Number of Cubans fleeing to Brazil spikes amid economic crisis

Tighter migration rules in the United States also explain increasing flow to Brazil

12/15/2022

The combination of a deepening economic crisis in Cuba, increased political repression, and greater difficulties to immigrate to the United States has led more and more Cubans to bet on Brazil as a country to try a new life. Last year the number of refugee claims by Cubans hit a record high. Experts believe that this flow is unlikely to change in the short term since there are no signs of economic improvement on the island.

From January to October, 3,414 Cubans sought refuge in Brazil, up 690% year-over-year, according to data compiled by the Ministry of Justice’s International Migration Observatory (OBMigra). Never before have so many Cubans made such a claim. They have overtaken Angolans and are now the second nationality with the most requests, behind only Venezuelans (29,100). Cubans are mostly men, single, and aged between 18 and 39.

Tadeu Oliveira, OBMigra’s statistics coordinator, says that the increase of Cubans coming to Brazil has occurred through two main mechanisms: refugee claims and family reunification requests, for those who have parents, grandparents, and children here. He recalls that from January 2021 to October 2022, there were 3,912 refugee claims and 2,234 family reunification residence requests.

Those who request refugee status go through the Federal Police, receive their tax ID, and can start working while waiting for the request to be judged, which takes about three months. Those who request residence by family reunification can wait longer to get a residence permit, but they rely on a mechanism guaranteed by Brazilian regulations, argues Mr. Oliveira.

Family reunification requests were made possible by the More Doctors program, he explains. Before it was terminated by the Bolsonaro administration in November 2018, the program had 8,400 Cuban doctors, 46% of the staff, according to the Ministry of Health.

“In 2018, Cubans began to leave Brazil, but part of them ended up staying because they had already settled and started families. In 2020, with the pandemic and the borders closed, the flow decreased. In 2021, when things started to return to normal, there was an increase in refugee requests and residency applications,” he said.

According to Mr. Oliveira, 84% of the current requests are for a family reunification and 16% for refugee requests. He points to what he calls social networks as the main factor of attraction to Brazil. In other words: relatives and friends who are already in Brazil end up serving as an incentive for Cubans to leave the island. In this sense, the More Doctors program would have been the main factor, for having left the legacy of those who came to work here, got married, created families, settled down, and ended up bringing relatives.

The decisive factor, says Mr. Oliveira, would be Cuba’s political and economic problems, as well as higher costs to migrate to other countries, whether financial or logistical. Today, for example, it is much more expensive and riskier for a Cuban to try to go to the United States than to Brazil.

“The migratory projects [of those who want to migrate] always consider cost, benefit, and difficulty of entry. The tightening of migration rules by the Biden administration in the U.S. would be a major obstacle,” he adds.

Michael Bustamante, a professor at the Institute for Cuban and Cuban American Studies at the University of Miami, said that Cuba is experiencing the worst economic crisis in 30 years, has been affected by the economic sanctions announced by the Trump administration in 2019, and the tourism sector — which accounts for about 10% of the country’s economy — has been hit hard by Covid-19. Not withstand the political landscape, marked by increasing tensions between society and the state and intensifying repression of anti-government protests.

“I would point to some variables that intersect and it’s hard to say it’s one thing or another that explains this massive exodus because all is happening at the same time,” said Mr. Bustamante. “There has been an intensification of U.S. sanctions since 2019, which the Biden administration have kept in place and have worsened the scenario. And the pandemic has been devastating to the tourism-dependent economy.”

He adds geopolitical issues, with allies like Venezuela, Russia, and China facing internal problems and increasingly diminishing the funds to help Cuba.

In the political sphere, Mr. Bustamante argues that the past two years have been of rising tensions on the island, which cannot be dissociated from the ongoing economic crisis. “We saw a rising civil society activism, and all of this culminated in July 2021 with the largest protests in Cuba in 60 years. The government repressed these protesters harshly,” he confirmed.

As a result, Cubans are feeling less hopeful, and more people are looking for an alternative to life on the island, he said. The U.S. is the first option, but other countries are also an option for those who want to leave Cuba. Mr. Bustamante recalls that from October 2021 to October 2022, more than 220,000 Cubans tried to enter the U.S. through the border with Mexico. “The number is a record in absolute terms, but also as a percentage of the population,” he says.

In 1980, the peak of the post-Cuban Revolution Cuban exodus, the population was 9,849,000 when 125,000 Cubans left the island through the port of Mariel for the U.S. or 1.26% of the total.

Today there are 11,320,000 on the island and 220,000 who tried to enter through the southern U.S. border between October 2021 and October 2022. This number corresponds to 1.94% of the Cuban population.

“The Cuban’s dream is to go to the U.S., but nobody wants to take the risk,” says M. O. R., a 30-year-old Cuban woman in Brazil for almost four months. “The route to migrate to America has become very dangerous and expensive. The option of coming to Brazil through Guyana came up because it doesn’t require a visa from us.”

M. O. R. worked as a civil engineer in the tourist hub of Holguín, 735 kilometers south of Havana, earning 2,000 Cuban pesos a month — or 11 MLC (“moneda libremente convertible”), which has parity with the U.S. dollar — and says the situation, which was already difficult, got much worse after the pandemic. “The prices of basic items went up a lot, mainly because of the shortage of the products, to the point that it was no longer possible to buy them,” she said, citing that a shampoo costs up to $4 and a carton with 30 eggs costs $5.5.

