12-month inflation climbs 4.42%, according to IBGE data
10/09/2024
September sees 0.44% rise in consumer prices, falling short of expectations — Photo: Daniel Wainstein/Valor
Brazil’s official inflation rate, tracked by the Broad Consumer Price Index (IPCA), increased to 0.44% in September, following a 0.02% drop in August. In September 2023, the IPCA recorded a 0.26% rise. These figures were released on Wednesday by the Brazilian Institute of Geography and Statistics (IBGE).
The September rate was slightly below the median forecast of a 0.45% increase, gathered from 39 financial institutions and consultancies surveyed by Valor Data.
Over the 12 months leading up to September, inflation rose 4.42%, compared to 4.24% up to August. The median estimate by Valor Data was 4.43%, with projections ranging between 4.21% and 4.51%.
The 12-month IPCA result exceeded the core inflation target set by the National Monetary Council (CMN) and pursued by the Central Bank, which is 3% for 2024. However, it remained within the permissible deviation of 1.5 percentage points, either up or down.
From January to September 2024, the IPCA increased by 3.31%. During the same period in 2023, the cumulative rise was 3.50%.
Among the nine spending categories used to calculate the index, housing shifted from a 0.51% decrease to a 1.80% increase between August and September, driven by a 5.36% hike in electricity prices. Food and beverages moved from a 0.44% decline to a 0.50% rise. Transportation went from 0% to 0.14%, and health and personal care increased from 0.25% to 0.46%.
In negative territory were household goods (from 0.74% to -0.19%), personal expenses (from 0.25% to -0.31%), and communication (from 0.10% to -0.05%). Education rose less (from 0.73% to 0.05%) and clothing (from 0.39% to 0.18%).
The IBGE calculates Brazil’s official inflation based on the consumption basket of families earning between one and 40 minimum wages, covering 10 metropolitan regions, along with the cities of Goiânia, Campo Grande, Rio Branco, São Luís, Aracaju, and Brasília.
Spread of inflation
Inflation became more widespread among the general items that make up the IPCA in September. The so-called Diffusion Index, which measures the proportion of goods and services with rising prices, increased to 56.5%, the highest since May (57.3%), up from 56% in August, according to Valor Data calculations that consider all items in the basket.
Excluding food, one of the more volatile groups, the index fell from 61.7% to 54.7%, returning to levels similar to June (54.5%) by these measures.
Core inflation average
The average of the five core IPCA components monitored by the Central Bank saw a slight decline to 0.22% in September, from 0.24% in August, according to calculations by MCM Consultores.
In the 12-month accumulated IPCA, the average of the five core components adjusted slightly from 3.80% to 3.81%.
The annual inflation target set by the Central Bank is 3% for 2024, 2025, and 2026, always with a tolerance range of 1.5 percentage points above or below.
Growing distrust in fiscal policy, combined with the beginning of the monetary tightening cycle, has led to a sharp rise in real market interest rates, reflected in B-Series National Treasury Notes (NTN-Bs)—Brazil’s inflation-indexed bonds—which are now nearing the psychological 7% mark for some maturities. At Tuesday’s (8) weekly National Treasury auction, three-year bond (May 2027) rates hit 6.709%, raising concerns about the government’s increasing financing costs and worsening debt structure.
The recent spike in real market interest rates mirrors stress levels last seen in early 2016 during Dilma Rousseff’s administration.
“Brazil has experienced fiscal distortions and some uncertainty around the Central Bank, but the latter is being addressed,” said Luciano Rais, head of fixed income at Santander Asset Management. However, he warned that the fiscal risks continue to rise. “The current agenda is more focused on boosting revenue rather than cutting spending,” he added.
“The market is mainly suspicious of the structural side. While the deficit is a key concern, it’s being tackled with temporary revenue sources, whereas spending increases appear permanent,” Mr. Rais continued. He also noted that despite restrictive interest rates, economic growth remains strong, which is a concern for the Central Bank as it resumes its tightening cycle.
“The Central Bank’s rate hikes are impacting NTN-B and fixed-rate bond yields. Although longer-term NTN-Bs offer attractive yields, these higher rates don’t seem unjustified. Expected real interest rates will need to rise further,” Mr. Rais explained.
Ronaldo Patah, Brazil strategist at UBS Global Wealth Management, agreed that fiscal uncertainty and the recent monetary tightening have fueled the surge in NTN-B rates. He pointed out that while U.S. Treasury movements have been more restrained—with the real U.S. 10-year rate rising only slightly from 1.74% at the beginning of the year to 1.77% now—the Brazilian 10-year NTN-B rate has soared from 5.4% to 6.5%.
Mr. Patah added that even if the government meets its primary fiscal target for this year, lingering doubts over whether it can achieve a zero deficit next year are contributing to a roughly 100-basis-point increase in real interest rates as risk premiums become embedded in bond prices.
“Without new measures and relying on non-recurring revenues like this year, the expected deficit for 2024 is 0.8% of GDP—well short of the zero target,” warns Mr. Patah, noting the possibility that the government may need to revise its fiscal framework targets. Such a revision could worsen the perception among financial agents, potentially driving real interest rates even higher.
Mr. Patah points to two negative signals on the fiscal front: the government’s push to extend the gas allowance and its proposal to exempt individuals earning up to R$5,000 a month from paying income tax. However, he acknowledges that Moody’s upgrade of Brazil’s sovereign rating, with a positive outlook, might encourage the government to pursue fiscal balance to reclaim its investment-grade status.
