Startup will operate importing and distributing products
01/13/2023
Claudio Lottenberg — Foto: Ana Paula Paiva/Valor
Zion Medpharma and Tegra Pharma launched on Thursday Endogen, a startup the two drugmakers called “the largest medical cannabis healthtech” in Brazil.
The new medical cannabis and nutrition brand will operate by importing and distributing products. In addition, it will take actions aimed at medical education, to expand the access of patients in the country to therapies with cannabinoids – active ingredients of cannabis.
Zion works with pharmaceutical products NatureLab, a laboratory of nutritional supplements, and Tegra is a local leader in importing cannabis-derived products for medicinal purposes, according to the statement from Zion and Tegra.
The partners in Endogen said the project initially envisages a commercial and operational agreement, with the integration of their scientific, educational, and sales teams.
Claudio Lottenberg, Endogen’s co-founder and chairman, said that “the new brand will impact the entire medical cannabis chain in Brazil, with benefits for patients, physicians, shareholders, and the scientific community in Brazil.”
“The outcome of this partnership is very positive. We will promote medical education to train and guide health professionals on the prescription of cannabis-based products; and direct education to society,” said the physician, who is also chairman of Sociedade Beneficente Israelita Brasileira Albert Einstein, which controls the namesake hospital based in São Paulo.
The statement informs that according to the Brazilian Cannabis Yearbook edited by the specialized consulting firm Kaya Mind, the country currently has more than 180,000 patients being treated with medical cannabis, considering the different ways of legal access to the medicines, among them the two areas of activity of the new company: imports and purchase in drugstores.
Marcelo Galvão, founder of Tegra Pharma, said that Endogen’s value proposition “stands out because it unites a cannabis specialist with a relevant player in the pharmaceutical and nutritional market, with a presence in more than 70% of pharmacies in Brazil.” “Plus, it offers the best products in the market, at truly competitive prices,” he said.
According to the statement, the healthtech will offer about 50 products, including cannabis-based pharmaceuticals and nutritional supplements. Two of its medical cannabis products have already been approved by Anvisa (the country’s regulatory agency) for sale in pharmacies, and eight more are expected to receive the same authorization in the coming years.
Lukas Fischer, the co-founder of Zion Medpharma, said it will be a brand positioned in the pharmaceutical channel, which offers a category of health products that stimulate endogenous factors in a preventive way, from the inside out, to promote the body’s balance (homeostasis) and the integral well-being of the individual.
The creators of Endogen had a joint turnover of more than R$40 million in the last two years, according to the statement. They expect to reach R$50 million in the next year.
In its first round of investments, the healthtech had the participation of the Green Rock fund and is already making new funding (Series A) under the leadership of MMK Brasil. In the first half of the year, Endogen intends to launch a digital marketplace for medical cannabis.
Analysts predict that labor market will calm down and average income will evolve slowly
01/13/2023
Unlike what most economists expected, the recovery of the Brazilian labor market started in 2021 maintained steam in 2022 — not only recovering from the losses caused by the Covid-19 crisis but also bringing down the unemployment rate to levels not seen since 2014. However, even in the face of signs of red-hot hiring — which weakened at the end of the year, the real average income of workers grew more slowly and has not yet returned to pre-pandemic levels. Economists estimate that this process may come to an end only in 2023 or even in the following years.
According to the latest Continuous National Household Sample Survey (Pnad Contínua), the average real income of Brazilians reached R$2,629 in the October quarter, up 4.7% compared to the same period in 2021. Still, it is between 2% and 3% below the pre-pandemic period, depending on the seasonal adjustment applied.
Unlike the recovery in employment, which took place gradually between 2021 and 2022, the flattening of income has been slow to reverse itself. At first, after the pandemic hit, many Brazilians ended up accepting lower wages or lower job positions to get back into the market. This situation led the average real income of workers to drop 8.9% in December 2021, when compared to the levels seen in February 2020, according to calculations by LCA Consultoria.
“During the pandemic, the ample idleness of the market put the bargaining power in the hand of companies and employers,” says Rodolfo Margato, with XP Investimentos. “Now, with current unemployment even below the Nairu [rate below which the labor market begins to impact inflation], the situation has reversed and the bargaining power would be more on the side of employees,” he adds. Mr. Margato ponders that the situation varies a lot depending on the industry and the region — in Santa Catarina, the unemployment rate is around 5%, while in states of the Northeast it reaches 12%.
Another factor that “delayed” this convergence was inflation, whose variation in 12 months reached double-digit levels between September 2021 and July this year, which ended up eroding the purchasing power of the adjustments, even in the face of strong nominal increases.