“On the other hand, the energy situation is precarious. All the thermoelectric plants collapsed, and we had only eight hours of electricity per day. Keeping a refrigerator, for example, was impossible,” she said.

In her view, the current crisis is the worst she has ever experienced in her country, which explains why many young people are leaving the island. “Most of them don’t see a future in Cuba. The possibilities are increasingly scarce, so, those who can leave, leave,” she explained.

The Cuban engineer came to Brazil with her husband, 37, who is also an engineer. They took out a loan with a relative who lives in Miami to pay the travel costs to get here. It took each of them $7,000 to get to Brazil, from a plane from Havana to Georgetown, the capital of Guyana, and coyotes that guide them until they cross the border with Roraima, the main port of entry for Cubans in Brazil today.

She lives in Tremembé, in the northern part of São Paulo, where she pays R$800 in rent for an apartment. She works at a store in the Pátio Paulista shopping center, where she earns R$1,400 plus transportation and meal vouchers. Her husband has not yet found a job.

Dentist Andrés Flores (fictitious name), 24, decided to leave Havana 10 months after graduating. With a salary of $22, it took him two years to save $2,000 so he could migrate here. He says that migrating to the United States would cost him $10,000.

He flew to Guyana and from there came by land to Brazil. He entered through Roraima 40 days ago and came by bus to São Paulo. He looked for a job in Sorocaba, but ended up staying in Jundiaí, where he has a Cuban friend.

He works selling clothes in a neighborhood store, where he earns about R$1,400 per month. He hopes soon to get a formal job that will allow him to earn R$1,800 plus benefits. In the near future, he wants to work as a dentist. “I think so many years of study in Cuba have to serve some purpose,” he said.

He left his father, mother, siblings, and grandparents in his country because he does not see any perspectives and because in Cuba “there is a dictatorship.” “Covid-19 affected the whole world but in Cuba, things pile up, amid so much poverty, misery, and hardship. Cubans are leaving the island in any way they can,” he said, adding that he used to buy clothes from Panama and resell them in Cuba to supplement the $22 earned per month as a dentist.

R.H.R., 29, left Havana three months ago because she reached her limit. “Cuba has had several special periods, but this is the worst,” she says, referring to the years between the collapse of the Soviet Union and Hugo Chávez coming to power in Venezuela when Cuba stopped receiving foreign aid. “There is no food, no medicine, no money, no work. Food is disappearing, and the prices rising. So Cubans are going to any country.”

She decided to come to Brazil because her mother had been here for four years, after having lived in Uruguay. Today she lives in Miami.

Despite the long lines after hours to get government-subsidized food in Cuba, she says that her family did not have enough to eat. “Many times, I would get in line at 3 a.m. to get food, but the government warehouses were empty,” she said.

Without a job or money, she decided to migrate with her 19-year-old brother and oldest son, age 10. She plans to bring her 5-year-old son but depends on having a job to start saving money. “I’m still looking for work, but I found out I was pregnant when I got here. That made everything more complicated and now I have an even harder time getting a job,” she says.

In the short and medium term, the prospect is that the largest Cuban exodus in history will continue, says Mr. Bustamante.

“I don’t see any signs of economic recovery in Cuba. And the internal political equation is still very difficult. Hundreds of people are in jail for having participated in protests against the government a year ago,” he recalls. “And this is just a reflection of a not very hopeful political environment, which is contributing to more and more people wanting to immigrate.”

*By Marsílea Gombata, Álvaro Fagundes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Major groups expected to compete in power transmission auction

There are six lots of almost 710 kilometers of transmission lines and substations, with investments of R$3.51bn

12/15/2022

The power transmission auction scheduled for Friday at exchange B3’s headquarters in São Paulo is expected to draw traditional groups, ample competition, and strong discount. The six lots offered in the event held by the Brazilian Electricity Regulatory Agency (ANEEL) foresee the construction and maintenance of almost 710 kilometers of transmission lines and substations and investments of R$3.51 billion.

This is because the transmission segment is considered the safest in the electric sector, which is fully regulated, and the winner gets a 30-year contract. Companies such as Isa Cteep, Energisa, Sterlite, Engie, and CPFL have announced their participation.

The infrastructure will serve the states of Espírito Santo, Maranhão, Minas Gerais, Pará, Rio de Janeiro, Rio Grande do Sul, Rondônia, Santa Catarina, and São Paulo. In total, 5,800 jobs are expected to be created during the construction period, which ranges from 42 to 60 months.

For Nivalde de Castro, a professor at the Federal University of Rio de Janeiro (UFRJ) and coordinator of the Electricity Sector Study Group (Gesel), all the lots are expected to be sold in the bidding with discounts typical of the power transmission segment.

“It is the best-structured segment and with a very large future demand. It is an organized sector and ANEEL acts correctly in differentiating the lots. So, we won’t have lots without bids, and we will have a discount. Besides, the winning companies will have a stable and predictable remuneration,” he said.