Amid these challenges, Luiz Alberto Basqueira, partner and head of fixed income at Ace Capital, sees a negative bias in medium- and long-term real interest rates. His concerns center on Brazil’s public debt trajectory and the recent deterioration in its structure. “We don’t like the level of nominal interest or real rates, particularly in the medium and long term. This is a bias, and we are reducing our exposure to these parts of the curve,” he explains.
Mr. Basqueira also highlights potential external pressures on rates. He suggests that the U.S. Federal Reserve, which has started its monetary easing at a pace of 50 basis points, may not be able to deliver the number of rate cuts the market anticipates. Additionally, with Donald Trump remaining a frontrunner in the U.S. presidential race, Treasury yields could face upward pressure, which would likely spill over into the Brazilian market.
According to Mr. Basqueira, Ace Capital’s strongest conviction in the interest rate market comes from a more pessimistic outlook on inflation. “Beyond structural factors like strong economic activity, a tight labor market, exchange rate fluctuations, and unanchored inflation expectations, we see heightened risks linked to climate issues such as heat and drought. We are particularly pessimistic about food inflation, which we expect to reach 8% this year and 7% next year—well above market projections,” says Mr. Basqueira, adding that he favors long positions (betting on the rise) in short-term “implicit” inflation.
Mr. Basqueira also highlights that competition for funds with the credit market is another factor pressuring medium- and long-term real interest rates. “The demand for hedging from credit funds has contributed to the upward pressure on the real interest rate curve,” he explains.
Moreover, the substantial issuance of incentivized bonds has negatively impacted government bonds. “In addition to the competition, the government misses out on revenue due to the tax exemption for these bonds. They undeniably divert resources that could help finance public debt,” he notes.
As of last month, NTN-B issuances made up just over 10% of the total for the year, as the National Treasury has chosen to focus on selling post-fixed Financial Treasury Bills (LFTs), which are tied to the Selic, Brazil’s benchmark interest rate. This shift has raised concerns among market participants about the composition of the public debt.
“If the government believes that current interest rates are too high and expects them to fall, it makes sense to shorten the debt by selling LFTs, which are indexed to the Selic rate. In a rate-cutting cycle, the cost of the debt would drop quickly. However, if the debt is shortened and the government fails to regain fiscal credibility, the debt structure becomes more vulnerable,” warns Mansueto Almeida, chief economist at BTG Pactual and former Treasury secretary.
“You shift from long-term financing, like the NTN-B, to shorter-term financing with LFTs, which have a maturity of up to six years. This creates a more fragile debt structure,” explains Mr. Almeida. “Selling an NTN-B at a 6.5% interest rate is very expensive. If the government is confident it can take steps to demonstrate its commitment to fiscal policy and bring down that interest rate, it might make sense. But if those actions don’t materialize, if market doubts persist, and if long-term rates remain at this elevated level, the government will be adding to the fragility of its debt financing.”
Mr. Rais, from Santander Asset Management, adds that there is ongoing debate among market participants over whether the Treasury is facing a lack of demand for NTN-Bs or is simply unwilling to accept the high market interest rates. “If the Treasury has demand but chooses not to issue NTN-Bs due to the high rates, it may be a risky move to leave the debt more exposed to post-fixed rates,” Mr. Rais says, highlighting the potential risks if the Selic rate needs to rise further.
*By Gabriel Roca, Gabriel Caldeira, Victor Rezende — São Paulo
Profit is expected to rise nearly 20% this year, driven by a growing client base and a unified structure for the group’s 10 companies
10/08/2024
Gabriela Onofre — Photo: Divulgação
As one of the largest advertising and marketing groups globally, Publicis is seeing expanding revenue and profit in Brazil. Business trends indicate a 14% increase in revenue and an almost 20% jump in profit this year compared to last year. Led by Gabriela Onofre, with a more centralized structure and lower costs, the number of clients and the budget of some advertisers already in their portfolio have grown.
The journey to streamline the French group’s structure began 14 years ago. In 2010, then P&G marketing director Onofre faced the challenge of managing brand communications with five Publicis agencies. Frustrated by the lack of integration and the complexity of coordinating multiple operations, she approached the group for a more centralized approach. This led to the creation of a media planning hub to align and mediate P&G’s strategies.
In July of last year, Onofre returned to Publicis, this time invited to take on the role of Chief Executive Officer (CEO) of the group, a position previously unheard of in Brazil.
Over the past year, her mission has been to implement a unified structure for the group’s companies in Brazil, focusing on client needs and aligning with Publicis’s global standards.
This new phase represents almost a natural continuation of the initiative she championed over a decade ago, now on a much larger scale. “For me, as a client, it was obvious, but not for the agencies. The group began to listen more to client needs,” she notes.
According to Onofre, the strategy of investing in new services—in September, Publicis acquired Mars United Commerce, specializing in retail media, and in July, Influential, a marketing influence firm—was the key factor for the group assuming the position of the second largest advertising and marketing group globally last year, dethroning the Omnicom Group, which held the spot for decades.
In Brazil, the group, comprising 10 companies including five advertising agencies, is projected to end the year with a 14% revenue growth, in line with the 14% recorded in Latin America in the first half. The profit projection is an increase in the range of 20%.
Since Onofre’s arrival, Publicis has secured 16 new clients, including Heinz, Banco Inter, Decathlon, Barilla, Pfizer, and Ferrero, among others. The company also expanded its scope with existing clients like Nestlé, Bradesco, Claro, and P&G.