With the expected deceleration of inflation in the coming months and a labor market still heated, the real income is expected to continue recovering, said Mr. Margato. XP calculates that this indicator is still 3% below the pre-pandemic level and that this hole will only be closed in the second half of 2023.
For Gabriel Couto, an economist at Santander, another factor that helps to slow down the recovery of the real income was the lack of adjustment for civil servants in the last two years. “A faster recovery, in this sense, would depend on movements to replace the losses of this segment of workers,” he says.
Mr. Couto evaluates that this movement will be slow in the short term, in the wake of a more restrained labor market. Santander estimates that the average annual unemployment rate may grow slightly again in the next two years, to 10.1% in 2024 from 9.5% in 2022. Accordingly, it says, the average real effective income — a metric that considers the usual income and also extraordinary or occasional variations, such as bonuses —, is not likely to fully recover until 2025 or stay until 2026.
Bruno Imaizumi — Foto: Leonardo Rodrigues/Valor
In the calculations of Bruno Imaizumi, an economist at LCA Consultores, the return to the pre-pandemic level may only happen in the first half of 2026. Contributing to this very gradual scenario is a still significant contingent of the population with informal jobs and the cooling of employment dynamics.
Another way to measure the loss of purchasing power of workers, he says, is to use the basic food basket as a proportion of the average nominal income. Using prices practiced in São Paulo, Mr. Imaizumi calculates that, on average, workers spent 22% of their income to buy the basket in February 2020. The proportion reached 31.3% in April 2022 before dropping back to 27.7% in October.
“What I want to highlight is that income may improve, but perhaps not at the same speed as the variation of important prices for some groups, such as food,” he says. He estimates that the basic food basket would be 25.2% of income at the end of 2024. Mr. Imaizumi’s scenario also contemplates a relatively stable labor market, with the average unemployment rate dropping to 8.8% in 2023 from 9.2% in 2022.
A final factor that may help delay this movement is the slowdown in the generation of formal jobs — which generally pay better salaries. After consistently exceeding expectations in the first half of the year, the creation of formal jobs has lost momentum. In October, 159,000 jobs were created, according to the General Register of Employed and Unemployed Workers (Caged), against expectations of 210,000.
“Some studies are starting to show that, given the slowdown in the economy, informality is gaining some steam again,” says Rodolpho Tobler, an economist with the Brazilian Institute of Economics (Ibre), of Fundação Getulio Vargas. He ponders, however, that he hardly sees this rate surpassing 40%. In August, informality was a record 39.1%, but it has slightly decreased since then.
It is not new to hear about possible “creative accounting” at the retail chain Americanas. However, the disclosure of a R$20 billion misclassification in the funding of suppliers and financial expenses — which will affect profit, equity, and leverage of old financial statements — fell like a bomb among asset managers and analysts. Some portfolios will be hurt by the devaluation, but others were betting the stocks would fall and will reap gains.
Asset manager Moat reported that its funds’ positions in Americanas common stock amounted on Thursday to a maximum of 8% of Moat Capital FIA’s master equity and that all positions in that asset are in line with the risk metrics of the respective portfolios, despite the stress scenario. “Like the market as a whole, we were surprised by the company’s notice of material fact. We will do everything in our power to guarantee and protect our rights as a minority shareholder and in defense of our investors.”
ARX released a statement to shareholders with estimates of the impact on the shares of its corporate debt funds. The ARX Everest master and the ARX Denali pension fund version had the largest exposures, of 1.2% and 1%, facing adjustments of -0.542% and -0.449%, respectively. The managers declined to comment. Western Asset, in turn, says it is monitoring the unfolding news and is waiting for more information about the next steps taken by the controlling shareholders to have the dimension of the impact on the company shares.
As Americanas is a large issuer of debt, its shares are widely spread in the market and most assets have some exposure, says a credit manager. He says his firm’s funds have positions in short-term bonds, maturing in May and June, which have covenants clauses — a leverage measurement requirement that if it exceeds a certain level triggers early buybacks or upon waiver request. “The willingness of bondholders today is to demand prepayment of these debts at least.”
“I would be shocked if it were R$5 billion, R$20 billion is a lot,” says a stock manager who has small exposure in the shares. After attending the company’s conference, he says he got the feeling that not even the executives who had just taken over and resigned know the size of the problem. When you look at the liabilities, with a total of R$32 billion, of which R$5 billion are suppliers — [outgoing CEO Sérgio] Rial spoke of a little more — and there is a R$20 billion divergence, it gives the impression that there is something off the financial statement.”
