However, experts warn that U.S. trade measures could slow global growth, strengthen the dollar, and add pressure on Brazil’s economy
03/05/2025
The tariffs imposed by Donald Trump on China, Canada, and Mexico—along with the retaliatory measures from these countries—could impact Brazil’s trade flows, but not immediately, economists say. Their main concern is the broader consequences of the tariff war, including high inflation paired with weak economic activity in the United States, elevated U.S. interest rates, and a stronger dollar globally. These factors come at a time when Brazil’s Central Bank is also working to control inflation domestically.
“The aggressive set of tariff increases in the U.S. could push the American economy toward potential stagflation,” said Sergio Vale, chief economist at MB Associados. This impact, he noted, is likely to be felt worldwide. If, in addition to Mr. Trump’s “tariff offensive,” other countries retaliate, U.S. GDP could decline by more than one percentage point, according to Mr. Vale. “Trump could still reverse his policy, but signs suggest he will double down on the same mistakes from his first term. The result will be slower global growth or even a recession,” he said.
For Brazil, he continued, the situation is even more challenging due to the negative impact of currency depreciation. Economic activity was already expected to slow this year due to high interest rates. “The U.S. measures only worsen this scenario, dragging us into a more adverse situation, with potential stagflation here as well,” Mr. Vale said.
Mr. Trump’s tariff dispute is escalating rapidly, noted Nicola Tingas, chief economist at the National Association of Credit, Financing, and Investment Institutions (ACREFI), pointing to responses from Canadian authorities as an example.
“In terms of trade flows to Brazil, the immediate impact is not significant, as it will depend on how the trade war evolves in the coming months and how each country adjusts. The real effects will be felt by economies directly involved in the dispute with Trump. Countries like Brazil, which maintain a certain balance in their relations with the U.S., could face consequences, but over a longer timeframe,” Mr. Tingas said.
However, Brazil is “fully exposed to U.S. interest rates and the strength of the dollar,” he noted. “The situation is complex, as market forces are pulling in different directions. The best approach for Brazil is to focus on strengthening its domestic economy to be better positioned in case of a more negative global outlook.”
The Brazilian government has responded with caution, awaiting a conversation between Vice President and Minister of Development, Industry, Trade, and Services Geraldo Alckmin and U.S. Commerce Secretary Howard Lutnick. The phone call was scheduled for Friday (28) but did not take place and remains unscheduled. However, Valor has learned that it is more likely to happen next week.
Brazilian exporters are also closely monitoring an executive order signed by the U.S. on Saturday to launch an investigation that could lead to higher tariffs on wood products, including lumber and derivatives such as furniture. The justification for the measure, as with the universal tariffs imposed on steel and aluminum, is national security, noted Livio Ribeiro, a partner at BRCG and a researcher at the Brazilian Institute of Economics (FGV Ibre). “The argument is that there is ample domestic supply and that imports are taking up market share.”
Although these items are not among Brazil’s top ten exports, the U.S., along with Europe, is one of the main markets for the country’s furniture and wood industry. Any new trade barriers could have substantial implications, said Welber Barral, former Brazilian foreign trade secretary and lawyer at BPP Advogados. “This could lead to additional tariffs or quotas,” he said. “Depending on the investigation’s outcome, tariffs could hinder the competitiveness of Brazilian products in the U.S. market.”
The investigation could take up to 270 days to conclude. “Given Trump’s increasingly aggressive stance, it is likely that tariffs will be raised,” Mr. Vale said, adding that “finding alternative buyers won’t be simple” with both the global and Brazilian economies slowing down.
(Lu Aiko and Fabio Murakawa in Brasília contributed reporting.)
CSN, identified as a consolidator, could seek a partner, aiming to reduce debt
03/05/2025
The future of InterCement assets, part of the Mover group (formerly Camargo Corrêa), currently undergoing court-supervised reorganization since December, is poised to redefine the landscape of the cement sector, which is currently dominated by a few key players, Valor learned.
The format of InterCement’s sale hinges on its reorganization process. The company ranks third in market share, following Votorantim and Companhia Siderúrgica Nacional (CSN), and is second in production capacity.
InterCement was on the verge of being sold to Benjamin Steinbruch’s group. However, negotiations fell through last year due to the appreciation of the company’s assets in Argentina, specifically the cement company Loma Negra, and disagreements between bondholders and Mover shareholders, according to sources.
Four other groups—Votorantim, Polimix, Buzzi, and Vicat—competed for InterCement’s assets piece by piece last year. The company’s debts amount to approximately R$14.2 billion. Except for Votorantim, which has a significant national presence with factories in 17 states, the other three companies are seeking to expand their businesses in the Central-West, Northeast, and Southeast regions, according to a person familiar with the matter.
In the scenario of a piecemeal sale of InterCement’s assets, Votorantim Cimentos, which faces restrictions on new acquisitions in the sector, would acquire units in the Central-West and Northeast regions where the company’s businesses do not overlap.
Buzzi, Polimix, and Vicat were eyeing factories in the Southeast, particularly in Minas Gerais and São Paulo, considered strategic.
Until last year, CSN was considered the clear favorite to acquire the rival company, according to another informed source. However, with high leverage at the holding level, CSN is not currently seen as an obvious buyer for the business—up until last year, the company was interested in acquiring operations in Brazil and Argentina.
Sources close to CSN assert that the company does not rule out seeking a partner for its cement division, which has grown significantly in recent years through key acquisitions, including the assets of LafargeHolcim and Elizabeth Cimentos. Selling a minority stake, as happened with its mining arm, could help Mr. Steinbruch’s group accelerate its deleveraging process, enabling potential new acquisitions.
Although debt reduction is currently a priority within CSN, asset purchases are not entirely off the table, one source said. “As long as the agreed leverage levels with creditors are respected, it would be a possibility,” they said.
According to another insider, the first attempt to acquire InterCement was also thwarted due to the impact it would have on the group’s indebtedness. CSN proposed to restructure the cement company’s debts and acquire the assets without disbursing cash or raising new capital, but no agreement was reached with the creditors.
InterCement’s court-supervised reorganization request, filed in early December, marks the third such filing by cement companies since 2021, following Tupi and João Santos. For experts interviewed by Valor, this is not a problem specific to the cement segment but rather longstanding management issues within the companies.
The sector had a positive year in 2024. According to the Brazilian Cement Industry Association (SNIC), 64.7 million tonnes of the material were sold, a 4% increase, exceeding expectations. In 2023 and 2022, the balance had been negative at 1.7% and 2.8%, respectively.
A modest 1% increase is expected in 2025. Paulo Camillo Penna, president of SNIC, notes that the amount sold is still far from the sector’s peak in 2014 when 73 million tonnes were sold, “with less production capacity.” At that time, Brazil had a production capacity of 89 million tonnes, compared to the current 93 million. The sector operates with 30% idle capacity.