A new agency, Le Pub, was established in the group. An office relocation took place in June this year to bring together 1,150 employees from agencies Le Pub, DPZ, Leo Burnett, Publicis, and the group’s business units. Talent, with 350 employees, was excluded for now due to a recent relocation during the pandemic.
“The changes are taking effect. We restructured the agencies to make them more agile and unified the group culture into a single structure. Our goal is to have diverse operations and build this ‘Lego’ according to each client’s needs. We’ve also brought clients closer. They now visit the agency more often,” explains Onofre. The reorganization also reduced operational costs.
The new structure, strongly grounded in data and technology, uses automated tools to optimize media buying and allow for more precise campaign execution. “Data enriches the creative aspect. With it, we better understand our clients and their consumers, presenting more effective solutions,” states the CEO.
With a background in food engineering, Onofre expresses a passion for data. “You can’t take the engineer out of me. At P&G, where I spent 18 years, I used a lot of data. At Johnson & Johnson, I worked more with consumer emotions. Publicis is a blend of all these experiences,” she indicates.
In her first year at the helm of Publicis Brazil, there’s also a significant milestone: currently, 70% of the top leadership in the advertising and marketing group is composed of women. At the start of her leadership in July 2023, this figure was 30%.
This statistic includes leaders in operations, communication, marketing, media, and human resources, as well as the presidencies of business units and agencies. The group has 10 companies and employs 1,500 people in the country.
The CEO recounts facing prejudice when she took over at Publicis: “I’ve had a client request a man be present at a meeting right when I joined Publicis. In such moments, I try not to judge, as this behavior isn’t so different from what we see in society at large. My approach is to understand his viewpoint and how to change that perception. I believe these barriers break down as I demonstrate that I understand business as well as he does and when we deliver good results.”
Onofre observes that “while female leadership has always been an important issue, it became crucial with the weight of the position. This shift in proportion within the group happened naturally.”
“If I’m here today, it’s because both men and women recognized my potential and opened doors for me. Now, I feel it’s my responsibility to do the same,” she says.
Rate cuts in the U.S. expected to boost appetite for risk in emerging markets, focusing on liquid stocks
10/08/2024
Felipe Thut — Photo: Celso Doni/Valor
Three years after the last wave of initial public offerings in Brazil, investment banks have been meeting with privately held companies and potential candidates to re-enter the market starting in 2025, when the long drought of IPOs on the B3 stock exchange is expected to end.
The list of potential candidates is large, mainly comprising major companies. CantuStore (a vehicle accessories platform), BRK (sanitation), Inspirali (medical education), Compass (gas), and Aegea (sanitation) are seen as possible pioneers when the IPO window reopens.
The delayed rate cuts by the U.S. Federal Reserve pushed back the timeline for IPOs in Brazil. Domestically, uncertainty about the Brazilian government’s fiscal discipline also hindered a resurgence in offerings this year.
For this revival to happen in 2025, foreign investors are expected to play a key role in the IPOs, making new stock market debuts possible.
Felipe Thut, head of investment banking at Bradesco BBI, pointed out that just like during the IPO boom between 2006 and 2008, international investors are likely to account for most of the demand in these transactions. The Fed’s rate cuts should push capital back into emerging markets as investors seek higher-risk opportunities. During that earlier period, foreign investors bought around 70% of the IPOs in Brazil—a trend that reversed during the wave of 2020 and 2021, when low interest rates in Brazil and increased risk appetite drove substantial capital flows into local equity and multimarket funds.
However, Mr. Thut emphasized that to attract foreign capital, these operations must be large enough to ensure liquidity—an essential requirement for international investors. “On the downside, Brazil’s equity and multi-market fund industry is struggling. So, we’ll have to depend on foreign investors. On the upside, we expect foreign capital to flow into emerging markets as interest rates decline,” he said.
At a recent Bradesco BBI event in São Paulo, which brought together around 15 private companies, Mr. Thut noticed the strong interest from investors in meeting with these firms. “With resources being scarcer, they want to be more selective about where to invest,” he noted.
Mr. Thut also said that during these meetings, investors often use the opportunity to compare data and performance with companies already listed on the stock exchange. “It’s a chance for them to interact with firms they don’t have easy access to,” he said.
He mentioned that sanitation was among the most sought-after sectors, particularly after the privatization of Sabesp. Technology, retail, and services also drew significant attention from investors.
Events with private companies are common on B3, but since 2022, the scope has expanded, addressing new topics. Rafaela Vesterman, client relationship manager at the exchange, said that this year alone, 111 private companies have participated in activities, both in-person and online. Many of these companies had planned to go public during the last window, but their plans were derailed by increased market volatility. Discussions at these events cover topics like investor relations, diversity, and sustainability. Publicly traded companies are also invited to share their experiences on the road to the IPO and the realities of management after going public.
UBS BB hosted 100 Brazilian companies in New York, all of which are publicly traded, for meetings with over 200 foreign investors. The general sentiment was that while investors are cautiously optimistic about Brazil, there is room for resource allocation, especially as demand for assets outside the U.S. rises due to the Fed’s rate cuts. “With the long-term rates in the U.S. declining, investors are seeking higher returns in other regions,” said Anderson Brito, global head of investment banking at UBS BB.
Initially, the capital flow is expected to target the secondary market—already traded stocks. The next step will be the return of follow-on offerings, with some possibly occurring later this year, though most are still on hold. By 2025, the much-anticipated resurgence of IPOs is likely to materialize after a three-year hiatus. “We’re seeing many banks forming syndicates with companies eyeing the first half of 2025,” Mr. Brito said.