“The works that will be tendered have the objective of bringing more security and reliability to the ONS,” said Mayra Guimarães, head of renewable energy and regulation at Thymos. She expects that this bid will follow the same trend as the last transmission auctions, that is, high competitiveness for all the lots, which could be sold with average discounts of 40% to 50%. “In addition, we expect robust and financially well-structured companies to participate,” she added.

The overall value of the reference Annual Allowed Revenue (known as maximum RAP) to be paid to the business is R$604 million. The winner will be the one that presents the lowest RAP in the Brazilian currency per year.

Lots 3 and 5 are the ones that draw the most attention for the strength of the investments: almost R$2.3 billion. The largest of them is Lot 3, with 351 kilometers, which cuts through Maranhão and Pará. Lots 5 and 6, on the other hand, have singularities because they are aimed at the restoration and maintenance of existing undertakings to extend their useful life.

What may cause tension is the risk of litigation in Lot 6. The partner of the energy and natural resources department of law firm Demarest Advogados, Rosi Costa Barros, recalled that ANEEL removed the substation of Isa Cteep from the contract and believes that it may be auctioned.

“In ANEEL’s understanding, the asset is expected to be part of the auction to take place this Friday and be excluded from Isa Cteep’s concession. The company has questioned the inclusion of the asset in Lot 6. Therefore, the maintenance of this asset in the Auction 02/2022 may be questioned in court,” said Mr. Barros.

Brazil has 175,000 kilometers of transmission lines, according to data from national grid operator ONS. Despite that, the segment still suffers from bottlenecks to transport the production of wind and solar energy, especially in the Northeast.

The director-general of ONS, Luiz Carlos Ciocchi, said that the auction was designed based on planning studies by the Empresa de Pesquisa Energética (EPE) and on analyses carried out by ONS considering the operating conditions foreseen for the Interconnected System.

“Most of the projects listed for this auction aim to expand the transmission capacity to cope with the load growth and reduce some of the existing restrictions. They are works that aim to solve localized problems and allow the consumer to be served safely … Item 6 stands out because it deals with the bidding for the concession of facilities that integrate the international interconnection between Brazil and Argentina, including a commitment to the necessary revitalization,” said Mr. Ciocchi.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Analysis: Central Bank is confident that high interest rates are working

Question mark is whether the fiscal policy will not get in the way


12/15/2022

The Central Bank remains confident that the high interest rates are being transmitted to economic activity and will have the desired effect to lower inflation. Obviously, the question is whether the fiscal policy will not get in the way.

The Central Bank’s Inflation Report released Thursday tries to argue that unlike what many analysts believe, there is economic slack, which is having an effect on prices.

In this study, the Central Bank divides the prices of services into two groups. One includes those that are more inertial, that is, prices that rise because of past inflation. The other includes prices linked to the economic cycle, which rise less when there is economic slack.

The results presented by the Central Bank show that prices of services linked to the cycle are lower and falling at the margin. This would be a sign that, in fact, there is economic slack.

This slack is estimated by the Central Bank at 0.8% for the third quarter of this year. The monetary authority said that this slack tends to grow further because the monetary tightening will be felt more strongly by the economy. At the end of this year, the economic slack will probably be at 1.1% and reach an even higher level at the end of next year, at 1.8%.

The Central Bank has revised its estimate of slack, which was a little higher. But this revision is due to the fact that the GDP was revised, and economic growth was higher than expected. This means lower slack, but nothing changes the qualitative assessment that there is slack.

The Central Bank’s estimate of economic slack is much higher than that estimated by the financial market, which sees the economy operating at total capacity in the third quarter of this year (technically an output gap of 0.1%) and an economic slack of 0.7% at the end of next year.

Some economic analysts have questioned the Central Bank, arguing that there is an analytical flaw. Inertial service inflation depends on different variables than cyclical service inflation. Thus, it would be incorrect to say that there is economic slack just because one is below the other.

Diogo Guillen — Foto: Silvia Zamboni/Valor

Diogo Guillen — Foto: Silvia Zamboni/Valor

Confronted with this question, the Central Bank’s director of economic policy, Diogo Guillen, explained that this part of the report illustrates what a set of models used by the Central Bank, which points to the existence of economic slack, says. In this part, in the most recent data, the inflation of services linked to the cycle is receding.

In the section of the Inflation Report where the Central Bank analyzes short-term inflation, there is also some of the monetary authority’s view on the effect of economic slack on inflation.

The monthly readings came higher than expected, partly due to fresh food inflation. But they were not so high thanks to services. “Services inflation was significantly lower than expected, with emphasis on the more favorable dynamics of its underlying component.”

Mr. Guillen has argued precisely that one should look at inflation to identify the effect of economic slack. In fact, the economic slack is calculated in order to know what is going to happen to inflation.

In short, the Central Bank’s report shows that it sees monetary policy working as expected, confirming a scenario in which inflation falls toward the target. Uncertainty about the next administration’s fiscal policy is one thing that may get in the way.

All the noise surrounding the public accounts since President-elect Luiz Inácio Lula da Silva’s victory in the elections has already started to enter Central Bank’s scenario, albeit incipiently.

The Central Bank’s inflation projections have been somewhat stable in recent months, indicating a price hike of 3.3% in mid-2024, basically in line with the targets. But within this stability, some factors accelerate inflation, while others slow it down. In the end, they cancel each other out.