This unused capacity is one reason the market is skeptical about the entry of new investors into the cement industry.
According to an industry expert, who requested anonymity, Benjamin Steinbruch’s company is still likely to acquire InterCement’s assets sooner or later. If the cement company manages to recover through court-supervised reorganization, a scenario he considers “remote,” it is expected to make another sale attempt when possible, with CSN remaining the most likely buyer.
If the court-supervised reorganization process does not go well, InterCement’s creditor banks are expected to claim the assets and auction them off—a prime opportunity for CSN to acquire the assets at a lower price.
According to a source close to the group, CSN is interested in new acquisitions, provided they respect leverage limits, to further expand in cement. In the third quarter, the latest available data, the division accounted for 11% of the consolidated net revenue of R$11 billion and 15.3% of the R$2.3 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA). CSN currently can produce 17 million tonnes of cement annually, with plans to expand this amount to 26 million.
Despite a challenging pricing environment in 2024, the company saw synergies in integrating the assets acquired in recent years and the business margins.
Votorantim Cimentos, the leader in production volume in Brazil, may have an interest in assets in regions where it does not have factories, according to the source, but has focused more on international expansion, particularly in the United States, rather than in Brazil. As the largest producer, with 24 factories (compared to CSN’s 13 and InterCement’s 15) and double the installed capacity of its main competitors, the company could be blocked by Brazil’s antitrust regulator CADE.
CSN is also subject to remedies, depending on the region of the assets.
Smaller cement companies are seen as potential buyers of InterCement assets if they cooperate. According to an industry source, they could acquire plants that may be part of possible remedies imposed by CADE on another larger buyer.
The sector is concentrated—the three largest producers hold over 50% of the market share and 74% of the country’s installed capacity. Still, smaller local producers dominate their regions, as cement is known for “not traveling well.” Due to its weight, freight is expensive relative to the product’s price, and it spoils if it gets wet during shipping. Producing companies need to have factories near sales locations, making national coverage difficult.
Local companies like Mizu, part of the Polimix group, have been performing well. In 2023, the company had nine factories in nine states and was one of the country’s five largest producers. In November, it reactivated a factory that belonged to the João Santos group in Sergipe, acquired at auction. It also purchased Cimentos do Maranhão (Cimar) in 2024, formerly owned by the Cornélio Brennand and Queiroz Galvão families, and two quarries from the Queiroz Galvão group in Ceará and Rio de Janeiro.
The Chinese company Huaxin Cement also invested in quarries, acquiring the Embu quarry for $186 million in mid-December. It is the country’s second-largest quarry. During the initial negotiations for InterCement assets, Huaxin was among those interested in the factories.
According to experts, the entry of a Chinese competitor would be good news for cement consumers but “a risk” for domestic producers, as it could impose intense price competition. An industry source considers that the Chinese could be attracted by the cement industry’s “relatively good” margins, noting that China “generally invests in what it can import,” and cement does not fall into that category.
Construction businesspeople interviewed by Valor under the condition of anonymity do not see the possibility of a new competitor entering the market given its high entry barrier. A further concentration of production in a few companies is not concerning—the analysis is that it would make little difference in a sector already seen as a cartel.
The three major companies mentioned, Votorantim Cimentos, CSN Cimentos, and InterCement have either gone public or are expected to do so. InterCement and CSN attempted to advance the process in 2021 and 2022 but withdrew due to the market window closing.
InterCement’s reorganization is not expected to affect the market’s perception of the other two, according to the analyst. Being part of holding companies that operate in diversified segments helps. “If cement underperforms, iron ore or steel does well, ensuring balanced results,” the source says. Even if the IPO represents a separation of the business, investors would have a different perspective. That does not apply to smaller companies, the source notes.
The president of SNIC points out that these companies’ reorganization is not expected to impact cement supply in the country as there is high idle capacity. “The market is well-served,” Mr. Penna stated.
Contacted by Valor, Votorantim Cimentos stated in a note that in February 2024, it announced through a notice of material fact it had made an individual and independent offer to acquire part of InterCement Brasil’s assets. “The offer was made within a competitive process, and its confidential terms outline usual precedent conditions for such a deal, including express prior approval by the Brazilian antitrust regulator, the Administrative Council for Economic Defense (CADE).”
The company also stated that “it is not part of and does not lead any consortium aiming to acquire these assets” and that “to date, no documents have been signed with any counterpart that would generate a firm obligation or commitment to acquire the assets that were the subject of the offer.”
CSN Cimentos and InterCement said they would not comment, as did the French company Vicat, which acquired a majority stake in Ciplan in 2019.
Valor also reached out to Huaxin—who did not respond to the interview request—and was unable to contact Polimix. Buzzi said it does not respond to press inquiries.
*By Ana Luiza Tieghi, Mônica Scaramuzzo e Stella Fontes — São Paulo
U.S. cites Brazil as an example of trade imbalances
03/05/2025
The Donald Trump administration has once again raised concerns over high import tariffs in Brazil, even as it implements new tariffs of 25% on products from Mexico and Canada and 10% on Chinese goods, further disrupting the global economy.
The Office of the U.S. Trade Representative (USTR) submitted Trump’s 2025 Trade Policy Agenda to Congress on Monday (3), along with a report on the country’s activities within the World Trade Organization (WTO), an institution increasingly sidelined by Mr. Trump’s unilateral approach.
The Trump administration argues that for decades, the U.S. “gave away its leverage by allowing free access to its valuable market without obtaining fair treatment in return.” This, it claims, has weakened the country’s industrial base, middle class, and national security.
It also blames the WTO for failing to reduce disparities in global trade. To illustrate the imbalance, the U.S. report compares its bound tariff rate of 3.4%—with an applied rate of 3.3% in 2023—to those of other nations. Brazil’s bound tariff was 31.4%, with an applied rate of 11.2%, while India’s stood at 50.6% and 17%, respectively. A bound tariff is the maximum rate a country can impose under WTO agreements.
“Going forward, the United States will take action to create the leverage needed to rebalance our trading relations and to re-shore production, including, but not limited to, through the use of tariffs,” said Jamieson Greer, the newly appointed U.S. Trade Representative. “This will raise wages and promote a strong national defense.”
He added, “The current moment demands action to put America First on trade, and the Trade Agenda explains the importance of President Trump’s trade policy to American workers and businesses.”
The Trump administration claims much of the country’s industrial power has shifted overseas, stalling innovation. It points to a decline in U.S. manufacturing jobs from 17 million in 1993 to 12 million in 2016, the closure of over 100,000 factories between 1997 and 2016, and a trade deficit in goods exceeding $1 trillion.