He recalls that two years ago, when Via (owner of Casas Bahia) unveiled a labor liability of about R$2 billion, all hell broke loose. Now it is a R$20 billion event for a company that has assets of R$15 billion. The doubt is how much the trio of partners, Jorge Paulo Lemman, Beto Sicupira, and Marcel Telles, from 3G Capital, the controlling group, will be willing to contribute to the company’s capital injection.
For the creditor banks, it was difficult to make any credit assessment of the company because the financial statements of recent years are not reliable. If they stop paying the suppliers, the Americanas will cease receiving products on the shelf and the business will become unviable. Mr. Rial’s message, he says, was that if this happens, the solution stops being through capital injection and goes to court-ordered reorganization. “If the banks don’t pull the rug under the company, Americanas will keep going, and the capital injection will happen, who knows how big.”
This manager says he sees some contagion to other B3-listed retailers, but looking at the statements of Via and Magazine Luiza, there is apparently greater transparency on operations to the total supplier funds. “If you look at it maliciously, executives have always received an aggressive compensation package for hitting targets. Those who benefited were the executives with a fat bank account on top of profitability levels that didn’t happen.”
The decision, for now, was to keep the 1% exposure in Americanas shares in the portfolio, which after Thursday’s devaluation (77.3%) will fall to a residual slice of 0.25%. “Under normal conditions, I would have more or reduce to zero, but right now, given that there is no information, I don’t do anything because the loss has already come.”
Stunned by a failure that seems to have been repeated for years without being noticed by the board of directors, auditors, and creditors, a stock manager who does arbitrage strategies tells that he had a short position in Americanas because he observed an inefficient operating cash burn and a higher margin than its competitors, which didn’t seem compatible. “I didn’t think it had an accounting inconsistency, I saw numbers that the company couldn’t explain, that generated some discomfort,” he said.
He maintains that transparency compared to other 3G Capital ventures was lower, with Ambev on an international level, and Americanas more prone to omitting information. “There was a big governance gap between two companies that belong to the same economic group. It was always a little bit strange, which makes us separate what is a trade and what is an investment.”
This manager believes that the problem with Americanas, on the audit side, is even greater than it was with Petrobras, where a lot of things went off the earnings report, according to the investigations disclosed during Operation Car Wash. In the current case, it was inside the statements. “It seems to have a worse reputational issue and raises questions about similar practices in other companies.”
The firm’s funds will report a positive result for Thursday. The manager says that the short position would continue to make sense, but that the rental market has practically dried up, with rates rising from 20% to almost 100%.
A credit manager who held Americanas bonds in the local market but was short on the company’s bonds overseas will also reap profits. It is worth making adjustments now, but he does not reveal why the strategy was not executed. “The most important thing is how this impacts the credit market as a whole. For now, we haven’t seen any forced selling.”
The stock analyst at an asset management company says that the R$20 billion figure is a legacy of the previous management, but instead of making a mega provision, downgrading to a loss whatever was necessary to put the house in order, Mr. Rial decided not to take that risk. “If it was just an accounting practice in the classification of the operation, putting the gain that should be financial and changing the line, taking it from operational to result, okay, but it’s trickier when it affects the gross profit.”
Ilan Arbetman — Foto: Leo Pinheiro/Valor
The accounting inconsistency raises questions about whether the episode will unfold into a systemic risk, which goes beyond the companies in the retail sector, said Ilan Arbetman, an equity analyst at Ativa Investimentos.
“When you are faced with a notice of material fact that has the resignation of the CEO and the institutional relations officer 10 days after they took over, under the justification that there may be a line of suppliers that overnight goes to more than R$20 billion from R$5 billion, it makes us rethink the analysis of financial statements as a whole,” he says.
Despite the questions about how Americanas will come out of this, he says that the operation between companies, suppliers, and banks is good for the whole chain, but if such a hole is proven, it becomes clear that an adjustment in this accounting is necessary. “The same way this is hidden in Americanas, it would set a precedent to at least investigate whether there is something of the same nature in other retailers, which often share market practices,” he says. “Thinking about the stock market and the capital market, it could spill over and raise the risk level of how Brazilian assets are viewed.”
Mr. Arbetman, with Ativa, evaluates that the case is more of an accounting failure than some kind of purposeful action to make up the numbers, but that there may be a loophole on the regulatory side that allows some kind of interpretation that caused this snowball. “I see that if the company and the auditors knew of the existence of this situation and the possibility of the numbers being contested, there could have been some kind of indication, either on the financial statement or in the press release, but it was not done.”