The inflation report lists factors that, since September, have acted in the direction of raising the inflation projection: the short-term inflation surprise and a lower economic slack than previously estimated.

But some forces reduce the inflation estimate. Among them is the fact that the market expects interest rates to start falling only in August, not in June as previously estimated. There is also the fact that the level of economic uncertainty is higher.

These two facts are linked to fiscal uncertainty, which makes the monetary tightening and financial conditions more severe than expected, pushing the economy into a downward spiral.

*By Alex Ribeiro — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Petrobras, BB shares plunge after change in rule for state-owned companies

Government-linked stocks suffer from measure that paves the way for political interference

12/15/2022

Change enabled nomination of Aloizio Mercadante as CEO of the Brazilian Development Bank — Foto: Cristiano Mariz/Agência O Globo

Change enabled nomination of Aloizio Mercadante as CEO of the Brazilian Development Bank — Foto: Cristiano Mariz/Agência O Globo

A fast change in the State-owned Company Law, passed by the Chamber of Deputies on Tuesday night, worsened the market’s risk perception about potential interferences of the elected government in the companies in which it is a major shareholder and caused a strong correction in Petrobras and Banco do Brasil shares.

The common and preferred shares of the oil company dropped 9.8% and 7.93%, respectively, while those of the bank fell 2.48%, extending a downward movement that has been deepening since October 21, when they reached their peak in the year. Petrobras’s market capitalization fell 42.17% in the period, or R$219.6 billion, while Banco do Brasil’s retreated 30%, or R$39 billion.

The bill that changes the State-owned Law approved by the lower house, which will be voted on by the Senate on Thursday, reduced to 30 days from 36 months the mandatory waiting period for people appointed to executive roles in state-run companies who have been in party decision-making structures or participated in election campaigns. The change enabled the nomination of Aloizio Mercadante as CEO of the Brazilian Development Bank (BNDES). Yet, it was passed thanks to politicians from different parties, including supporters of President Jair Bolsonaro.

As a result, investors now fear that politically-appointed officials could take over other state-owned companies, heightening the fear of interference that had already been priced in since the outcome of the runoff vote was known, in October 30.

“We see an elected government showing a clear leftist bias as the market expected some pragmatism. And Congress, which should have blocked it, seems lenient. Such a fast change to the State-owned Company Law causes great concern, because it proves that it is easy to pass even worse measures. The possibility of [the Lula administration] naming politically-appointed officials to key positions in state-owned companies is a given, and this is likely to impact businesses,” an asset manager, who spoke on condition of anonymity, told Valor.

Along this line, Anand Kishore, an asset manager of Daycoval Asset, said he expects changes in the strategy of the companies, which will naturally impact the prices of stocks. Petrobras is one example. Considering public remarks by members of the elected government, he believes that the federal government will resume investments in assets that do not necessarily seek profitability, such as refineries, and that the government will soften the import parity price policy. He also believes that Banco do Brasil will be again a vehicle to stimulate consumer spending.

“Since the State-owned Company Law was created, in 2016, Petrobras has gone from a negative Return on Investment (ROI) to 40% in 2022, and paid good dividends. The improved governance has changed the company’s level. Banco do Brasil will undergo a minor strategic change, but it will also have an impact. That is, the shares will be forgotten by many investors until we have more clarity about how the government will act,” he said.

Goldman Sachs analysts Bruno Amorim, João Frizo, and Guilherme Costa Martins point out that the changes still depend on approval by the Senate, but that the large majority the measure achieved in the lower house shows that the new administration may have the political capital to pass more profound changes. In the short term, they added, Petrobras’s bylaws protect the company from interventions in its pricing and dividend policies. “But in the long term, visibility remains low because of uncertainties about how the new administration will run the company’s strategy.”

Goldman Sachs has a neutral recommendation for Petrobras, with a price target of R$34.6 for common shares and R$31.4 for preferred shares.

Despite the largely negative movement in state-owned stocks, Brazil’s benchmark stock index Ibovespa found room to erase an almost 2% drop built early in the trading session and end up 0.20%, at 103,745 points, a move seen by analysts as essentially technical. Besides the expiration of options, which helped the session to have the second-highest market turnover this year (R$ 81.34 billion), there may have been a rotation of state-owned companies shares to other stocks, with a large international investment bank leading the purchases. The improvement also occurred when future Finance Minister Fernando Haddad gave an interview stressing the importance of fiscal balance.

“The stock market is under strong pressure since the presidential election due to the deteriorating fiscal outlook. We still believe that pragmatism will prevail, and the new Finance minister, Fernando Haddad, will announce an orthodox fiscal framework soon. This will help to reduce the noise and bring a gradual recovery in the stock market. But risks remain,” said Pantheon Macroeconomics in a report. The research firm projects the Ibovespa at 128,000 points by the end of 2023.

(Felipe Laurence contributed to this story.)