For Mr. Trump’s team, the culprit is clear: “These trends are the product of a withering, decades-long assault by globalist elites who have pursued policies—including trade policies—with the aim of enriching themselves at the expense of the working people of the United States. As a result, the middle class has atrophied, and our national security is at the mercy of fragile international supply chains.”
The USTR asserts that only Mr. Trump has recognized the role trade policy has played in this situation and how it can be corrected—specifically through tariffs as a “legitimate tool of public policy” to counter foreign products.
“He has demonstrated the imperative for tough trade enforcement against countries who think they can take advantage of the United States and get away with it,” the document said. “He has shown that the United States has leverage and can negotiate aggressively to open markets for Made in America exports, particularly for agricultural exports.”
The USTR also said it would identify opportunities for trade agreements that could expand market access for U.S. exports “and reorient the trading system to promote U.S. competitiveness.”
A major focus remains China, described as “the single biggest source of our country’s large and persistent trade deficit and a unique economic challenge.” The report makes clear that pressure on Beijing will continue to intensify.
“The U.S. is still a superpower,” the Trump administration asserted, adding that “from this moment on, America’s decline is over.”
The administration is also reviewing the impact of WTO agreements on U.S. interests, as well as the costs, benefits, and overall value of continued participation in the organization. It criticizes what it calls the WTO’s “persistent systemic failures” and the “intransigence of certain WTO members” that have prevented the U.S. from fully benefiting from the institution.
Targeting China, the report claims the WTO has been ineffective in addressing non-market policies and practices, enforcing agreed rules, implementing reforms, or fostering meaningful negotiations—without acknowledging the U.S.’s own role in these challenges.
The Trump administration signals that its patience is wearing thin, warning that the political, economic, and trade landscape in 2025 is vastly different from previous years. It insists the U.S. will continue pursuing “new paths” in global trade.
Mr. Trump’s unilateralism and intimidation tactics remain as forceful as ever, leaving trade partners with a stark choice: comply with U.S. demands or face retaliation.
In a challenging macro scenario in Brazil, chain evaluates cross-brand initiative
02/28/2025
The Carrefour Group is tasked with expanding this year by leveraging the assets that doubled its revenue following the acquisition of parts of Makro and Grupo Big between 2020 and 2022. One ongoing initiative involves integrating the operational model of Atacadão, a company-controlled chain, into Carrefour’s operations.
Given the business’s scale—R$120.5 billion in gross revenue, nearly double that of Mercado Libre—it might seem simple, but the food retail sector doesn’t operate in such a straightforward manner. Besides, the competition has offered no respite to any chains in the industry.
Consumers won’t purchase more food just because the country experiences economic growth or individuals receive salary increases. Margins in this sector are the lowest in all of retail, requiring a constant pursuit of sales to dilute costs and enhance efficiency.
In an interview at the company’s headquarters, potentially the last before the likely delisting from stock exchange B3, CEO Stéphane Maquaire outlined the measures being implemented for 2025—particularly in same store sales. This revenue grew by 4.9% in 2024 for the company, compared to a 3.4% increase at competitor Assaí.
Carrefour has delayed passing on some price increases to consumers by a few days to counteract the rising food inflation. Mr. Maquaire also noted that the decision to delist, announced earlier this month, is not solely tied to the devaluation of the real against the dollar, although he acknowledges the positive impact of the exchange rate.
The group informed the market last week, following the release of its fourth-quarter financial statements, that it will reduce investments this year as it plans to open fewer stores. No specific numbers were projected.
Between 2023 and 2024, 60% of investments focused on organic growth. Economic uncertainty, exacerbated by high interest rates and currency fluctuations, has influenced these decisions.
The retailer owns the Carrefour (supermarkets and big-box stores) and Atacadão (cash and carry) chains and operates Sam’s Club, owned by Walmart, in Brazil. As of December, the number of stores totaled 1,007.
According to Mr. Maquaire, 2025 will be a year to “reap the rewards” of investments in acquisitions and the maturation of rebranded stores. Last year, 191 supermarkets, big-box stores, and convenience stores were closed due to underperformance, and 18 were converted to Atacadão outlets.
However, the CEO acknowledges internal aspects that need improvement. “We’re working on simplifying traditionally complex systems and processes to reduce expenses. We still have work to do here,” he said.
“We’re also adding new services [bakeries, butcher shops] for Atacadão customers, which will boost revenue without increasing the expense-to-revenue ratio.” This ratio decreased from 14.5% to 13.5% between 2023 and 2024, with both retail and wholesale improving their percentages, although Sam’s Club experienced a decline.
Of Atacadão’s 379 stores, 150 offer these services, representing only 3% of store sales—still insignificant, though they provide higher margins than average.
He acknowledges that expense management “wasn’t well handled,” especially during the integration of Grupo Big. Additionally, the group aims to improve administrative efficiency at its Shared Services Center in Porto Alegre, Rio Grande do Sul.
Workforce reductions will be less significant than the adjustments made after acquiring Makro and Big. “Now it’s more about reviewing expenses, not personnel,” he explained.
In the past two years, Carrefour has dismissed executives, including the C-level, with layoffs affecting around 2,200 employees across the group by December 2024, as reported by Valor. By the end of 2023, the total workforce numbered 150,000.
Alongside internal measures, financial decisions have been made. Carrefour is managing its cash flow to further deleverage the company amid rising interest rate pressures this year, affecting financial expenses.
In 2024, debt costs remained stable compared to 2023 due to reduced loan rates with its parent company.
Carrefour aims for balance: by increasing sales, it can dilute expenses, enhance operations, and consequently reduce leverage ratios. Additionally, by conserving cash, net debt decreases, which can also alleviate leverage pressures.
To calculate this ratio, net debt is divided by EBITDA, which stood at 2.35 times in December. This indicates stability compared to 2023, following acquisitions and investments, although it was 1.92 times at the end of 2022 (with factoring of receivables and rents).
The high Selic policy interest rate further impacts this metric, as does the increased factoring of receivables. The retailer has been increasing the factoring of receivables as part of a tactic to boost sales.
This involves financing installment sales to Atacadão consumers, which has been ongoing since April 2024. Purchases can be paid in three installments using any credit card, a move initially met with skepticism due to financial risks.
The retailer experiences delayed payment for sales and seeks to back this delay through the factoring of receivables. This figure increased by 40% in a year, according to financial reports.
The management claims this strategy is effective, as same store sales accelerated more than competitors in 2024. If it weren’t successful, they would have discontinued it. This payment option accounted for 10% of cash-and-carry sales last year.
Competitor Assaí’s management stated last week that they would test a similar option with corporate clients, but they maintain criticism of the model due to financial costs.
The Central Bank has raised the Selic rate since 2024, following a surge in the exchange rate fueled by concerns over the country’s fiscal fragility and the government’s growth policies, which face increased popular opposition.