The analyst says that “luckily” he didn’t have the shares in his recommended portfolio since late last year, lowering the indication from “buy” to “neutral.” The asset will undergo a new re-evaluation.
Mantaro Capital also no longer had the shares in its fund, due to the assessment that the company was already in a weaker competitive position, especially in the e-commerce activity, says Andreas Ferreira, retail analyst at the asset. “The company had already been on a quarter-to-quarter leverage trajectory and had a problem with working capital, it burned a lot of cash,” he said.
Mr. Ferreira cites that, by the adjustments he makes internally, the debt/Ebitda ratio was already around six times and that, when considering this new surprise, the leverage could explode. For now, he adds, everything is preliminary, it is still necessary to know what the impact of the reclassification will be on the old financial statements and how the capital injection will take place. “Possibly, the company will have to downsize, make its operations more efficient, will enter survival mode, and will find it more difficult to retain and attract good people.”
Mr. Ferreira says that it is common in the retail sector to have operations in which the company assumes the drawn risk when banks advance funds to suppliers, but that in general they account for this correctly. Another possible contagion would be to the banks, but the sector in Brazil is solid and the risk seems to be well distributed.
An asset manager evaluates that the fact that the controlling shareholders are almost “celebrities” in the business world helps the market to have patience with the company, after the success of the creation of Ambev, a result of the merger of the Brahma and Antarctica breweries. “This ended up hiding a controversial governance history,” he says, citing, for example, the conversations that resulted in the merger with Interbrew, in 2004, in which the Belgian group agreed to buy the “bad Ambev”, with the shares that the controlling shareholders had, and in exchange, Ambev took a Canadian brewery using preferred shares and paying a high price for it.
The deal, valued at R$8 billion, provided for shared management even with a larger Belgian share in the combined operations that gave rise to Inbev, which would later become the world’s largest brewery. “Everybody forgot about it because it was a fantastic success.”
Greatest global threat for next two years is cost-of-living crisis, says World Economic Forum survey
01/12/2023
The logo of the World Economy Forum is displayed at a window of the venue prior to the opening of the event in Davos last year — Foto: Markus Schreiber/AP
The World Economic Forum launches every year a Global Risks Report ahead of the Davos meeting, which this year will take place next week in the Swiss Alps.
This time, the greatest planetary threat pointed out for the next two years is the cost-of-living crisis. In turn, climate and environmental risks are the central focus of global risk perception in the next decade.
The forum also summarizes the top five risks identified separately in different countries. The survey was conducted last year, between September 7th and October 5th, therefore well before the action of the extremist followers of former President Jair Bolsonaro in the Three Powers Square in Brasília.
Thus, in the survey with international executives, the threats to Brazil are rapid and/or persistent inflation; what they coyly call “proliferation of illicit economic activity,” as well as geopolitical confrontation, severe commodity price shock, and job/subsistence crisis.
It is clear that extremism by Mr. Bolsonaro’s supporters now poses questions about political stability in the country. This will lead Economy Minister Fernando Haddad and Environment Minister Marina Silva to talk a lot about the political situation alongside their respective agendas next week.
Globally, inflation management remains a strong concern, as the Davos survey shows.
“Rapid and/or persistent inflation” appears as the biggest threat in several G20 countries, including Brazil, South Korea, and Mexico. The rate has passed 80% in Argentina and Turkey, and in Zimbabwe, Venezuela, Lebanon, Syria, and Sudan it reaches triple-digit levels.
In most of the world, the fiasco to stabilize the price trajectory is evident. The strong concern continues over how to control inflation and protect the population from the cost-of-living crisis, without triggering a deep or prolonged recession that worsens the situation.
The risks involve pressures on food and energy supplies, which may persist for longer. The debt crisis and lasting economic slowdown lengthen the list of top 10 threats for the next two years.
Geopolitical conflicts, erosion of social cohesion, and polarization of society are persistent risks, now compounded by widespread cybercrime, cyber insecurity, and large-scale involuntary migration.
This situation affects efforts to combat other long-term threats involving climate change and biodiversity.
As Carolina Klint, with Marsh McLennan company, summarizes, 2023 is expected to be marked by risks related to food, energy, raw materials, and cybersecurity, causing further disruption in supply chains, and impacting investment decisions.
And attention is turning even more now to the unfolding situation in Latin America’s largest economy.