American investors are expected to once again dominate the offerings, as has been the historical average, but European investors are becoming more consistent participants in these transactions.
Bruno Saraiva, co-head of investment banking at Bank of America in Brazil, estimated that the IPO comeback may only occur in the second quarter of 2025. For him, investors are waiting for Brazil to present more positive news regarding public finances and a clearer narrative about the country, which is currently clouded by “too much noise.”
“Right now, Brazil isn’t on foreign investors’ radar,” Mr. Saraiva said. “We should benefit from capital flows to emerging markets with the Fed’s rate cuts, but we’ll remain sidelined until we resolve our fiscal challenges.”
CantuStore said it couldn’t comment on IPO plans due to regulations from the Securities and Exchange Commission of Brazil (CVM) and company policies. BRK confirmed that it is registered as a category A public company with the CVM, allowing it to access the capital markets. “The company continues to monitor market behavior based on opportunities,” it said in a statement.
Aegea, meanwhile, noted that an IPO is always a possibility but that there are no immediate plans to go public. “This decision depends on market conditions, the use of proceeds, and joint decisions with shareholders. Managing the company’s capital structure is a key part of our strategy, and accessing the public equity market is one option under consideration,” the company said.
Inspirali and Compass declined to comment on their plans.
Gilberto Kassab, president of the Social Democratic Party (PSD), believes that Governor Tarcísio de Freitas of São Paulo was the most influential political supporter in the state’s capital
10/08/2024
Gilberto Kassab — Photo: Edilson Dantas/O Globo
Gilberto Kassab, national president of the Social Democratic Party (PSD) and São Paulo’s secretary of government, celebrated his party’s success in this year’s elections, winning 878 mayoral races in the first round, including three in state capitals. Speaking to Valor, Mr. Kassab emphasized that the results showed the political center as the country’s dominant force. He also noted that those who tried to nationalize the election miscalculated, and pointed out that Governor Tarcísio de Freitas of São Paulo, from the Republicans Party, was the most influential political supporter in the state.
Mr. Kassab expressed confidence in Mayor Ricardo Nunes, from the Brazilian Democratic Movement (MDB), as the favorite in São Paulo’s runoff and expected him to secure most of the votes that went to businessman Pablo Marçal, from the Brazilian Labor Renewal Party (PRTB). However, he cautioned that “no election is won before the votes are counted.” When asked about Mr. Marçal’s endorsement of Mr. Nunes, he said now was the time to “bring together all the support.”
“The biggest mistake in this election was by those who believed the campaign would be nationalized, as it became clear that local issues and circumstances prevailed,” Mr. Kassab said. “The second mistake was by those who claimed the world was polarized and the political center would disappear—those people were proven wrong,” he added confidently.
“The center is larger than both the right and the left,” he continued, rejecting the label of “Centrão” typically applied to parties that support any government in power. Instead, Mr. Kassab defined the PSD as part of the political center, which also includes the MDB and the Brazil Union Party, in his view. “It’s clear that the center is the biggest political force in Brazil, larger than the Liberal Party (PL), Progressive Party (PP), and Republicans,” he said.
According to data from the Electoral Court, the combined votes of the PSD, MDB, and Brazil Union totaled 40.161 million, surpassing the 32.953 million votes obtained by the main right-wing parties (PL, PP, and Republicans). The left-wing parties (Workers’ Party, or PT, Brazilian Socialist Party, PSB, Democratic Labor Party, PDT, and Socialism and Liberty Party, PSOL) received a total of 21.156 million votes.
Mr. Kassab also observed that neither President Lula (PT) nor former President Jair Bolsonaro (PL) played decisive roles in São Paulo’s elections. “They did their part,” but both stepped back when they realized they weren’t essential in the state’s capital, he explained. “They might have been crucial in other cities, but not in São Paulo,” he concluded.
In this context, Mr. Kassab viewed Governor Tarcísio de Freitas as the main political force in São Paulo city. “He was very important, bringing a manager’s perspective, partnership, and the example of what would be good for the city, and he is highly approved,” Mr. Kassab observed.
Mr. Kassab sees Mayor Nunes as favored to win. “Marçal is a conservative candidate, and his voters are mostly conservative, right-leaning,” he noted, adding that São Paulo voters’ rejection of Congressman Guilherme Boulos (PSOL), who represents the left, was more significant.
He emphasized that the second round provides an opportunity to “show more, with more time, what has been done and what will be done, to present the team, and to have the right conversations at the right time with the right people.”
Mr. Kassab described Mr. Marçal as a figure who made his mark, garnered millions of votes, and is part of democracy, but noted that the social media influencer is not a politician by trade. “I’m not sure how long he’ll remain in politics,” Mr. Kassab said. When reminded that Mr. Marçal came close to making the runoff, threatening to edge out either Mayor Nunes or Mr. Boulos, he replied, “Almost, but not quite.”
He dismissed the idea that Mr. Marçal’s electoral performance posed a threat to traditional politics. “It’s not like that; nothing beats the work done by a manager. Ricardo [Nunes] is doing very well. No social media or digital mobilization can overcome the mayor’s accomplishments,” he stated firmly.
For the first time since 1992, when municipal elections were held after Brazil’s redemocratization, the MDB lost its position as the party with the most mayoral victories, electing 847 mayors—31 fewer than the PSD.
The PSD, led by Mr. Kassab, also reelected the mayors of Rio de Janeiro, Eduardo Paes; Florianópolis, Topázio Neto; and São Luís, Eduardo Braide. The party secured spots in runoffs in Belo Horizonte with Fuad Noman and Curitiba with Eduardo Pimentel.