*By Matheus Prado, Augusto Decker — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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NGOs ask IFC to block financing of Suzano’s new pulp mill

Brazilian giant is investing R$19.3bn in the largest single production unit of this raw material in the world

12/15/2022

Suzano’s eucalyptus forest in Mucuri, Bahia — Foto: Divulgação

Suzano’s eucalyptus forest in Mucuri, Bahia — Foto: Divulgação

More than 40 non-governmental organizations (NGOs) from different regions of the world have requested the International Finance Corporation (IFC), the financing arm of the World Bank for private-sector investments, to veto a $900 million loan to Suzano for the construction of a eucalyptus pulp mill in Mato Grosso do Sul.

The Brazilian company, the world’s largest producer of market pulp, is investing R$19.3 billion in a new production unit in Ribas do Rio Pardo with a capacity of 2.55 million tonnes per year, the largest single production line of this raw material in the world.

In the letter seen by Valor, entities such as Rainforest Action Network (RAN), Forests & Finance Coalition, and World Rainforest Movement (WRM) claim that the funding is not aligned with the purposes of the IFC.

According to them, the institution’s expectation that funded projects generate economy-wide effects and have positive environmental effects go against at least three impacts considered for the project: environmental, competitiveness enhancement, and fossil fuel-free technology.

As for the environmental effect, the organizations claim that the expansion of areas cultivated with eucalyptus, the raw material for Suzano’s pulp production, is leading to the “decline of species richness and reducing the remaining areas of Cerrado,” one of the country’s main biomes, which is at risk of extinction.

In addition, the organizations say, Brazil’s pulp and paper industry is “highly subsidized” and the construction of a new unit of Projeto Cerrado’s size would result in increased greenhouse gases – Suzano claims that the unit will be the most sustainable in the industry worldwide.

“We also note that there has been no real consultation with the affected communities, nor is there any expectation that preemptive consultation will take place. This is a clear failure,” the entities say. For them, Suzano’s new project will “further expel local communities from their lands.”

The IFC will decide this Thursday about financing Projeto Cerrado, which already has funds from export credit agencies. Sought, Suzano has not yet positioned itself on the issue.

In a note, Suzano said Projeto Cerrado is expected to generate 10,000 jobs at the peak of construction and thousands of indirect jobs, in addition to being in line with other “socio-environmental characteristics intrinsic to the company’s operations,” including proper use of soil and water, commitment to protecting and enhancing biodiversity through the implementation of landscape-scale corridors, zero deforestation, and close relationships with local communities.

“The construction of the new unit, as well as the company’s entire business model, is therefore aligned with the Commitments to Renew Life, a broad set of long-term goals that reflect the company’s motivation to positively impact society and the environment,” Suzano said in the note.

*By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Mubadala deal values Atvos at R$1.6bn

Deal for sale was closed between Mubadala and company’s creditor banks

12/14/2022

The sugar-and-ethanol company Atvos was valued at R$1.6 billion in the agreement closed between Abu Dhabi sovereign wealth fund Mubadala and the creditor banks of the company for its sale, sources say. The transaction, settled in defiance of the current controlling shareholder, the U.S.-based fund Lone Star, is equivalent to a multiple close to that of sales of mills in financial distress – of just over R$40 per tonne of installed cane capacity, or R$68 per tonne of processed cane.

The deal does not involve cash payment, but a debt restructuring and a commitment from Mubadala to contribute R$500 million as equity. Mubadala will in practice have a stake of 31.5% in Atvos, while the banks will hold 60%. Under the agreement, the banks, which have warrants equivalent to 90% of Atvos, will cede the bonds to Mubadala, and, in return, new bonds will be issued with the fund.

There would also be the entry of the Agroenergia FIP Multiestratégia fund, of partners Ricardo Knoepfelmacher and Giovanni Forace, from RK Partners – former advisor to Odebrecht in the case. With this, Lone Star and Novonor (former Odebrecht) would share the remaining stake.

Atvos has been valued at very different amounts. When the company was still a subsidiary that Odebrecht wanted to sell, before seeking protection from creditors, the group sustained that the business was worth between R$6 billion and R$13 billion.

When the company was already under judicial reorganization, Lone Star, one of the most aggressive creditors in the negotiations, agreed to pay $5 million to take over the company from the Natixis bank, which held the right to exercise control as collateral on behalf of Odebrecht’s creditor banks.

Lone Star is expected to question the deal in court. The fund is expected to argue that it is investing in Atvos and that there would be no need for contributions. In this harvest, crushing reached 22.3 million tonnes, compared to 27 million tonnes three years ago, but capex increased from R$400 million in 2020/21 to R$1.1 billion this crop. A good part of this increase was used to double the sugarcane planting area to 90,000 hectares by the end of this harvest. The cash generated jumped to R$1.2 billion in the current harvest from R$200 million in 2020/21.

The U.S.-based fund expected the company to be worth four times what was negotiated with Mubadala, with a multiple close to $40 per milled tonne, or almost R$5 billion in total.

The Arab fund understands that there is still a high debt, of R$7 billion, and a need, for the next three years, of R$1.5 billion more in capex than what is currently used to reduce the age of the cane fields and expand the planting area, which would raise the value of the company (including debts) to almost R$10 billion.

In a note, Lone Star said the Mubadala deal “ignores the significant operational and financial turnaround,” and that it was closed “without a competitive process and without consultation with management team,” nor was there “due process or due diligence.” Mubadala declined to comment.