Many producers face hindrances because they do not qualify for banks’ rules
01/12/2023
Wellington Dias and Paulo Teixeira — Foto: Divulgação/Roberta Aline/MDS
The ministers of Agrarian Development, Paulo Teixeira, and of Social Development, Wellington Dias, discussed on Wednesday measures to facilitate the funding of production in family farming and reduce hunger in rural areas. One action being studied is the creation of a guarantee fund to reduce red tape in the access of small producers to farm loans.
According to Mr. Teixeira, many farmers have a hard time tapping Crop Plan’s main lines the because they do not fit the conditions defined by the banking industry.
“We have found that typical lines of credit, like Pronaf, often does not reach the poorest and becomes elitist. This happens because many have bad credit with the banking system. We intend to review the Pronaf and think about a guarantee fund for loans to small farmers,” said the minister.
In a note, Mr. Dias said: “With a guarantee fund, we could facilitate access to credit with low interest rates and in a way it can be integrated to development and environment.”
At the meeting, the ministers also discussed ways to expand the Food Acquisition Program (PAA). In it, the federal government, through the National Supply Company (Conab), buys food from small producers and delivers it to schools, community restaurants, and social projects.
Another initiative under analysis is the updating of the Federal Unified Registration, of the Social Development Ministry. The idea is to identify people in vulnerable situations who need the government’s social policies in rural areas.
“The accuracy of this tool helps us, for example, to detect how many low-income people live in the countryside and what their main needs are,” said Mr. Dias.
Bahia-based company produces more than 50,000 tonnes of tissue paper per year
01/12/2023
OL’s toilet paper mill in Bahia — Foto: Divulgação/OL
The Asian group Royal Golden Eagle (RGE) did not give up after losing the competition for Kimberly-Clark’s assets in Brazil to Suzano. Interested in expanding in the tissue segment in Brazil, it finally found an M&A deal in the country. RGE has just agreed to buy Bahia-based OL Papéis, sources told Valor’s business website Pipeline.
In Brazil, RGE operates through Bracell, one of the world’s largest pulp makers, which has production units in Bahia and São Paulo. The acquisition of OL brings forward by one year the Asian company’s entry into Brazil’s tissue market in relation to the organic investment schedule. The reason is that the company announced last year the construction of a tissue paper mill in Lençóis Paulista, with operations expected to start in the second quarter of 2024.
OL has three factories in Bahia and Pernambuco, which produce 50,000 tonnes of toilet paper per year, under Velud, Familiar and Absoluto brands, in addition to paper towels and tissues, and more than 30 million diapers per month under its own Fofura Baby brand.
The OL operation, based in Feira de Santana, began in 2007 and has expanded its scope in recent years, taking advantage of the demographics in the region and less local competition. The market estimates that the company now holds 20% of the Northeast region’s toilet paper market.
The transaction gave OL an enterprise value (equity and debt) of R$500 million.
Sources close to the companies say that RGE was advised by Bradesco BBI and OL Papéis by Fortezza.
The original story in Portuguese was first published on Valor’s business website Pipeline.
Findings affect indicators like leverage ratio, net equity
01/12/2023
CEO Sergio Rial and CFO André Covre resigned after inconsistencies were found in one of Brazil’s largest retail chains — Foto: Brenno Carvalho/Agência O Globo
Retail giant Americanas revealed on Wednesday that it found “inconsistencies” in the funding of its suppliers in previous years, including 2022, the company said in a material fact released Wednesday night. In a preliminary analysis, the company estimates that these values reached R$20 billion on September 30 – the amount does not impact cash reserves, but affects key indicators like leverage and net equity.
In light of the discovery, CEO Sergio Rial and CFO André Covre, both in office for 10 days, resigned with immediate effect. Mr. Rial will be an external advisor to the shareholder 3G throughout the process of investigating and putting the house in order.
The arrival of the duo had boosted Americanas shares by 32% in the beginning of January alone as investors bet they would turn around the company. A number of large investors, such as U.S.-based Blackrock, have recently built positions in the stocks betting on this thesis.
It helps explain why the loss reported in the material fact fell like a bomb among asset managers and investors, surprised with the huge amount and the even more negative signaling of the resignation of the new administration.
Americanas says that “the accounting team identified the existence of financing operations for purchases, in which the company is a debtor with financial institutions and that are not adequately reflected” in the financial statement.
In other words, they are accounts for purchases from product suppliers that have already become debt with banks — but were left in a limbo on the financial statement.
Sources believe, based on the statement, that those are operations of factoring of receivables with banks, classified as “forfait,” very common in retail, and that may not have been registered as debt, as defined by the accounting rules.