The PSD made significant gains in regions led by its key figures. In São Paulo state, where Mr. Kassab led efforts to recruit mayors in recent years, the party elected 203 mayors—139 more than in 2020. In Minas Gerais, Senate President Rodrigo Pacheco nearly doubled the number of mayors, electing 140.
In Bahia, Senator Otto Alencar elected 115 mayors, six more than in the previous election. In Paraná, Governor Ratinho Júnior won in 162 municipalities, 33 more than four years ago, and is awaiting the second round in the capital.
Mr. Kassab dismissed criticism from opponents regarding the PSD’s control of three ministries in the Lula administration while being a key ally of the governor of São Paulo. He argued that the party remained neutral in the presidential election, though some branches, like those in Rio de Janeiro, Bahia, Minas Gerais, and Maranhão, campaigned for Mr. Lula while he supported Mr. De Freitas in São Paulo.
“It’s more than legitimate for them to be part of the federal government, just as it’s legitimate for me to be in the state government. We ask for votes to govern together,” Mr. Kassab explained. Now, he said, the PSD is preparing for 2026. “We dream of having our own presidential candidate,” he concluded.
The partners are clashing over management and control of the pulp producer in two ICC arbitrations and one at B3’s CAM, alongside ongoing litigation in regular courts
10/07/2024
— Photo: Anna Carolina Negri/Valor
A third arbitration in the Eldorado case, held in secrecy, has ordered the pulp producer to pay its shareholders, J&F Investimentos and Paper Excellence, the minimum mandatory dividend required by Corporate Law for 2023 within ten days, with continued profit distribution where applicable, until the end of the proceedings, Valor found.
In this latest development of the six-year dispute between the partners, the tribunal also ordered the freezing of Paper’s shares in Eldorado.
The decision, issued on Friday (4), comes from a newly formed arbitration tribunal at the International Chamber of Commerce (ICC), created last year at the request of J&F.
This is the second arbitration proceeding related to Eldorado at ICC Brazil. The first, initiated by Paper against J&F in 2018, resulted in a unanimous win for the Asian partner in 2021 but has been suspended since September 20 following a ruling by the Brazilian Court of Appeals for the Fourth Circuit (TRF-4). J&F is currently contesting the award in the court system.
Following Friday’s ruling, Eldorado will have to distribute up to R$560.5 million in profits—nearly half to each shareholder—in the coming days. This amount represents 25% of the pulp producer’s net profit of R$2.35 billion last year.
As reported by Valor in May, Paper, which owns 49.41% of Eldorado’s shares, voted at an April meeting to distribute 100% of the pulp producer’s 2023 net profit. However, J&F, which holds the majority on Eldorado’s board, allocated R$105 million for legal and tax incentive reserves while retaining the remaining R$2.24 billion. According to sources familiar with the dispute, Eldorado failed to distribute the required 25% of its profits to shareholders, as mandated by Brazilian Corporate Act.
Additionally, in a March 3 ruling, the arbitration tribunal prohibited Paper from transferring its shares in Eldorado—whether through sale or as collateral for financing—until the arbitration concludes. The tribunal also ordered Paper to reimburse J&F for any dividends received if J&F prevails in this dispute.
The two partners, J&F—owner of JBS—and Paper, controlled by Indonesian businessman Jackson Wijaya, have been locked in a legal battle over control of Eldorado since mid-2018. The company was valued at R$15 billion in the sale and purchase agreement signed in September 2017, but Paper has accused the Batistas of deliberately obstructing the purchase of the remaining shares.
After losing the first arbitration at the ICC, J&F initiated a new proceeding at the same tribunal, seeking to nullify the contract. The Batista holding company argues that Paper misrepresented facts when signing the agreement, alleging, among other points, that Paper failed to secure the necessary approvals from Congress and the National Institute of Land Reform and Colonization (INCRA) to finalize the transaction in Brazil.
This is the same argument supporting a popular lawsuit filed in May last year by Luciano José Bulligon, former mayor of Chapecó, with the Brazilian Court of Appeals for the Fourth Circuit (TRF-4), the appellate court for the South region. This lawsuit eventually led to the suspension of the first arbitration at the ICC. Mr. Bulligon is invoking legislation governing foreign purchases of rural land in Brazil in an attempt to annul J&F’s sale of Eldorado to Paper.
In addition to the two arbitrations at the ICC, Paper and J&F are also clashing at the Market Arbitration Chamber (CAM) of B3, where the dispute revolves around the management of Eldorado.
Paper declined to comment, and J&F had not issued a statement by the time this article was published.
In a statement to the market on Friday (3), Eldorado confirmed the order to pay the mandatory minimum dividends for 2023. The company also noted that if this third arbitration results in the annulment of the 2017 sale agreement, Paper will be required to return the dividends received to J&F. “Furthermore, the arbitration court prohibited shareholder CA Investment (Paper’s company) from transferring Eldorado shares it owns until a final decision is reached in the ongoing arbitration, which will be duly recorded in the company’s books,” the statement read.
Braskem to issue 10-year bonds, buy back notes due in 2081 — Photo: Divulgação/Braskem
Braskem has commenced a series of investor meetings on Monday to issue 10-year debt securities abroad. The company is also launching a buyback program for bonds issued in 2020 that are set to mature in 2081.