Internally, Mr. Maquaire has two ongoing initiatives, the first likely more complex than the second.
He has been working to implement Atacadão’s operational style at Carrefour. While Brazil’s largest cash-and-carry chain, with annual sales of R$86 billion, makes decisions more swiftly, Carrefour is perceived as slow and bureaucratic, sources say.
Carrefour accounts for 25% of Brazil’s sales, while Atacadão comprises more than 70% (excluding Sam’s), yet some processes follow Carrefour’s standards.
“We want the wholesale culture within Carrefour, to align them closely, and I will continue this effort if delisting from the stock exchange occurs,” Mr. Maquaire said.
The group has begun negotiating with suppliers in the same manner as Atacadão. He believes this approach can be replicated in how the global group integrates with its local businesses.
Such efforts are naturally expected to encounter resistance in an operation controlled by a French parent company—despite its 50-year history in Brazil, which will be marked this year.
There is concern that this could become problematic for Atacadão, with the opposite effect, meaning Carrefour’s influence on the wholesale chain. “Atacadão boasts greater team commitment, whereas Carrefour frequently changes its internal personnel, showcasing a cultural difference,” a former executive noted.
The CEO says that would not happen as the group has experienced a “change of mindset.”
“Culturally, we’ve decided to turn things around, working to do everything Atacadão’s way in terms of organization and processes, but obviously, such a major shift aligns with our global strategy. After all, the global entity must also adapt,” he said.
In 2024, Atacadão’s gross revenue grew by 8.7% to R$86 billion, while Carrefour’s (supermarkets and big-box stores) fell by 9.4% to R$27 billion, reflecting store closures. Net earnings reached R$1.9 billion, compared to a R$639 million loss in 2023.
The second initiative involves further integrating the Carrefour, Atacadão, and Sam’s brands. There is a belief that most consumers are unaware that these businesses belong to the same group, including a genuinely Brazilian wholesale chain, which could be better leveraged.
“We need to capitalize on foot traffic with cross-brand initiatives,” the CEO said. Since September, Carrefour credit cards can be used at Atacadão and Sam’s, with certain benefits. “We could establish a universal loyalty program, ‘Meu Grupo Carrefour,’ for all brands,” he said, without providing further details.
Another current focus is the price hikes in stores since late 2024, following the real’s depreciation against the dollar. Initial price increases are positive, as they boost nominal chain revenue. However, in the long run, the effect is detrimental.
Carrefour hasn’t halted price hikes but has delayed them by a few days—up to a week—to provide relief for consumers. They still believe that price increases will lose momentum in the second half of the year, considering the strong comparison base of 2024.
In 2024, the group opened 19 Atacadão units (18 conversions from other chains and one new opening) and seven Sam’s Club locations. No new supermarkets or big-box stores were opened, still outside organic expansion plans. The retail unit is undergoing a restructuring process.
Mr. Maquaire points out that there will be fewer openings in 2025 but refrains from providing forecasts—in a conference call with analysts on the 19th, he mentioned that “everyone” in the country is doing this due to the increased cost of capital with the rise of the Selic rate.
Regarding investments, in 2024, R$2.1 billion was invested, marking the third consecutive year of reduced spending (after accounting for acquisition-related expenses) due to the need to curb cash outflows in 2025.
While future data isn’t disclosed, if investments decelerate as claimed, they might return to pre-pandemic levels—about R$1.8 billion in 2019.
Based on these measures, the group believes it can navigate 2025 without major disruptions—contingent on favorable macroeconomic conditions—and resume accelerated openings in 2026 and 2027.
Regarding the plan for the French controllers to take the company private, Mr. Maquaire considers it a logical decision, given that the asset hasn’t appreciated in the stock market despite recent investments. The chain is valued at R$15.3 billion (€2.5 billion), having lost 50% of its value since going public.
Managers consulted find it hard to understand the timing of this decision, except for the recent currency advantage [a more devalued real against the euro], as the asset hasn’t returned to the R$15 IPO price since late 2022.
“Why not take advantage of [the exchange rate]?” he asks. “France has always believed in growth opportunities in Brazil, and now the [share] price is lower. I also think all governance steps have been taken, simplifying many things. Sometimes, having two listed companies, one above the other, offers little autonomy and creates misalignment.”
Mr. Maquaire also addressed the risk of low participation in one of the proposals to go private. There is an option to convert 11 shares in the country into one share in France, as presented by the controlling shareholders.
Why would anyone choose to be a shareholder in the company in France after the share is valued at R$7.70, in an IPO initially priced at R$15? “Perhaps this is a question for Península Participações [a shareholder in the chain in both Brazil and France]. They’ve already stated their intention to swap their shares. I don’t know if everyone will sell at R$7.70.” Península declined to comment on the matter.
In first two months, firms raise $10.4 billion, poised to outpace 2024 levels
02/28/2025
In a rush to tap into the U.S. debt market, Brazilian companies raised $10.4 billion in the first two months of 2025, already half of the total amount raised throughout last year. This figure includes nine corporate offerings and one issuance by the National Treasury.
The volume for January and February also surpasses that of the first quarter of 2024, which totaled $10 billion. Market projections indicate that the year’s total could reach $30 billion.
According to market sources consulted by Valor, activity is expected to remain robust in March, after Carnival, with one transaction already scheduled for next week. XP is anticipated to be among the next companies to issue bonds, as it disclosed in an analyst call this month.
In addition to attractive rates for issuers, the surge in activity also reflects the normalization of markets following Donald Trump’s inauguration and increased selectivity among local investors. This comes after a record period of fixed-income issuances and tighter rates domestically. “The market is now more balanced between local and international opportunities,” said Gustavo Siqueira, head of fixed-income capital markets at Morgan Stanley in Brazil.
For Samy Podlubny from UBS BB, the “hiccup” in the local debenture market in December wasn’t as severe as the crisis following the scandal involving retailer Americanas but reminded companies that the domestic market can face setbacks. “More companies are now considering international markets to meet their funding needs for the year,” he said.
In the international secondary market, spreads on Brazilian assets have returned to levels seen before December, when worsening economic expectations affected debt prices, said Caio de Luca Simões, head of debt capital markets at Bank of America (BofA) in Brazil. “Issuers are once again optimistic about international markets and have encountered strong investor demand,” he noted.
Strong demand
January saw less activity than usual. Historically, Brazilian issuers represent about one-third of Latin American debt offerings, but in January, their share fell to 13%. In February, however, this participation rose to 35% for dollar-denominated transactions, according to Miguel Díaz, head of debt capital markets at Santander Brasil. “It was an intense month, with leading issuers reacting swiftly to stabilized market conditions,” he said.
