which is the opening for smaller consumers. This will be more of a retail business. The most agile traders have already started to go digital,” he said.

Effectively pursuing this consumer is what will define who will survive. The consulting firm Thymos Energia estimates that companies will have to invest more than R$6.5 billion to attract clients.

2W Energia has R$100 million to finance its strategy and sell power from two wind farms under construction. In addition, it closed an important contract with phone carrier Oi to sell migration solutions for the free market.

As for banks, the portfolio of potential consumers in theory can be equivalent to the portfolio of clients, since retail is part of the institutions’ day-to-day routine.

Itaú BBA has had a trading company since 2020, joining Santander and BTG Pactual, which have been operating in the sector for longer and have already been trying to bring SMEs to the free market. They already have a strong presence in the sector, whether in project finance, structuring, or banking, and the trading business will complete their portfolio.

“It makes perfect sense to talk to the same client that is already part of the bank’s universe, who has a payroll, a credit card, an investment, and who can also count on a simple, efficient, and economical product to buy energy,” said Artur Hannud, the partner in charge of the commercial team of BTG Pactual’s energy desk.

The senior executive of Santander’s energy desk, Rafael Thomaz, adds that this type of consumer seeks convenience. Today they market about 1.5 average gigawatts and are structuring how to grow in retail.

“The DNA of the bank is in customer service. We started in 2019 and are in a phase of expansion of the business with the retail market. The bank will position itself, creating a structure that serves these smaller customers,” said Mr. Thomaz.

Even traditional trading companies are changing and no longer want to do only the operations of buying and selling power, offering services to consumers and generation companies as well. A pioneer in this sector, Tradener is expanding renewable services to sell in the free market. Comer, on the other hand, brought Perfin as a partner of the group in 2021 and incorporated solar generation assets to its portfolio.

Raízen, Cosan’s fuel and bioenergy company, is pursuing a strategy of diversification focusing on energy transition, and has been achieving results through its subsidiary WX Energia.

After the corporate reorganization of the assets of the Votorantim group and the Canadian fund CPP Investments, Auren Energia established a goal of doubling the number of clients and reaching 1,000 clients within a year. The strategy ranges from power management for new smaller clients, digitalization of marketing, and even low-voltage clients.

By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Companies have been sending more funds to Brazil

Interest, exchange rate expectations may have favored flow of reverse investment in Q3, which reached $10.6bn

11/14/2022

Reverse investment, the sum of the funds sent by subsidiaries abroad to their headquarters in Brazil, pointed to a positive flow between July and September this year, after five consecutive quarters with a negative balance. $10.6 billion were sent in the period, the highest value since the fourth quarter of 2016 which registered $11.1 billion.

Among the economists’ explanations for this flow are the companies’ attempt to anticipate electoral uncertainties; the interest rate differential between Brazil and abroad; the perspective, at that moment, that there could be an appreciation of the Brazilian Real later on, which ended up not materializing, and the record payment of dividends by companies such as Petrobras.

Overall, the Brazilian net reverse investment is positive. Since the first quarter of 2021, however, this account has become negative, with the headquarters in Brazil sending more money to their subsidiaries around the world. Data from the Central Bank show that in the third quarter of 2021, the net result was negative by $2.5 billion, a loss similar to that recorded in the second quarter of this year, before the return to positive flow.

In 2022, the flow became positive from June to July, when a negative balance of $255.7 million turned to a positive $1.2 billion. In August, it advanced to $3.5 billion and, in September, it reached $5.9 billion. The Central Bank says it sees the movement as a natural process of normalization to what happened before the pandemic, but experts consider that the very abrupt change of direction draws attention.

Part of some experts thinks that the movement may be related to the payment of dividends by Petrobras. “The company’s financial situation has improved a lot in recent years, and profitability was super high in 2022. This allowed Petrobras to adopt a more aggressive policy in distributing profits,” says Antonio Madeira, an economist at MCM Consultores.

In addition to this is the “help” that President Jair Bolsonaro (Liberal Party, PL) asked the state-owned companies, pressing to move ahead with the distribution of those dividends, to resolve the expenses contracted during the frustrating campaign. “There was a meeting of interests: Petrobras had the capacity, and the government needed the resources,” says Mr. Madeira.

In July, Petrobras announced a record payment of R$87.8 billion in dividends for the second quarter, which were paid in August and September. “Petrobras has a lot of cash abroad, and these funds may have made the dividend payment operation feasible,” says the economist.

The oil company has already announced the payment of another R$43.6 billion in dividends related to the result of the third quarter of 2022, which will happen in December and January 2023. This way, the positive balance of the reverse investment will possibly happen again, “but not in the same proportion,” says Mr. Madeira.

Last Friday, Itaú Unibanco revised its projection for direct investment in Brazil (IDP) – line of balance of payments (record of all transactions between Brazilian residents and the rest of the world) which includes reverse investment – to 3.6% of GDP in 2022 from 2.9%. According to the bank, the IDP “continues at a high level, although at the margin very influenced by intercompany loans from the subsidiary to the parent company (probably explained by the reverse investment cash from local companies to pay dividends),” says the bank’s team in a report.