*By Camila Souza Ramos — São Paulo

https://valorinternational.globo.com/
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Analysis: Fiscal expansion may have opposite effect to the one intended

Monetary Policy Commitee reviews all the channels through which fiscal policy can harm the scenario of inflation convergence to the target

12/14/2022

Central Bank’s building in Brasília — Foto: Jorge William/Agência O Globo

Central Bank’s building in Brasília — Foto: Jorge William/Agência O Globo

The Central Bank’s Monetary Policy Committee (Copom) is adopting a wait-and-see approach until it gets to know in greater detail the fiscal policy of the Lula administration. But it warned that an expansion driven by increased public spending could have the opposite effect to the one intended, slowing down the economy instead of stimulating it.

In the minutes of its last meeting, released Tuesday, the Copom reviews all the channels through which fiscal policy can block inflation from meeting the targets.

It can be because of aggregate demand, the rise in asset prices such as the dollar, the heightened economic uncertainty, the deterioration of inflation expectations, the increase in the neutral rate of interest or the loss of power of monetary policy if loans offered by state-owned banks gain ground.

However, the committee stopped short of giving a more concrete response to fiscal uncertainty – in other words, indicating an eventual postponement of the cycle of interest rate cuts or even a potential new hike in the key interest rate Selic.

Apparently, this environment of fiscal uncertainty had not worsened the Copom’s inflation projections. They rose only slightly, to 3.3% in mid-2024 from 3.2%, and remain compatible with the target on this horizon, which the Central Bank is currently aiming at.

In fact, despite all the fiscal uncertainty, the foreign exchange rate prior to the Copom meeting was flat at R$5.25 compared to the previous meeting, in October. Inflation expectations for 2024, until last week’s meeting, had not moved. The minutes say policymakers are a little concerned about the rise in the average inflation expectation, but what actually enters the inflation projection models is the median.

In theory, the Central Bank’s inflation projection can be influenced in case of revision of its estimate for the neutral rate of interest, which rose for the last time in June, to 4% from 3.5%, in real terms. But the minutes do not say whether there has been any revision. We may have more details on the subject on Thursday when the Inflation Report will be released.

Since the inflation projections have not changed, the fiscal policy could require an action from the Copom only from the balance of risks to inflation. But the way the Central Bank describes its balance of risks, there was no change. In other words, the balance between factors that can make inflation fall below expectations and those that can make it stay above has been maintained.

It seems there was no change because the Central Bank is adopting a cautious strategy in judging the fiscal policy of the future Lula administration.

“The current scenario, particularly uncertain on the fiscal side, requires serenity when evaluating risks,” the minutes say, repeating a phrase that already appeared in last week’s Copom statement.

Even so, the committee decided to send some messages to the future administration. The minutes reveal that the Copom did several exercises to check how fiscal policy can hinder the work of bringing inflation to the target. The idea implicit in these calculations is that, if it gets in the way, interest rates are likely to be higher, either because cuts will be delayed or further hikes in the key interest rate.

“The final effect, whether on inflation or on activity, will depend on both the combination and the magnitude of fiscal and parafiscal policies,” the Copom’s minutes say.

A relevant point mentioned by the policymakers is that the eventual fiscal and parafiscal stimulus planned by the future federal administration could have an opposite effect than expected, causing contraction instead of accelerating the economy.

The minutes cite two reasons for this. First, if the fiscal policy affects confidence in the sustainability of public debt. Another reason is linked to the degree of economic slack. With reduced slack, a significant fiscal expansion will hit inflation “and override the intended impacts on economic activity.”

This last point is sensitive, even to heterodox economists who support Modern Monetary Theory (MMT), which admits that there are limits to fiscal expansion when the economy is operating near full capacity.

But the controversy is not settled. The new administration has been claiming that, with the Transition PEC (proposal to amend the Constitution), it will keep spending stable in relation to GDP. But it has not shown any more detailed calculations supporting this thesis. The Central Bank makes more elaborate calculations about the fiscal stimulus, considering the structural primary balance.

What was missing was for the Central Bank to present its simulations to the public – that is, how much each fiscal dose affects inflation and activity. If the idea is to increase transparency, some detail may be included in the Inflation Report.

Otherwise, these simulations tend to remain under reserve for eight years, until the technical presentation made to the Copom is released.

*By Alex Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Pátria expands technology portfolio targeting 5G

Fund plans to invest $500m to $1bn in next three years in data infrastructure opportunities

12/14/2022

After the sale of the data center company Odata to the American Aligned, Pátria Investimentos fund, which held about 90% of the company’s capital, now seeks to expand its technology portfolio, with a focus on infrastructure for 5G networks.

“In three years, we will invest $500 million to $1 billion in data infrastructure opportunities,” said Felipe Pinto, partner at Pátria, in an interview with Valor.

Among the 42 companies in Pátria’s current portfolio, 19 of which are infrastructure companies and 23 are private equity, Winity — created in 2020 to provide infrastructure to wireless networks — is currently the fund’s only technology company.

The idea, according to Mr. Pinto, is to expand Winity’s operations beyond the Brazilian market and seek new investments in Latin America, with an eye on the expansion of 5G networks in countries like Colombia, Peru, and the Central American region.