The initial uncertainty was partly due to market caution surrounding Mr. Trump’s inauguration and potential tariff changes. However, the measures turned out to be milder than expected, explained Felipe Thut, head of fixed income at Bradesco BBI. “Additionally, there is strong liquidity in the U.S. market, which has reduced spreads for U.S. corporate bonds and prompted investors to look at other markets, including Brazil,” Mr. Thut said.
Brazilian issuers are currently securing tighter spreads over U.S. Treasuries compared to 2024 levels. Mr. Thut anticipates more issuances this season, expected to conclude between April and May. “This market moves in waves, and more issuers are looking at it now. As fourth-quarter financial results are released, others may also be encouraged,” Mr. Díaz from Santander noted.
Issuances in February
February saw six major issuances. Embraer raised $650 million with a 5.98% interest rate and a ten-year maturity, attracting $7 billion in demand. The National Treasury followed, issuing $2.5 billion in ten-year bonds, initially planned at $2 billion but increased due to high demand, with order books closing at $5.4 billion, according to people familiar with the transaction.
On the same day, Raízen and Itaú Unibanco launched offerings without diminishing investor interest. Raízen issued $1.75 billion through two transactions: reopening a 30-year bond and issuing a 12-year bond.
After several years without accessing the U.S. dollar debt market, Itaú Unibanco raised $1 billion with a five-year maturity — a relatively large amount for a financial institution. Investor demand reached $2.9 billion, allowing banks to reduce the bond’s rate.
Frequent international issuer Vale raised $750 million by reopening its longest bond, a 30-year note, attracting $2.6 billion in demand. Bradesco, which issued $750 million in January, reopened the issuance in February for an additional $250 million.
For Mr. Siqueira from Morgan Stanley, global investors who allocate funds across different regions helped drive demand for these issuances.
Pedro Frade, head of international debt capital markets at Itaú BBA, noted that the surge in activity was also due to a reduced perception of Brazilian risk and market adjustments after Mr. Trump’s inauguration, which lowered rates and opened opportunities for issuers. “There was also a positive sentiment that the market was in buying mode. All the issuances this year were successful,” he said.
Outlook for 2025
Banks estimate that total issuance volume for the year could return to levels of $25 billion to $30 billion. “This would mark a return to historical fundraising levels,” Mr. Podlubny of UBS BB said. In 2024, total issuances reached approximately $21 billion, according to Bond Radar data.
Despite the surge in international debt issuances by large Brazilian companies, the local fixed-income market is unlikely to be significantly impacted. Although more companies are accessing international funding, it remains mostly limited to those with dollar-denominated revenues. The local market, which has deepened in recent years, is expected to remain accessible to major companies. For example, Vale returned to the local debenture market last year after a nine-year hiatus, despite favorable international conditions.
Lula government defends Justice Alexandre de Moraes amid controversy over social media restrictions while Ministry of Foreign Affairs says Brazil “firmly rejects any attempt to politicize judicial decisions”
02/27/2025
The U.S. State Department issued a statement on Wednesday (26) criticizing punitive actions against American companies “for refusing to censor people,” a reference to rulings by Supreme Court Justice Alexandre de Moraes. In response, Brazil’s Ministry of Foreign Affairs accused the U.S. government of “distorting” the court orders and condemned the “attempt to politicize judicial decisions.”
The statement from the Trump administration came through the Bureau of Western Hemisphere Affairs, a division of the State Department.
“Respect for sovereignty is a two-way street with all U.S. partners, including Brazil. Blocking access to information and imposing fines on U.S. based companies for refusing to censor people living in the United States is incompatible with democratic values, including freedom of expression,” read the statement shared by the U.S. Embassy in Brasília on X.
The message came five days after Justice Moraes ordered the suspension of the social media platform Rumble in Brazil, citing the company’s failure to comply with court orders and its lack of a legal representative in the country.
Brazil’s Ministry of Foreign Affairs responded with a statement accusing the State Department of “distorting the meaning of the Supreme Court’s decisions.” It emphasized that the legal actions involving U.S. tech companies were aimed at ensuring compliance with rulings from Brazil’s highest court.
The statement added that the Brazilian government “firmly rejects any attempt to politicize judicial decisions” and underscored the importance of respecting the “republican principle of the separation of powers.”
“Freedom of expression, a fundamental right enshrined in Brazilian law, must be exercised in accordance with the country’s legal framework, particularly its criminal laws,” the ministry said.
The statement also referenced the attempted coup following the 2022 presidential election, which is the subject of ongoing investigations by Brazil’s Prosecutor General’s Office and is at the core of Justice Moraes’s rulings.
“The Brazilian state and its republican institutions were targeted by an anti-democratic conspiracy based on mass disinformation spread through social media. The events related to the attempted coup against popular sovereignty, following the 2022 presidential elections, are currently under judicial review in Brazil,” the statement noted.
Escalating tensions
The episode marks a new chapter in the clash between Mr. Moraes and U.S. tech giants, but this time it has drawn in the governments of both countries. Last year, Justice Moraes ordered the temporary suspension of X, the social media platform owned by Elon Musk. With the billionaire now serving in a role within the Trump administration, the risk of escalating tensions with the Lula government has increased.
This risk is heightened by the fact that Justice Moraes’s rulings have predominantly affected supporters of former Brazilian President Jair Bolsonaro, a Mr. Trump ally, particularly in the context of attacks on Brazilian democracy and institutions.
Brazil’s Ministry of Foreign Affairs, which had been working to build bridges with the new U.S. administration, now finds itself compelled to take a firm stance against the Trump government.
Behind the scenes, Brazilian officials believe the U.S. statement was influenced by Mr. Bolsonaro supporters, including his son, Congressman Eduardo Bolsonaro. Eduardo celebrated the U.S. position on social media, writing, “It’s beautiful to see the leftists whining, complaining about my frequent visits to the U.S. Some even said they would report me to the Prosecutor General’s Office. Just take it… there will be much more crying from wannabe dictators in Congress.”
The Brazilian Foreign Ministry also noted Eduardo’s influence on the approval of a bill by the U.S. House Judiciary Committee, which could effectively bar Mr. Moraes from entering the U.S. or even lead to his deportation.
The bill, which passed with support from Republican lawmakers as well as Democrat Jamie Raskin of Maryland, now moves to the House floor, controlled by the Republican Party.
The committee, equivalent to Brazil’s Constitutional and Justice Commission, approved the bill that declares “foreign agents” who violate freedom of expression by censoring U.S. citizens on American soil as “inadmissible” and subject to deportation. The measure has been celebrated by Mr. Bolsonaro’s allies.
Justice Moraes declined to comment on the matter.