This issuance represents the longest-term debt for the company. The offering is being coordinated by Citi, Itaú BBA, Morgan Stanley, Santander, and SMBC Nikko, with Bank of America, BNP Paribas, Credit Agricole, Deutsche Bank, and Mizuho also participating.
Escalating conflicts involving Lebanon and Iran could increase shipping costs and affect trade routes for Brazilian exports
10/07/2024
Ricardo Santin — Photo: Leonardo Rodrigues/Valor
One year after the extremist group Hamas attacked Israel, sparking the war in Gaza and fueling another wave of violence in the Middle East, Brazil’s agribusiness exports face a new challenge in the region. The rising tensions, with Lebanon and Iran now involved in the conflict, could lead to logistical hurdles, resulting in increased costs.
“Last year, freight costs to the region rose by 15% to 20%, but prices returned to previous levels as tensions eased. Now, with a new crisis, we could see a similar increase,” said Michel Alaby, a consultant and regional director of the São Paulo State Chamber of Commerce (CAESP).
According to Maurício Palma Nogueira, an executive of Athenagro, a livestock consultancy, the situation could become even more complicated if other countries such as Russia, the U.S., or China become involved. “So far, there’s nothing indicating issues of that scale, but the scenario is somewhat more tense. The chances it becomes a regional war are higher.”
The Gaza war, now a year old, did not affect agribusiness exports to the region. From January to August of this year, Brazil exported $11.9 billion to Arab countries, a 22% increase compared to the same period in 2023. Exports to Israel reached $316.2 million, remaining practically stable, according to data from the Agrostat platform.
Meat, the main export item from Brazil to the region, grew in volume and revenue. Brazil exported 24,500 tonnes of beef to Israel, a 22% increase, while 1.5 million tonnes of meat (beef and chicken) were shipped to Arab countries, a 19% increase compared to 2023.
According to Ricardo Santin, president of the Brazilian Animal Protein Association (ABPA), the industry has been preparing for various scenarios since Hamas’s attacks on Israel. “This volume reflects the fact that alternatives had already been created when the conflict began, anticipating a potential escalation,” he said.
Instead of traditional routes through the Mediterranean, ships departing from Brazil for the Middle East have been circumnavigating Africa and unloading at ports in Turkey and the Persian Gulf, or traversing the Panama Canal as an alternative to the Suez Canal in Egypt. As a result, the journey time to the region has increased to 60 days from 30-35 days.
Mr. Santin added that around 5% to 10% of exports still follow the standard route via the Suez. He noted that the more than 20% growth in shipment volume is within industry expectations. “This volume isn’t due to the war; it’s a normal market consumption increase that has been happening as forecast,” he added.
Mr. Alaby said that Brazil holds a privileged position in supplying animal protein to Arab countries, especially in times of war. “Today, Brazil is the world’s leading producer of halal meat [which complies with Muslim precepts]. This is a sine qua non condition for purchasing animal protein,” he said.
Another factor contributing to the positive export performance is that the main destinations for animal protein, Saudi Arabia, the UAE, and Iraq, are not directly involved in the conflict. Together, these three countries account for about 22% of Brazil’s chicken exports.
As for beef, Arab countries and Israel represent 18.2% of Brazil’s total beef exports. From January to August, 24,500 tonnes were shipped to Israel, a 23% increase, and 304,000 tonnes to Arab countries, an 83% increase compared to the same period last year. The Brazilian Meat Exporting Industries Association (ABIEC) declined to comment on the matter.
In the case of the soybean complex, Brazilian exports to Israel fell by 15%, totaling 214,160 tonnes in the first eight months of this year. Exports to Arab countries dropped by 18% to 2.4 million tonnes during the same period, according to Agrostat. Considering soybean alone, exports to Israel rose by 4% from January to August, reaching 168,300 tonnes, while exports to Arab countries dropped by 6%, reaching 2.2 million tonnes.
The Brazil-Israel Chamber of Commerce, when approached, noted that “commodities have always been the most traded products between Brazil and Israel” and that “there are difficulties with freight due to route changes for security reasons.” However, “Israel’s key product, technology, continues to advance, as moments like these create new opportunities.”
(Cibelle Bouças contributed reporting from Belo Horizonte.)
Polls predict strong right-wing momentum, re-election dominance, and a tight battle among major parties in key Brazilian capitals
10/04/2024
Brazil’s electronic voting machines: the strength of the right is particularly noticeable in capitals and large cities — Photo: Fernando Frazão/Agência Brasil
If the polls hold true, this year’s municipal election in Brazil is shaping up around three central issues: the electoral rise of the right-wing, a strong trend toward re-election, and the dominance of four political parties: Brazil Union, Social Democratic Party (PSD), Progressive Party (PP), and Brazilian Democratic Movement (MDB). The strength of the right is particularly noticeable in capitals and large cities, especially where the current mayor is politically weak with low pre-campaign approval ratings.
The surge of right-wing candidates is evident in cities like São Paulo, Belo Horizonte, and Fortaleza. In São Paulo and Belo Horizonte, the cities are governed by vice mayors who stepped up due to the death or resignation of the incumbent. Neither Ricardo Nunes (MDB) in São Paulo nor Fuad Noman (PSD) in Belo Horizonte had prior major political contest experience or significant political clout. In Fortaleza, José Sarto (Democratic Labor Party, PDT) faced poor management ratings and his party’s weakening due to internal rifts within the group once led by former Governor Ciro Gomes.