The operation works in the following way: the company has a trade bill to pay, for example, and makes an agreement with a bank so that it pays the producer, then the retailer pays the bank back later with interests.
This way, the bank finances the company, and the chain pays the supplier in cash (receiving some discount for this).
“The point is that everything indicates that this amount was underestimated for years, or that it was not properly accounted for. And there is still the question of the exact size of this issue, because the notice of material fact says that, among the inconsistencies, there is this operation with financial institutions,” says one asset manager.
There is no impact on cash reserves because this debt would migrate from the line of suppliers to the line of loans and financing — but with an effect on the debt indicators — and consequently in the debt parameters agreed in the debt contracts — the so-called covenants.
If the covenants are broken, the creditor can ask for the acceleration of debts. Therefore, there are other related impacts.
“The text is not entirely clear, but it indicates that the amounts were classified as suppliers and not as Interest-bearing liabilities,” says a former chief financial officer of a retailer.
Another fund manager that follows the stock and competitors adds that there are some “accounting options” in retail balance sheets, which can justify the inconsistencies without necessarily being fraud.
But he also reinforces that the financial volume and the scare of the new administration, “which clearly does not want to take statutory responsibility for what may come next,” put strong pressure on the company.
On January 3, Mr. Rial appeared in a live-streamed video with 40,000 employees, stressing the encouraging expectations of a new job at the group. “He had no idea about this shakeup,” a source familiar with the matter said. “It reportedly emerged from a complaint with the audit committee,” the source said. The company declined to comment on this information.
In the notice of material fact, the company said it is not yet possible to determine all the impacts of such inconsistencies on the company’s income statement and financial statement. It also emphasizes that the number is preliminary — that is, it may possibly increase.
The estimate is still subject to confirmations and adjustments resulting from the conclusion of verification work and work by independent auditors.
The board of directors appointed João Guerra on an interim basis as CEO and chief investor relations officer. He is an executive from the technology and human resources areas “not previously involved in accounting or financial management.”
The board also decided to create an independent committee to investigate the circumstances that caused the inconsistencies, with the necessary powers to investigate divergences in the amounts.
Americanas’s primary shareholders, formed by 3G Capital partners (who, until last year, were the controlling shareholders), told board that they intend to “continue supporting the company.”
This means that the primary shareholders can use their own funds once again in case the company needs a capital injection, given the situation of equity, which is going into negative territory, and leverage.
The need for a capital injection is being considered by two major equity fund managers.
But it also points to the monitoring in the auditing process by the trio of executives, who have high credibility in the market.
The company called a group of institutional investors and analysts for a conference call on Thursday morning, at 9am, held by BTG Pactual. Sources say the meeting will have Mr. Rial’s participation and will be restricted to the guests, without participation of reporters.
Asset managers question the external audit and the internal audit committee. “In the United States, this would be a case for class action. In Brazil, they will face questioning from CVM,” a source said.
*By Adriana Mattos, Maria Luíza Filgueiras, Manuela Tecchio — São Paulo
Company, which started process on Tuesday, has not informed how many people will be dismissed
01/11/2023
Layoffs involve only Brazil; company started process on Tuesday — Foto: Divulgação
The wave of layoffs in technology companies has reached Didi’s Brazilian mobility service 99. The company, which started the process on Tuesday, has not said how many people will be dismissed. The layoffs involve all areas of the company, sources say.
“To continue democratizing our services, including digital payment solutions with 99Pay, we have conducted extensive evaluations of our resource allocation across all lines of business,” a company spokesperson told Valor. “As a result of this and other operational factors, we made the difficult decision to conduct an internal reorganization. Unfortunately, we had to dismiss a group of employees this week, to whom we are extremely grateful for their contributions,” he added.
The company did not inform how many people will be dismissed, but the layoffs involve only Brazil. Currently, there are 3,920 Brazilian employees registered on the company’s LinkedIn profile.
“Knowing that the macroeconomic environment also directly impacts our users and partners, we affirm our commitment to continue offering more affordable services to our more than 20 million active users, generating value for the entire ecosystem we support,” the spokesperson said. “According to a study by Fipe, 99 indirectly injected R$54 billion into the Brazilian economy over the last 10 years,” he added.
Layoffs at tech companies in the country became frequent since March last year, including cuts in major companies like Creditas, Loft, QuintoAndar, and iFood, all of them valued at more than R$1 billion.
In February, the meal delivery app 99Food will start operating without its own fleet, keeping only the platform, as Valor reported last week. The fleet reduction process started in January 2022.