Winner of the national lot of the 700 MHz band in the frequency auction for 5G offering in the country last year, Winity is awaiting approval from the antitrust regulator Cade on a network sharing agreement signed with Telefonica (Vivo) in August. “We are confident that we will go through the approval processes normally,” said Mr. Pinto.

The fund says it is interested in investing in data infrastructure companies to meet corporate demand for 5G networks. “We look at the potential infrastructure that can serve companies in the agricultural, mining – including mining complexes in Chile –, healthcare, and industrial plants among others,” Mr. Pinto said.

In addition to investing directly in technology companies, for two years Pátria has been digitalizing companies from other segments in its private equity investment portfolio.

According to Ricardo Barbosa, Pátria Investimentos’ Digital Transformation and Value Creation Private Equity Portfolio Leader, the goal is to increase EBITDA and raise the forward enterprise value-to-EBITDA multiple of these companies, in addition to generating business through digital transformation.

One of the examples cited by the fund is the agricultural resale platform Lavoro, which is preparing to carry out an IPO on Nasdaq. As Valor’s business website Pipeline reported in September, Lavoro will go public through a merger with TPB Acquisition Corporation, a special purpose acquisition company (SPAC) sponsored by investment firm The Production Board. In the deal, the Brazilian company was valued at $1.2 billion.

Today, 23 companies in Pátria’s private equity portfolio are in digitalization projects led by Mr. Barbosa’s sector, including database migrations to the cloud and production chain robotization.

In October last year, the fund also identified a space to invest in information security by announcing the purchase of cybersecurity companies Neosecure and Proteus for the markets of Argentina, Brazil, Chile, and Colombia. At the time, the fund committed to injecting $250 million into the sector.

The manager informed on Tuesday that the sale of Odata to Aligned and of the concessionaire Entrevias, announced at the beginning of the month to the French company Vinci, is expected to generate a gain of approximately $1.4 billion for the shareholders of Pátria Infraestrutura III fund. In the case of Entrevias, Pátria is selling a 55% stake and the fund will continue with the remaining 45%.

*By Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Aligned buys Odata, plans to invest $1bn over 10 years

Data center company intends to accelerate expansion in Latin America, expects to quintuple revenues in five years

12/14/2022

Andrew Schaap — Foto: Divulgação

Andrew Schaap — Foto: Divulgação

The U.S.-based data-center infrastructure company Aligned announced on Tuesday the acquisition of 100% of the capital of the Brazilian company Odata, which has data center operations in Brazil and other Latin American countries.

The deal was signed over the weekend by Pátria Investimentos fund, which holds about 90% of Aligned’s capital, and by the U.S.-based data-center company CyrusOne, which held about 10% of Odata.

The value of the deal and its terms were not revealed. Sources say the deal is valued at more than R$10 billion and represents 26 times Odata’s EBITDA.

The deal depends on approval by the Administrative Council for Economic Defense (CADE) in Brazil, as well as the regulatory bodies in the United States, Chile, Colombia, and Mexico, where the companies have operations.

According to Ricardo Alário Arantes, Odata’s CEO, the acquisition does not change the company’s data center expansion schedule — today there are eight in four countries — or the team of 350 employees in Latin America. “We will accelerate the conquest of new clients and business opportunities,” said the executive.

The purchase of Odata makes it possible for Aligned, which has 16 data centers in the United States, to bring clients to Latin America. “Exporting clients is exactly what we want to do,” Andrew Schaap, CEO of Aligned Data Centers, told Valor.

Mr. Schaap says his schedule of trips with Mr. Arantes to visit current and potential clients will be intense in the coming weeks, focusing on the 2,000 largest companies in Fortune magazine’s global index.

With the support of Macquarie Asset Management fund, Aligned intends to accelerate investments in Odata’s expansion. According to Mr. Schaap, the plan is to invest more than R$5.3 billion ($1 billion) in the Latin American operation in the next 10 years. The company also expects to quintuple revenues in five years.

Felipe Pinto, a partner at Pátria Investimentos, said that the exit is part of a natural cycle. “We launched Odata as a startup and, for us, it is a typical cycle that has been completed,” he said.

In April, Valor reported that Pátria was already in advanced conversations with international M&A boutiques and foreign investment banks to define who could buy Odata. At the time, the company was valued at $1 billion.

In addition to Odata, Pátria has already divested companies such as Highline do Brasil, a telecommunications tower company, sold in December 2019 to the U.S.-based investment group Digital Bridge (former Digital Colony), and Vogel Telecom, of fiber optic connectivity for companies, sold to the Algar Telecom group for R$600 million in May 2021.

According to Mr. Pinto, Pátria continues to invest in technology, as well as in energy, logistics, and sustainable companies. One company in the current portfolio is Winity, which was created in 2020 to provide infrastructure for wireless networks.

Odata, which was created in 2015, does not disclose its revenues, but they come mostly from long-term contracts with large cloud computing service providers, as well as clients in the financial, telecommunications, and education industries.

Odata currently has six data centers in operation — three in Brazil, one in Chile, one in Colombia, and one in Mexico. The company has three other centers under construction in Brazil and Chile with delivery scheduled for the first half of 2023, as well as in Mexico, for the first half of 2024.

At the end of last year, the company raised $30 million from the International Finance Corporation (IFC), the World Bank’s branch aimed at the private sector, to finance the expansion of its data center structure in Latin America, including Brazil.