*By Fabio Murakawa, Renan Truffi e Isadora Peron, Valor — Brasília
Investors react to policy uncertainty and fiscal risks as exchange rate per U.S. dollar rises to R$5.80 and interest rates climb
02/27/2025
Domestic market stability, which had marked 2025 so far, was shaken by a wave of news from Brasília. Uncertainty over a cabinet reshuffle, strong labor market data, and indications that the government is gearing up to counter an economic slowdown pressured Brazil’s real, while the benchmark Ibovespa stock index fell and interest rates surged across the yield curve.
By the end of the trading day, the exchange rate per U.S. dollar rose 0.83%, closing at R$5.80 in the spot market. Near the close, the Brazilian real showed the worst performance among the 33 most traded currencies monitored by Valor. Meanwhile, the Ibovespa dropped 0.96%, ending at 124,769 points.
The session highlighted growing investor pessimism regarding the government’s economic policies. The market interpreted strong labor market data from CAGED as evidence of a resilient economy, even as the Central Bank works to cool activity and ease inflationary pressures. This task is becoming more challenging amid a wave of stimulus measures aimed at boosting consumption, including relaxed access to FGTS workers’ severance fund, increased payroll-deductible credit, and the proposed reinstatement of Income Tax exemptions planned for 2025.
If approved, these measures could undermine the effectiveness of monetary policy, potentially requiring the Central Bank to maintain higher interest rates to meet inflation targets. In this context, interest rate futures also faced significant negative performance, closing the day sharply higher.
The yield on the January 2027 Interbank Deposit (DI) contract jumped from 14.47% to 14.79%, while the January 2029 DI increased from 14.40% to 14.81%.
Political volatility
Luiz Eduardo Portella, partner and manager at Novus Capital, noted that renewed political activity in Brasília has contributed to increased market volatility, a trend that became more evident at the start of the week. He added that the robust labor market data suggests a slow economic slowdown and that the government’s recently announced measures are raising red flags for the markets.
In this context, Mr. Portella said Novus Capital is maintaining long positions in longer-term interest rate futures, given the view that the market is currently underpricing fiscal risks. “The market dreamed about the 2026 election [and a potential change in power], but that is still far off. We will see volatility until then,” he said.
Marcos Weigt, treasury director at Travelex Bank, noted that local conditions weighed on trading as the government appears to lack a clear strategic plan, instead pursuing piecemeal spending measures that stimulate the economy. “I don’t think the government will implement a large, one-off spending initiative. They are likely to adopt gradual stimulus measures, such as releasing FGTS funds and reinstating Income Tax exemptions. This raises concerns,” he said.
Regarding the Income Tax exemption proposal, Mr. Weigt said, “I believe the bill will pass smoothly in Congress, but the compensatory measures won’t. There will be a lot of debate, a lot of ‘let’s see,’ and pressure from interest groups. That’s the issue because, in the end, nothing will be fully offset, worsening the fiscal outlook even further.”
The real’s depreciation also received a boost from rumors that President Lula was advised to move Finance Minister Fernando Haddad to the Chief of Staff Office. On this, Mr. Weigt noted, “There could be political reasons to remove Haddad, but from a market perspective, his removal would worsen asset prices significantly. All the names currently being considered to replace him would be poorly received by the market.”
Corporate earnings
In the stock market, corporate earnings reports also influenced share prices. Shares of WEG, a Brazilian industrial equipment manufacturer, fell sharply by 8.68%, while Ambev, the largest brewer in Latin America, surprised investors with strong earnings, leading to a 5.5% rise in its stock.
Augusto Lange, partner and equity manager at Neo Investimentos, noted that the sharp volatility in some stocks following earnings reports has been striking. He explained that one reason for this market behavior is the high cost of holding stocks amid expectations of a 15% interest rate. “If the cost of holding is high, bad news hits harder because investors are less willing to hold on for long,” he said.
Mr. Lange observed that while earnings results have generally met expectations, forward guidance has disappointed investors by confirming an economic slowdown and growing challenges for companies in increasing revenue. “These factors have impacted post-earnings performance more than the numbers themselves,” he noted.
Mr. Lange, who co-manages Neo Investimentos’s multimarket fund, revealed that he had bought local stocks in December but decided to close his directional equity positions after the sharp rally in January, citing reduced return potential.
International markets also faced headwinds. U.S. President Donald Trump renewed threats to impose 25% tariffs on products from the Eurozone. However, the impact on financial markets was limited. On Wall Street, the Dow Jones fell 0.43%, the S&P 500 dipped 0.01%, and the Nasdaq edged up 0.26%. The yield on the 10-year U.S. Treasury note declined from 4.30% to 4.26%.
*By Gabriel Rocca, Bruna Furlani, Arthur Cagliari e Gabriel Caldeira — São Paulo
Brazilian currency started weakening against the dollar again, following wave of appreciation that took it to R$5.70 from R$6.18 in late 2024
02/25/2025
The dollar’s exchange rate to the real had seen a significant drop at the start of this year, averaging R$5.70 last week from R$6.18 at the end of 2024. Now it’s back up at R$5.80. What exactly weakened the greenback and why is it rising again?
The Central Bank’s analysis indicates the dollar’s exchange rate has been reacting mainly domestic fiscal news, American economic policy developments, and interest rate spreads, according to the minutes from the latest meeting of its Monetary Policy Committee (Copom).
It appears that the real’s straightening against the real until last week was linked to more favorable external conditions. The weakening yesterday and today coincides with news suggesting that the Lula administration may expand fiscal and credit policies to prevent a sharper economic downturn.
Estimates from economists reveal conflicting explanations for the dollar’s decline until last week. Bradesco released a study attributing the weakening dollar to a softening of risks connected to domestic factors in Brazil.
Meanwhile, economist Livio Ribeiro, a partner with consultancy BRCG and researcher at the Brazilian Institute of Economics at Fundação Getulio Vargas (FGV Ibre), ran his exchange model at the request of Valor and concluded that the dollar weakened against the real solely due to external factors.
The Central Bank believes the primary force behind the real’s appreciation originated from abroad. Monetary Policy Director Nilton David, himself a currency expert, stated at a Bradesco event on February 21 that understanding the exchange rate’s dynamics requires examining what is affecting the real, not just the dollar.
“In December, we witnessed a high level of uncertainty emerging from all sides, which caused significant currency fluctuations,” Mr. David said. “In fact, the dollar moved more than other currencies, and some currencies ended up having higher betas.”
As explained by the Central Bank director, beta measures how much an asset’s price–in this case, the dollar–moves when a benchmark price changes. For instance, when Brazilian stocks fall some may decline more due to greater sensitivity to overall market fluctuations.
According to him, as uncertainty decreased, prices adjusted accordingly. “This process wasn’t exclusive to Brazil,” he said at the Bradesco event. “In fact, I don’t believe it was Brazil. The real pivot was abroad. Of course, each country has its idiosyncrasies that might amplify it or not.”
