Bankruptcy rate rises to highest level in two years

Crisis generated by pandemic still impacts companies, which are seeking out-of-court settlements

10/06/2022

Since the beginning of the pandemic, never have so many companies gone bankrupt as in the first eight months of this year. Between January and August, 474 companies went bankrupt, 9% above 2021 and 1.5% higher than in 2020, data collected by credit bureau Serasa shows. At the same time, the search for out-of-court debt renegotiation reached the highest level in five years.

Also according to Serasa’s survey, from January to August there were 15 out-of-court agreements. The previous peak, of 30 in the same period, had been in 2017. In these situations, a judge is appointed only to oversee the case and monitor compliance with the law – and ratifies or not the plan agreed upon by the parties.

Lawyers understand that the crisis generated by the pandemic still impacts operations, but the number of companies that have closed their doors is still far from the peak of the decade seen in the 2015-2016 recession. In that period, there were, on average, 1,100 bankruptcies per year.

The higher number of defaulting companies has been the main indicator of this deterioration in business, Serasa’s economic team said.

“In August, there were 6.2 million companies with debt [versus 5.8 million a year earlier] for a total of 22 million active firms in the country. Even when the number of bankruptcies drops, if this number goes up, for us it is a warning sign,” said Luiz Rabi, an economist with Serasa.

Antonio Mazzucco — Foto: Divulgação

Antonio Mazzucco — Foto: Divulgação

“The banks took the pressure off the companies [until 2021] because they renegotiated contracts at the beginning of the pandemic,” said Antonio Mazzucco, a founding partner at the law firm Mazzucco & Mello. “But the maturities of those renegotiated debts returned as of this year, and will extend through 2023 when we will see even more attempts to make agreements as economic activity is still recovering.” His firm represented creditors in the Ricardo Eletro reorganization process and the lawsuit of the lighting company Bronzearte.

According to Laura Bumachar, a lawyer specializing in judicial recovery, civil litigation, and arbitration at Dias Carneiro Advogados, “this scenario is expected to continue this way next year due to the current economic uncertainty,” and because she does not believe in a permanent solution for the business without the injection of new capital into the companies.

“The current environment of insecurity about the economic activity and expensive money, with the escalating [Brazil’s key interest rate] Selic, do not contribute to creating competitive lines or to the search for companies open to some partnership,” she said.

From January to August 2021 and 2022, there were 40 requests for out-of-court reorganization, of which 19 were approved after the OK of banks and suppliers. As those negotiations are long, extending over months, it is more appropriate to consider periods longer than a year to get a more accurate picture of the situation.

For comparison purposes, from 2015 to 2016, another period of strong economic crisis, there were fewer cases, with 24 requests and 14 granted in the two years until August (before the new judicial recovery law, in force since 2021).

According to attorney Vitor Ferrari, with Mazzucco & Mello, mediations in scenarios in which creditors identify feasible payment schedules and business resumption planning are welcome. “We have a case of a client with R$260 million in liabilities and we are managing to negotiate because the banks are open to this case. The payment terms expired in March and were extended for more 12 months,” said Mr. Ferrari.

“Nobody wants a partner in default if there is room for agreement. But renegotiations made in 2020 and 2021, with payment terms of up to 36 months, will come partly this year and next year.”

One of the main positive data from the survey shows 520 recovery requests from January to August this year. That’s less than half the numbers for 2015 and 2016, and 19% lower than the previous year.

This happens exactly at the same time that out-of-court mediations have gained some traction. “There is more openness and tools available today in the search for agreements, in a more mature model than 10 or 20 years ago, well before the changes in the recovery and bankruptcy law,” said Mr. Rabi.

Also according to the analysis, six out of 10 requests for recovery in court (62%) were approved from January to August 2021 and 2022.

This rate is more than double the rate of 24% of requests granted in the interval between 2015 and 2016, when the new recovery law (Law 14.112 of 2020), was not yet in force.

Experts understand that those numbers of judicial recoveries were impacted by the more active stance of the judiciary system, which is maintaining channels of negotiations between companies and creditors, and by a greater willingness of creditors to seek agreements — although the high debt discounts presented in the plans, by debtors, are being criticized.