99 reported that it will expand two-wheeled services beyond passenger and parcel transportation for individuals. At the end of the month, the company will launch 99Entrega Moto Corporativo, a logistics service aimed at companies, in 3,000 cities where it already offers other services with motorcycles.
“Overall demand for our services on two wheels – 99Moto and 99Entrega Moto – has grown by more than 50% over the past three months compared to the third quarter of 2022,” said the company’s spokesperson.
99’s parent company is going through a delicate time in China. Didi was one of 14 technology companies investigated by the Chinese government for more than two years, alongside giants such as Alibaba and Tencent Holdings around suspicions of abusing its dominance in the Chinese market.
On Monday, Guo Shuqing, the chairman of the China Banking and Insurance Regulatory Commission (CBIRC) and Chinese Communist Party secretary of the People’s Bank of China (PBOC), told Nikkei Asia that supervision of the sector will be normalized and government support will be provided to help platform companies play a bigger role in job creation and global competition.
The investigations led to the suspension of Ant Group’s IPO and the delisting of ride-hailing giant Didi Global from the New York Stock Exchange (NYSE) just five months after its debut, Nikkei Asia added.
Founded in 2012 as an app-based car transportation company, 99 received a $100 million injection from Chinese company Didi in January 2017 and was acquired by the group in 2018. Currently, the group has stakes in companies such as Chinese electric car company SmartAI, hotel company Oyo, and leads investments in truck freight, bike sharing, motorcycle rental, and self-driving car companies in China.
Infrastructure hurdles are second greatest risk; low-carbon agriculture comes in third place
01/11/2023
An EY survey with agribusiness executives in Brazil, Argentina, and Chile showed that climate change and its short and long-term impacts are the main risks they see for their businesses. The study listed the top ten risks and opportunities that agribusiness executives face in their businesses.
According to the survey, 47% of the executives and investors consulted might reconsider their investments based on climate risks. And for 82% of those consulted, climate change represents a “high” risk to their businesses.
EY divided the risks to agribusiness associated with climate change into six types, with different weights. Contrary to what many industry leaders say, reputational risk is one of the lowest, accounting for 12% of the risks related to the problem. The biggest risk in the list is “acute,” such as abrupt changes in precipitation and temperatures, and extreme weather such as droughts and storms.
EY survey sees political and legal risks at 19% of the total risk. They relate to enhanced disclosure obligations for greenhouse gas emissions, exposure to litigation, rising emissions prices, and existing product mandates or regulations. At the same level (19%) are technology risks, which involve the costs of transitioning to a lower emissions model of production and services, and unsuccessful investments in new technologies.
Difficulties in accessing markets were seen as 15% of the risks related to climate change. They involve changing consumer behavior, increasingly unwilling to consume products with high emissions footprint, as well as rising costs of raw materials with higher carbon footprint and uncertainties in market signals.
Reputational risks are seen as 15% of climate change-related risks, as are chronic risks (15%) involving long-term changes in average precipitation levels and temperatures, biodiversity loss, and sea level rise.
After climate change, respondents from agribusiness companies understand that the second greatest risk is infrastructure hurdles, with inadequate roads, concentration on road transport, and static capacity limitations.
The third most cited aspect by respondents is an opportunity: low-carbon agriculture.
Next, were cited issues related to increasing productivity, cost management, and asset management; restrictions on the use of agrochemicals and pesticides; issues of ethics, compliance, and control; government interventions, regulatory changes, and reforms; shortage of skilled labor and implementation of an agile and innovative culture; financial profitability, currency volatility management, and margins; and finally, professionalization and evolution of the governance and succession model.
Experts predict wave of restructuring due to high interest rates
01/11/2023
The number of court-supervised restructuring requests nationwide in 2022 is the lowest in the last eight years — a total of 833 companies, according to credit bureau Serasa Experian. But this calm scenario is not likely to remain in place in 2023.
Lawyers say that many companies leveraged themselves with the supply of credit during the pandemic when interest rates were low and now — with the Selic, Brazil’s key interest rate, at 13.75% per year — are unable to honor the payments.
This situation can be seen in Serasa Experian’s delinquency indicator. It shows that in November the country had more than 6.3 million companies in the red, the highest level since records began, in 2016.
There are 45 million delinquent debts — or R$108 billion. Also, according to Serasa’s survey, most defaulted companies operate in the service sector (53.5%). In second place are those in commerce (37.5%) and in third are industrial companies (7.7%).
Some of these companies have already reached firms specializing in insolvency. Lawyers say demand grew after November and December.