This situation has propelled candidates like Bruno Engler (Liberal Party, PL) in Belo Horizonte and André Fernandes in Fortaleza to the forefront. Pablo Marçal (Brazilian Labor Reconstruction Party, PRTB) is making significant strides in São Paulo. According to a Datafolha poll released on Thursday, Messrs. Nunes and Marçal are both at 24%, statistically tied with Guilherme Boulos (Socialism and Freedom Party, PSOL), who stands at 26%. In Belo Horizonte, Mr. Engler shares the lead with Mauro Tramonte (Republicans) and Mr. Noman, all locked in an unprecedented three-way tie at 21%.
In capitals where the mayor is well-regarded and enjoys solid political backing, re-election appears likely. Eduardo Paes (PSD) in Rio de Janeiro is poised to potentially win in the first round by a narrow margin. João Campos (PSB) in Recife and Bruno Reis (Brazil Union) in Salvador are expected to secure re-election easily. Of the 21 incumbent capital mayors seeking another term, 10 are favorites to win outright on Sunday. Six are competitive for a runoff, and only five seem poised to miss the final round.
Researcher Antonio Lavareda from IPESPE (Institute for Social, Political and Economic Research) noted that the overarching issue of the election is normalcy, despite the potentially disruptive nature of the São Paulo race, the only contest that could impact the 2026 presidential election. Across the capitals, the pro-incumbent trend seen in 2020 continues, when only one of 13 eligible mayors—Marchezan Júnior in Porto Alegre—failed to reach a runoff.
The Brazilian electorate’s shift to the right has been growing since 2016 and solidified this year, not only in the mentioned capitals. Right-wing candidates are defined as those running under PL, PRTB, Brazil Union, PSD, PP, Avante, and Republicans, without alliances with left or center parties. This trend has now expanded, and by Thursday night, the right was leading in 16 capitals and could potentially win in up to 23.
This right-wing ascendancy is mirrored in other municipalities and, combined with the trend toward re-election, bolsters parties currently holding numerous city halls: PSD, Brazil Union, PP, and MDB. These parties are likely to elect more congresspersons in 2026, potentially joined by Republicans. These parties, which control the leadership of both the Senate and the Lower House, are often labeled as the “Centrão,” a cluster of center-to-right parties that has been part of every government since democratization—and a label they dislike.
The PL of former President Jair Bolsonaro is also expected to be among the election’s big winners, although it is not part of the “Centrão.” The party may not reach its goal of 1,000 mayors as set by its leadership, despite controlling the largest share of the government funds provided for the parties, but it should still strengthen its bargaining power for leadership succession support.
Mr. Marçal openly shares his presidential ambitions and has mentioned occasionally his intent to form a new party. Even if he doesn’t win in São Paulo, his local opponents believe he will have enough political capital to pursue this project. Former President Bolsonaro’s supporters went against his endorsement in eight capitals, including São Paulo. Mr. Bolsonaro is no longer the undisputed leader of the right and will lose control over this field if he remains ineligible in 2026.
And what about the left? The outlook is less promising, but expectations were already tempered. President Lula actively campaigned only in São Paulo. The Workers’ Party (PT) refrained from fielding candidates in several capitals, and President Lula’s supporters scattered, following the party’s guidance in only a minority of cases. The governing coalition chose not to challenge local dynamics. The PT is optimistic about Fortaleza and Teresina, where Evandro Leitão and Fábio Novo have a chance to lead in the first round.
There is uncertainty about reaching a runoff in Porto Alegre, where Maria do Rosário (PT) faces a threat from Juliana Brizola (PDT). Even if Ms. Rosário prevails, the likelihood of preventing Sebastião Melo’s (MDB) re-election is low, as he recovered in polls following the impact of May’s floods in Porto Alegre. PT candidates may also reach runoffs in Goiânia and Natal but face bleak prospects for the decisive round.
Governors’ influence is stifling national polarization in certain areas. The clearest example is in Belém, where Mayor Edmilson Rodrigues (PSOL) is poorly rated, paving the way for Éder Mauro (PL). However, Belém will host COP 30 in 2025, promising substantial economic returns, and the governor’s candidate, Igor Normando (MDB), is gaining traction in polls.
In Goiânia, Governor Ronaldo Caiado (Brazil Union), eyeing a presidential bid, brought retired former legislator and businessman Sandro Mabel back to counter the PL’s rise. The backdrop is control over the race for Goiás’s gubernatorial succession. Mr. Mabel leads, but PL candidate Fred Rodrigues is gaining ground in polls.
The São Paulo situation is more complex. Governor Tarcísio de Freitas (Republicans) intervened in the capital’s election to support Ricardo Nunes’ re-election upon recognizing Mr. Marçal’s strength. The underlying issue, never admitted by the governor, is the leadership of the right. Mr. Tarcísio’s involvement coincided with Bolsonaro’s disengagement from the São Paulo campaign. It’s a risky move. If Mr. Nunes advances to the runoff, it will be a victory for Mr. Tarcísio, not Mr. Bolsonaro. If the mayor is eliminated, Mr. Tarcísio will face a difficult position.
He would have to support Mr. Marçal against Mr. Boulos, risking his status as a right-wing leader. But if Mr. Marçal wins, Mr. Tarcísio will not be the main figure.
In the state’s countryside, the contest among the group led by Secretary Gilberto Kassab, PSD’s national president, Republicans, and PL led by former deputy Valdemar Costa Neto leans towards the first in crucial cities like São José dos Campos and Ribeirão Preto. In Guarulhos, the situation remains uncertain. This local struggle fuels Mr. Bolsonaro’s supporters’ national offensive against PSD, amplified on social media.