In August, Odata received a new loan from IFC, of $35 million, to invest in the expansion of data centers in Latin America.

Mr. Arantes says Odata continues to work with the IFC and expects Aligned to bring in new funding partners for expansion.

In addition to supporting the expansion of leading U.S. data center providers Aligned and Netrality Data Centers, Macquarie Asset Management manages investments in AirTrunk, a data center operator with facilities in Australia, Singapore, Japan, and Hong Kong. In September, it announced the acquisition of a minority stake in British data center company Virtus, which operates in the Greater London area and is owned by Singapore’s ST Telemedia.

Macquarie Asset Management, a division of the Australian group of investments Macquarie, managed more than $2.8 trillion in assets by the end of September, up 8% year-over-year, according to the company’s most recent financial statement.

*By Daniela Braun — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil may become self-sufficient in uranium driven by private sector

Provisional measure paves the way for partnerships between INB and private-sector companies for ore production

12/14/2022

With the approval by the Senate of the provisional measure 1,133/2022, which allows private-sector investment in nuclear ore extraction in Brazil, the sector sees the possibility of new companies joining an activity previously exclusive to Indústrias Nucleares do Brasil (INB).

Companies in the industry believe that the measure will make the activity more dynamic and provide greater legal security not only for the electric sector but also for other fields, such as health and environment.

Brazil has the sixth-largest uranium reserve on the planet and is one of the few countries in the world to master enrichment technology for peaceful purposes, but it manages to mine only 40% of what is needed for Angra 1 (640 MW). The remainder comes mainly from Kazakhstan and Uzbekistan through the Russian state-owned company Rosatom, which operates in these countries.

The Brazilian Association for the Development of Nuclear Activities (Abdan) understands that this is an opportunity for more intense uranium exploration and to make the country self-sufficient and the chance for new companies to land in Brazil since, without a guaranteed regulation, it would be difficult for the private sector to invest in the industry.

Celso Cunha — Foto: Luciana Whitaker/Valor

Celso Cunha — Foto: Luciana Whitaker/Valor

Abdan’s head Celso Cunha told Valor that the arrival of private-sector companies in the extraction of nuclear ores does not mean a breach of the federal government’s monopoly, but changes in the law that give more clarity to possible companies and investors.

He recalls that a public-private partnership (PPP) already exists. The Santa Quitéria consortium is a partnership between INB and Galvani – a company that produces phosphate fertilizers – for the implementation of a joint mining project. The objective is to exploit uranium and phosphate found in an associated form in the Itataia ore deposits in Santa Quitéria, Ceará. The current law determines that less than 50% must be uranium, but now the provisional measure does not establish quotas and uranium exploration can increase.

“But only INB can sell and use uranium. It is not the state’s job to dig a hole. Extracting uranium from great depth requires technical knowledge we don’t have in Brazil. The solution is to make public-private partnerships, bring Brazilian and foreign companies together and take it to INB,” he said.

Today the pillar of expansion of the Brazilian electricity sector is wind and solar sources. These sources are intermittent because they depend on the wind and the sunlight. This instability creates a challenge for Brazil’s national grid operator ONS, which organizes the mix of sources to meet the demand in real-time, which also varies. According to Mr. Cunha, nuclear generation is important because it is commanded by people, not the sun, wind, or rain.

“To produce for Angra 1, 2, and 3 we need the Santa Quitéria mine, in Ceará. Then we will be able to supply the market. We won’t need to import uranium,” he said.

A target of worldwide controversy for almost 70 years, when U.S. President Eisenhower proposed, in a speech to the United Nations, the atomic program for peace, nuclear energy is now back on the international agenda, going from villain to climate hero. Amid the urgency of combating global warming and the ever-shortening window for action, atomic energy already fits the definition of green energy. On the other hand, Russia’s war against Ukraine may make uranium imports more expensive, as European nations seek to reduce their dependence on Russian gas.

Brazil is not out of this context. The National Energy Plan-2050 signaled eight to 10 new nuclear plants, and the Ten-Year Energy Expansion Plan (PDE) 2031 foresees another 1 GW in the Southeast region. The works of Angra 3 have resumed and besides guaranteeing the fuel, the executive says that Brazil needs to define the energy tariff to approve the financing if it wants to maintain the plant’s completion schedule until 2027.

The financing is divided into a R$4 billion tranche that is already underway and R$17 billion BNDES is expected to raise in the international market. Eletronuclear will hold the auctions.

There is talk of a fourth nuclear plant in the Southeast region in the next 10 years. If the plant gets off the drawing board, the forecast is that it will have 1 gigawatt of installed capacity. There is no decision on where the site will be, but chances are it will be in the region of Angra dos Reis, Rio de Janeiro.

Abdan is advising the new administration’s energy transition committee, besides being ahead of important agendas for the next year, involving new plants in Angra and small modular reactors. According to him, the priorities for the government’s 100 first days in office range from unlocking funds to make research feasible, to providing legal security for the mining and commercialization of nuclear ores and their by-products, in addition to the challenge of speeding up the operation of the National Nuclear Safety Authority, which currently does not have a president.

*By Robson Rodrigues — São Paulo

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