“There was a boom, a scary one,” said André Moraes, of Moraes & Savaget Advogados. “One hundred percent of the clients who came to us at the end of the year complained about the same thing. They took out loans with interest rates at 3% that more than tripled, they can no longer pay.”
Three of Mr. Moraes’ clients filed for court-supervised restructuring in December. And two others have their documentation prepared to file for court-supervised restructuring requests in the first months of 2023.
“During the pandemic, we worked more for sectors affected by social distancing measures. Hotels, tourism agencies, and transportation companies. Now all sectors need help,” added the lawyer.
Juliana Bumachar — Foto: Leo Pinheiro/Valor
Juliana Bumachar, from Bumachar Advogados Associados, confirms the high demand at the end of the year and projects an increase in requests for 2023. “Companies had been renegotiating, but it got to a point where they can no longer afford,” she said, adding that had filed for court-supervised restructuring for one of her clients, in São Paulo, on the last day of the judicial recess.
Also in December, according to her, there were two other new cases at the office, one of them with liabilities of R$1.2 billion.
In the first half of the year, the scenario is not expected to change as there is no estimate of an interest rate reduction. The banks project that the Selic will remain stable at 13.75% per year until May. In June, when the monetary easing cycle would start, it would drop 0.5%.
“In the current economic scenario, with interest rates at this level, a wave of restructuring is likely. But what will dictate whether or not these processes will be done by judicial means will be the posture adopted by creditors, especially banks,” said Renato Franco, founding partner of Integra Associados, a consulting firm specializing in company restructuring.
To Mr. Franco, there was a change in the behavior of creditors, especially banks, during the pandemic. They began to show much more willingness to negotiate, even granting terms and discounts that were previously only possible through court-supervised restructuring.
With this attitude, and the offer of credit, companies were able to solve their financial problems with out-of-court agreements and the number of requests fell. In 2020, 1,179 were registered, and 891 in 2021, according to Serasa data.
In the pre-pandemic period, the rates were higher. The worst years in the historical series are 2016 and 2017. In 2016, when President Dilma Rousseff was impeached, 1,863 court-supervised restructuring requests were filed. This is more than double today’s numbers.
In the lawyers’ view, 2022 was an “aftermath” of what was seen in 2020 and 2021. The problem now, they say, is that companies may not have the means to renegotiate. “There are no more guarantees to offer to the banks,” said Mr. Moraes.
According to Vicente de Chiara, legal director of the Brazilian Federation of Banks (Febraban), the current situation is far from the scenario that existed in 2016 and 2017, and he stresses that financial institutions will continue to prioritize out-of-court negotiations. To him, all the major banks have restructured their credit and collection departments and now have teams focused on collaborating with the companies to solve the problem.
“In this pandemic and post-pandemic period, we realized that everyone should anticipate the move. Instead of letting the company file for protection from creditors and then sit down to negotiate, it brings forward the negotiation. That is better for everyone,” said Mr. de Chiara.
Some lawyers say that besides the pandemic factor, out-of-court solutions were also boosted by the new recovery and bankruptcy law, which came into effect in January 2021.
Now, companies can, for example, use the so-called stay period outside the court-supervised restructuring, that is, while they are trying to negotiate with creditors. This mechanism suspends collection actions against the debtor.
The deadlines, however, are different. In judicial recoveries, collection actions are suspended for 180 days. For negotiations, the new law provides for up to 60 days.
The new law also strengthened out-of-court restructuring. In both judicial and out-of-court restructuring, the debtor gathers its creditors to negotiate. A payment plan is drawn up, usually with a grace period, discounts, and installment plans. If the majority of the creditors approve these conditions, all the others are bound and will receive what is due to them in the same way.
The number of creditors involved, however, changes from one method to the other. In the court-supervised restructuring, all debts incurred up to the date of the beginning of the process are submitted (there is an exception for tax debts and amounts with fiduciary guarantees).
In the out-of-court restructuring, the debtor chooses the creditors with whom it wishes to negotiate — which allows it, for example, to spare suppliers, avoiding getting into trouble with those who are essential to the business. This negotiation occurs without interference from the Judiciary. Only after approval by the group of creditors is the payment plan submitted to a judge for ratification.
Before the new law, the agreement of 50% of the creditors with whom the debtor chose to negotiate was required. Now, if the debtor has one-third approval of the payment plan, the debtor notifies the judge and gets 90 days to try to convince the others — and reach the 50%.
During this period, collection actions are suspended. If even after this period the debtor cannot obtain approval, he can still file for court-supervised restructuring.
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