Economists say current account deficit is underestimated because of the use of digital currencies as payment methods
10/04/2024
Iana Ferrão — Photo: Rogerio Vieira/Valor
The rapid outflow of U.S. dollars from Brazil due to purchases of crypto assets and sports betting, or “bets”, has caught the attention of economists and foreign exchange traders. Although it has not yet surpassed other capital inflows enough to pose an immediate threat to the country’s external accounts, there is growing concern in the market that, in the not-too-distant future, this outflow could affect both external accounts and the local currency, which is already feeling the strain from such outflows.
Central Bank data shows that the outflow of dollars through Brazil’s financial account remains high this year, amounting to around $48 billion through August, despite an improvement in capital flows into the Brazilian stock market in the early second half of the year. When analyzing the balance of payments, one notable factor is the growing outflow linked to crypto assets and recreational services (which include bets). Together, these categories reached $14.7 billion from January to August, equivalent to 30% of the net financial account result during that period.
“Although Brazil has low external vulnerability, there is no strong net inflow into the country,” said Iana Ferrão, an economist at BTG Pactual. The discrepancy between the dollar flows and the external accounts is related to how crypto assets are accounted for. The financial account captures these outflows, while the current account no longer includes them, following a methodological change by the Central Bank in line with International Monetary Fund guidelines.
“If you look at the overall balance of payments and factor in crypto assets, the net result is lower. However, the market tends to focus solely on the current account deficit and how it is financed by Foreign Direct Investment (FDI),” Ms. Ferrão explained.
Currently, dollar inflows from FDI into Brazil are sufficient to comfortably cover the current account deficit (which includes the trade balance, services, and primary and secondary income). However, if crypto assets are considered, the outlook changes. Central Bank data shows that in the 12 months ending in August, FDI inflows totaled $70.6 billion, more than enough to cover the $38.6 billion current account deficit. But if the current account deficit is combined with the outflow from crypto assets, the result would be a negative flow of $54.8 billion, reducing the buffer provided by FDI.
“It’s also important to consider that the current account deficit has increased due to higher imports, driven by a stronger economy. Although exports remain strong, the trade surplus is not as large as last year,” said Luís Afonso Fernandes Lima, head of research at Mapfre Investimentos. “The overall picture still looks good, but there’s definitely a problem.”
Mr. Lima added that it is difficult to pinpoint what drives the outflow of crypto assets. “There’s no way to predict what will happen. It’s not like public bonds, where interest rates play a key role. There are different factors at play. This adds uncertainty to the balance of payments and, consequently, to the exchange rate, which could become more volatile as a result.”
One explanation for the sharp increase in outflows related to cryptocurrencies is their use not only as investments but also as payment methods. “We know that some online betting companies and platforms facilitating international transfers, such as for card payments during travel, are using crypto assets for payments because the transactions are faster and cheaper,” said Ms. Ferrão from BTG.
A common example of such usage involves stablecoins, cryptocurrencies pegged to traditional currencies like the U.S. dollar. Pedro Guimarães, product leader at Ouribank, noted that companies have approached him to conduct foreign exchange operations using stablecoins instead of traditional methods. “The amount spent on cryptocurrencies in the capital account is too high to be attributed solely to speculation or dollarization with stablecoins. It could be related to other factors, such as the growth of the betting market or companies operating in Brazil but headquartered abroad,” he argued. “Some companies might be creating their own payment rails for international transactions using crypto.”
For Ms. Ferrão, if companies are using crypto assets for payments, whether through betting or international transfers, the current account deficit is likely underestimated. “These are capital flows entering through crypto assets that should be categorized as recreational services or travel.” Ms. Ferrão said that a potential indication of this underestimation is that the number of Brazilians traveling abroad has returned to pre-pandemic levels, while the balance of payments data for international travel remains far below pre-pandemic figures.
Other factors also help explain the discrepancy between the volume of dollars entering the country and the exchange rate. One key factor is that some capital entering through FDI may be hedged via derivatives, which could mitigate the impact of dollar inflows on the local currency. A major bank treasury executive, speaking anonymously, expressed concern about capital outflows through crypto and bets, particularly because the counterpart, the FDI, does not always support the currency.
“We know that many companies investing in Brazil hedge their capital in derivative markets. That’s why I’m skeptical about whether all this FDI is benefiting our currency,” he said. Since the exchange rate is formed first in the futures market and later transmitted to the spot market, hedging in derivatives may reduce the effect of dollar flows on the commercial dollar rate.
The executive also noted that while new regulations for online betting companies might reduce capital outflows from bets, the same is unlikely for cryptocurrencies. For now, there are no rules that could restrict this outflow, and many Brazilians are still unfamiliar with crypto assets. Therefore, he believes there is significant growth potential, as more people may gain access to digital currencies in the future.
However, not everyone sees capital outflows as a problem. Lívio Ribeiro, a partner at BRCG and associate researcher at FGV/Ibre, does not view the rise of crypto assets and online betting as a major issue, except in cases where illegal activities might be involved.
Mr. Ribeiro acknowledged that the trend of buying crypto assets and using online betting in Brazil is growing in the long term. However, he believes the main issue with bets is potential fund misappropriation, and with cryptocurrencies, the possible concealment of assets.
“Brazil stands out as a country where the middle and upper-middle classes are buying cryptocurrency instead of investing in fixed-income funds, for example. The question is whether the surge in crypto assets is purely due to Brazilian investment preferences or if it’s being used to hide the origin of funds,” Mr. Ribeiro concluded.
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