According to Mr. Madeira, one cannot rule out also some contribution of the interest differential between Brazil and abroad in the recent change in reverse investment. “The high-interest rate here is a high opportunity cost for you to keep dollars abroad. High interest in Brazil is a factor that stimulates the inflow of reverse investment,” he says.

There was also a prospect of an appreciation of the Real against the dollar at that moment, the economist from MCM Consultores recalls. The dollar went to a level closer to R$5, R$5.10 in August and mid-September from almost R$5.50 in the second half of July but has now returned to R$5.30.

Livio Ribeiro — Foto: Leo Pinheiro/Valor

Livio Ribeiro — Foto: Leo Pinheiro/Valor

For Livio Ribeiro, associate researcher at the Brazilian Institute of Economics (FGV Ibre) and partner at the BRCG consultancy, although the interest rate differential between Brazil and abroad is high, this was a scenario that was already in place. “I think it is a weaker argument. It was a very unusual [reverse investment] movement that we haven’t seen in a while. It’s a puzzle that I’m still putting the pieces together,” he says.

According to Mr. Ribeiro, companies may have brought forward the repatriation of capital due to the electoral cycle. “Not because of risk aversion, but because of the uncertainty of the direction the debate would take after the election, there was a discussion about changing the taxation of dividends. I think this is a reasonable hypothesis,” he states.

As the reverse investment falls into the category of intercompany loans, it is also impossible to know what companies will do with the repatriated capital, Mr. Ribeiro observes. “It’s not necessarily going to be productive. It is an exchange of financial flow, it is launched as a direct investment in the country, but it has little or nothing to do with buying a machine, for example,” he says.

*By Anaïs Fernandes, Larissa Garcia — São Paulo, Brasília

Source: Valor International

https://valorinternational.globo.com/
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South America under spotlight in grain market

Rabobank projects that production of soy in Brazil will reach 149 million tonnes in 2022/23, 21 million more than in 2021/22

11/11/2022

Rabobank projects a record-breaking production of soy in Brazil of 149 million tonnes in 2022/23 — Foto: Divulgação

Rabobank projects a record-breaking production of soy in Brazil of 149 million tonnes in 2022/23 — Foto: Divulgação

The recovery of global soybean stocks will depend on a full crop in South America in 2022/23, said Marcela Marini, Rabobank’s senior grain analyst in Brazil. In the 2021/22 season, drought caused losses in Brazil, Argentina, Paraguay, and Uruguay, which helped to increase prices in the international market and hurt the margins of crushers.

In an event held by the Dutch bank on Wednesday, Ms. Marini warned that La Niña is likely to continue to influence the climate in the 2022/23 cycle. According to the United States Oceanic and Atmospheric Administration (NOAA), there is an 80% chance of the phenomenon lasting until December.

“Last year the [climate] maps dried up starting in December, so we need to follow the development of the crops,” she said.

Rabobank projects a record-breaking production of soy in Brazil of 149 million tonnes in 2022/23 – 21 million more than in 2021/22 – as a result of a 4% increase in the planted area, to 43.3 million hectares, and the recovery of crop productivity.

The problems generated by the low flow on the Mississippi River may reduce the competitiveness of American soybean and open space for the Brazilian crop in the international market. The bank believes that Brazil will export 89 million tonnes next year, 13 million tonnes more than this year. The domestic crushing, in turn, may reach the historical mark of 49.5 million tonnes in 2023.

The high prices of raw materials put pressure on the margins of the industry in China, an important gauge of global demand. “We saw a reduction of 10 million tonnes in global soybean exports to China because of this,” said Ms. Marini.

For 2022/23, Chinese crushing is expected to total 93 million tonnes — the same level as in the 2020/21 cycle, and 6 million tonnes more than in 2021/22 — also boosting imports.

In the case of corn, the Rabobank analyst highlighted the fall in global exports in 2022. Besides having a reduced supply due to bad weather, the United States and Argentina ship less because of droughts in the areas of the Mississippi and Paraná rivers, respectively. Ukraine, on the other hand, has a hard time selling its products due to the war with Russia.

“With all those restrictions, we see room for Brazil to export more in this last quarter,” said Ms. Marini. The positive trend for corn shipments extends to 2023 when the country is expected to sell 45 million tonnes abroad, above the 42 million tonnes forecast by Rabobank for this year.

With strong growth in the second crop, Brazilian production in 2022/23 will be 126 million tonnes, according to the bank. “Climate models show La Niña losing strength in the first quarter of next year, which can be favorable for the second yearly crop,” said Ms. Marini.

The analyst highlighted that one of the main challenges for Brazilian grain production is internal logistics. “We see significant investments in ports, but they are not followed by investments in railroads, waterways, and so on. Freight [prices] was a limiting factor for our shipments at several times during the year.”

Another reason for the segment’s attention is the cost of production, which may go down next year. According to Rabobank’s senior analyst of inputs in Brazil, Bruno Fonseca, the amount invested to plant soybeans grew 45% this year, while corn crops faced a 25% increase. The strong appreciation of fertilizers, which gained traction with the war in Ukraine, is one of the main reasons.

“The margins are expected to continue at good levels due to the prices, but lower than last year,” he said. “We see a lot of last-minute deliveries because producers were expecting a reduction.” For 2023, he projects more attractive input prices with a recovery in global supply.

*By José Florentino, Érica Polo — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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