Bradesco, in a study released last week, noted that up until February 17 of this year “slightly over 80% of the Brazilian currency’s appreciation was driven by domestic factors.”
To reach this conclusion, the study analyzes the evolution of various factors that can influence the exchange rate, such as the prices of exported and imported goods and the interest rate spread between the U.S. and Brazil.
However, defining what constitutes an internal factor versus external factors that affect the risk appetite for Brazil is an artform. It could be that the real benefited from a lower risk perception by foreign investors. Mr. David’s argument is that volatility has decreased since Donald Trump’s inauguration, and volatility is measure of. It could also be that the evolution of Brazilian domestic issues made the country less risky.
To differentiate between these, Bradesco’s economists examine the behavior of currencies from other emerging countries affected by foreign investor risk perception.
The choice of this group of countries is a crucial detail, as the selected group can influence the results. Bradesco used South Africa, Chile, Croatia, Hungary, Indonesia, Mexico, Peru, Poland, Thailand, and Turkey.
Mr. Ribeiro calculated for the period from December 30 to February 17. During this period, various factors acted to lower the dollar against the real. Terms of trade–that is, the prices of our exports–rose by 5.2%, an emerging market risk perception indicator fell by 0.28%, and the index measuring the dollar’s strength against the rest of the world decreased by 1.4%.
However, the indicator which experienced a steep drop of 14.4% to 273 basis points was Brazil’s risk as measured by the credit-default swaps (CDS). When distinguishing domestic from external factors, there is an important difference. According to Mr. Ribeiro’s calculations, of the 7.5% fall of the dollar against the real during the period, 8.39 percentage points were due to external factors.
Domestic factors actually hindered the real, exerting an upward pressure of 0.49 percentage points. During the period, the interest rate spread between the U.S. and Brazil decreased, creating an upward pressure of 0.37 percentage points.
Since Monday, February 24, the market appears to be driven by domestic factors. This morning, February 25, the real is the weakest currency among 33 emerging market countries. It will take a few more days for this to be confirmed by economic models, which require more data to for more precise answers.
Company announced in May of last year that it would simplify its activities and focus on copper, iron ore, and fertilizers
02/19/2025
The sale of Anglo American’s nickel operations in Brazil to China’s MMG, in a deal valued at up to $500 million, marks the British conglomerate’s exit from this market in the country. This move reflects a strategic shift by major mining companies in response to global market oversupply and China’s bet on the future of the metal.
The announcement, made on Tuesday (18th), involves two operational ferronickel assets in Goiás, Barro Alto and Codemin (Niquelândia), as well as two potential future development projects, Morro Sem Boné (Mato Grosso) and Jacaré (Pará).
Amid the challenging conditions for nickel, Anglo American disclosed in May last year that it would streamline its operations to focus on copper, iron ore, and fertilizers, aiming to unlock value from its businesses. This reorganization followed the company’s rejection of several acquisition offers from rival BHP.
In September, the company’s chief executive in Brazil, Ana Sanches, had already indicated that the assets would be presented to a range of companies globally. At the time, she also mentioned that the sales might include exploratory assets in other locations, depending on the progress of negotiations.
“With Anglo American’s global portfolio restructuring, the Minas-Rio System is becoming even more strategic,” Ms. Sanches said in a statement on Tuesday. “We will continue to focus on sustainable development in Brazil, with medium and long-term investments in our premium iron ore business, and the potential to significantly increase our production, especially following the agreement signed with Vale to incorporate the mineral resources of Serra da Serpentina.”
Nickel producers have faced challenges in maintaining profitability due to price volatility and increased competition from Indonesia’s oversupply, where Chinese miners operate at lower costs. Since 2022, the market has been disrupted by a steep drop in prices and the rapid expansion of miners in Indonesia, significantly reshaping the competitive landscape.
For Kwasi Ampofo, head of metals and mining at BloombergNEF, price is the primary determinant for capital investments in mining. According to him, divestment is likely to continue unless there is a price recovery, which would depend on significant production cuts.
Several companies are reevaluating their positions in the nickel market. Recently, Vale announced that its subsidiary Vale Base Metals has initiated a strategic review to “explore and evaluate a range of alternatives, including the potential sale, of its mining and exploration assets in Thompson, Manitoba,” in Canada.
Rafael Marchi, managing partner of A&M Infra de Mineração, points out that in recent years, the price of nickel has dropped by 30%, impacted by global oversupply and decreased demand. This scenario may influence strategic decisions by companies, such as the potential sale of less profitable assets.
This reorganization of nickel assets reflects changes in the global metals market and the geopolitical competition for essential resources for energy transition. The acquisition of the assets by MMG Limited, a company with significant Chinese involvement, underscores Beijing’s strategy to secure control over essential mineral resources.
China has been directing substantial investments to Indonesia, a country that has become central to global nickel production. In addition to direct acquisitions, Asia’s largest economy has forged strategic partnerships with Brazilian companies. Vale, for instance, has established agreements with China Baowu Steel Group and Shandong Xinhai Technology to develop nickel production projects in Indonesia.
Crisis in the steel market and disbursements for expansion put pressure on financial leverage
02/24/2025
Steel, the largest business of Companhia Siderúrgica Nacional (CSN), is no longer the main guarantor of businessman Benjamin Steinbruch’s group. Faced with adverse times for the sector globally and high investments in plant modernization, the group’s steel arm has been consuming cash, while the iron ore arm, under CSN Mineração, has become the main source of immediate liquidity.
At the end of the third quarter, of the approximately R$19.3 billion the group had in cash, R$14.5 billion was in the mining company. While steel generated 14% of EBITDA between January and September 2024, the latest data available, ore accounted for 56%.
CSN Mineração (CMIN) has been used to meet the group’s other commitments. In January, it signed a contract with the parent company (which houses the steel business) for the assignment of export receivables, with an estimated value of $1 billion for 2025. The funds will be used to amortize export prepayment contracts, advances on foreign exchange contracts or “similar CSN contracts”.
According to the statement, the contract provides for “governance” between the respective financial areas, “to ensure that only the excess ballast that CMIN would not use is transferred to CSN”.
In a report at the end of January, BNP Paribas analyst Alexis Panton wrote that CSN seems to be facing “an increasingly complicated liquidity situation” outside of mining. “We were not surprised by the operation, given CSN’s short-term obligations and extremely high negative cash flow outside CMIN,” he pointed out.
At the end of September, the analyst added, the parent company had short-term obligations of around $3 billion, including debt, leasing, accounts payable, financing to suppliers and prepayments, also without considering CSN Mineração.
The weakness of the steel industry, especially from the second half of 2022 onwards—when competition conditions in the global market became more difficult with the oversupply of cheap Chinese steel—and CSN’s high disbursements to diversify its business put pressure on debt.
The goal was to end 2024 with leverage measured by the ratio of net debt to EBITDA of 2.5 times. At the end of last year, however, CSN revised the target and is now looking to reach 3 times by the end of 2025. In September, this ratio stood at 3.34 times. With more cash than debt, CMIN had negative leverage.
About ten days ago, Moody’s cut CSN’s credit rating to “Ba2” from “Ba3”, raising the outlook from negative to stable, because of concerns about the group’s leverage trajectory over the next 12 months—for the period, the outlook for steel and ore is not positive.
“We had already changed the rating outlook to negative in September, but our premise was that leverage would be maintained, but CSN has released some news in recent months that has led to this reassessment,” Carolina Chimenti, a senior analyst at Moody’s, told Valor.
In recent years, the group has spent billions of reais acquiring assets. In cement, it bought Cimentos Elizabeth and LafargeHolcim in Brazil. In energy, it took CEEE Geração and, in logistics, the most recent operation was the proposal of R$742.5 million for 70% of the owner of Tora Transportes.
These expenditures, combined with the worsening results in the steel industry, have led analysts to adopt a more cautious stance on CSN’s shares and there are fears about the leverage commitments assumed in debt contracts.
In an extrapolation, without considering the EBITDA generated by the mining company, the BNP Paribas analyst arrived at indexes that would breach debt clauses agreed with creditors. But the bank’s calculation, according to a source close to the company, is inappropriate, because it considered holding debts (also for investment in all subsidiaries) and excluded the mining business from the EBITDA used to estimate these ratios.
Ms. Chimenti, with Moody’s, highlighted the acquisition of the parent company of Tora Transportes, as well as the investment plan announced by the group at the end of last year, as factors that influenced the credit rating downgrade. The agency believes that CSN’s leverage will remain between 4.5 and 5 times next year.
“CSN has debt maturity covenants, the lowest of which is 4.5 times [1.1 times above the leverage in September]. We are calm about the trend towards reducing the company’s leverage,” the group’s financial and investor relations director, Marco Rabello, told Valor.
According to the executive, the target announced at the end of last year is to be below three times by the end of 2025. However, in the medium and long term, the plan is to seek “much lower” leverage.
“One of CSN’s great advantages is its asset portfolio, which is less valued than it could be and which opens up space for future strategic liquidity actions. An example of this is the Infrastructure and Logistics vehicle, which we discussed at our CSN Day,” he added.
As well as the plans already announced for CEEE (to look for a minority partner) and for CMIN (to go public and bring in a minority partner), CSN still has 100% of two businesses, Cimentos and CSN Infra, which could follow the same path, including a potential public offering of shares.
In addition, given the strong consolidated cash position, which did not yet take into account the R$4.4 billion from the sale of the mining company’s 10.7% stake to Itochu Corporation at the end of last year, the group could use part of these resources to exchange more expensive debts and lengthen its indebtedness over the course of 2025.
In Moody’s assessment, CSN’s high cash position and longer debt amortization profile ease the group’s situation. “The company doesn’t have a history of making structural changes to its debt, but at the current rating, it doesn’t bother us.”
Ms.Chimenti draws attention to the fact that much of the liquidity is concentrated in CSN Mineração. “We would like to see this leverage more equalized between the subsidiaries,” he said. From a risk point of view, it would be better for the holding company not to depend so much on dividends from CSN Mineração.
Other companies in the steel sector, such as Gerdau and Usiminas, have carried out deeper restructuring of their debts since the sector’s last crisis, between 2015 and 2016, while CSN has reduced leverage through operational growth, Ms. Chimenti recalled. “Today, CSN has the lowest rating among the three.”
For Moody’s, the new stable outlook of the “Ba2” rating indicates the expectation that CSN will maintain a trajectory of reducing leverage to below 3 times and a cash position of around R$15 billion. “These targets increase the visibility of the company’s ability to maintain robust credit metrics,” the agency noted.
The other two main rating agencies, Fitch Ratings and S&P Global Ratings, have a “BB” global credit rating for CSN, which is equivalent to Moody’s “Ba2” rating. The former has a stable outlook, while S&P changed its from stable to negative last August.
Bank analysts who follow CSN and CSN Mineração shares are also wary of the companies. Valor has learned that nine major institutions cover CSN shares, while another 12 cover CSN Mineração. All the banks that cover CSN also cover CSN Mineração, however, three —BTG Pactual, Jefferies and Morgan Stanley—only cover the mining unit’s shares.
Of the nine institutions that cover CSN, seven have a neutral recommendation and two have a sell recommendation, with an average target price for the shares of R$11.90, a potential increase of 35% over Thursday’s close (20). In the case of CSN Mineração, there is one buy recommendation, seven neutral and four sell, with an average target price of R$5.60, a potential rise of 4.5%.
J.P. Morgan, the last bank to make changes to its estimates for the companies, noted that CSN’s results should continue to be pressured by lower steel prices amid the intense volume of imports from China. Analysts Rodolfo Angele and Thatiane Martins Candini wrote in a report that CSN Mineração’s shares have “stretched multiples”, i.e. they are overvalued in relation to the company’s financial indicators. The bank recommends selling the stock because it believes there are “more attractive names” in the sector in Latin America, such as Vale.
Mr. Rabello said that the company has already signaled a potential improvement in the steel industry’s performance following recent investments in Volta Redonda (Rio de Janeiro state). “As we’ve said before, the improvement in the operational and commercial scenario in ore, cement and steel, which will benefit from the investments made in Volta Redonda, will help with deleveraging,” he said, without providing additional information on the potential sale of the group’s assets or restructuring of liabilities.
CSN is also counting on the potential receipt of R$3.1 billion from rival Ternium, related to the Italian-Argentine company’s entry into Usiminas’ capital, to strengthen its liquidity position. CSN, which owns 12.9% of the steel company in Minas Gerais, argues that there was an exchange of control when Ternium bought the initial 27.7% of the voting capital of the steel company in Minas Gerais—which belonged to Votorantim and Camargo Corrêa and to the Usiminas Employees’ Fund—and has been seeking compensation in court for over ten years.
Until the middle of last year, Ternium had won every round of the dispute. In June, however, the Superior Court of Justice changed the course of the case by deciding to pay compensation to CSN. In December, the 3rd Panel of the court upheld the decision, but reduced the amount to R$3.1 billion from R$5 billion.
The Italian-Argentine group warned that it would appeal, and everything indicates that the case will reach the Supreme Court, in a battle that could take even longer. Along with its third-quarter results, Ternium reported that it had reversed $404 million of the provision relating to the litigation, given the decision of the 3rd Panel of the STJ.