“There are recent proposals submitted by companies with a 90% haircut. The economic benefit to the creditor in the agreements is very low,” said attorney Ronaldo Vasconcelos, a partner at VH Advogados and a professor of law at Mackenzie University.

There is still criticism of cases that do not come to an end because debtors fail to comply with their recovery plans. “There are cases of recoveries that go on and on for years. Just look at Oi and Inepar. Inepar had an eight-year recovery and more than 25 court enforcements. Certain courts are very pro-business in a bad situation because of the social effect, and that don’t consider the effects to creditors, to the market, of the decisions,” says a court administrator and lawyer who has been in the sector for 25 years.

Today, according to the law, it is the creditors who have the power to reject plans and take a company into bankruptcy. The courts follow and make sure that the legal procedures are followed, and decree bankruptcy when there are certain violations. This allows companies to continue operating if they comply with the terms of the approved plan.

The Serasa Experian Bankruptcy and Judicial Recovery Indicator is built from monthly statistics on bankruptcies and recoveries from courts across the country and the Daily Gazette.

*By Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Papirus sets up new strategic plan, mulls expansion

Company will have a sustainability and circular economy vision

10/05/2022

Amando Varella — Foto: Claudio Belli/Valor

Amando Varella — Foto: Claudio Belli/Valor

Papirus, one of the most traditional Brazilian manufacturers of paperboard, is discussing a new long-term strategic plan with a sustainability and circular economy vision, which may culminate in a future expansion project with substantial investments.

The company, which has been operating at full capacity since the end of 2019, is concluding an investment package of around R$40 million to expand the production capacity in Limeira, São Paulo, to 115,000 tonnes per year in 2023, from 96,000 tonnes in 2019. According to the company, the capacity has already increased in 2022, to 105,000 tonnes per year.

“Apparently, the current machines do not allow a new round of growth and the investment would have to be much higher. We are studying how to do that and if we will set up a new expansion project,” Papirus Co-CEO Amando Varella told Valor.

Founded 70 years ago by the Ramenzoni family, the company hired Falconi Consultoria to help in the strategic planning for the next five years. The consulting firm participated in the preparation of the previous plan, in 2018.

Mr. Varella, the company’s chief commercial and marketing officer as well, told Valor that Papirus reached a new level in terms of financial results, which allows looking at the possibilities of improving efficiency and costs – and expansion.

The company does not disclose EBITDA figures. The projected revenue for 2022 is R$750 million, compared to R$460 million last year. Higher sales volume and higher prices boosted the results.

If the company decides to pursue a larger growth project, it will evaluate all available financing alternatives, including the eventual arrival of a new partner or an IPO. “We know there is potential for growth, but the decision is up to the shareholder,” he said.

Having concluded the first round of strategic planning discussions, it is time now to detail the potential expansion project. This stage will take at least six months.

Growth potential, both of the market and Papirus, comes from the increasingly stronger demand for more sustainable packaging. However, it is still necessary to develop barriers – which protect the packaging and its contents – that are more sustainable and make plastic replacement possible.

It will also be necessary to expand the collection of packaging and remove it from the environment. “Looking ahead, there is a lot of opportunity in sustainable packaging, but collecting it from the environment,” he said. To this end, the company is expected to expand partnerships with the so-called cleantechs, following the example of the pioneering recycling credit project already started with Polen.

According to Mr. Varella, the company tends to stand out by making cardboard with an increasing share of recycled content. Today, the use of recovered scrap by Papirus is around 35% to 40%. The company plans to reach 60%.

To assure that there will be demand for a more sustainable cardboard, the company has held talks with consumption companies that are clients of the printing companies to which Papirus supplies paper. “Large brands have established goals for the use of recycled content, and we want to approach these consumers,” he said.

*By Stella Fontes — São Paulo

Source: Valor International

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First privatized port authority, Codesa begins expansion

Pioneer experience in Espírito Santo will be a benchmark for sector

10/05/2022

Ilson Hulle — Foto: Gabriel Lordello/Valor

Ilson Hulle — Foto: Gabriel Lordello/Valor

Codesa, the Espírito Santo Port Authority that is now officially privatized, plans to expand the capacity of the state’s ports and draw new types of cargo. The new management team took over operations on September 21 and is already preparing four work fronts: the adaptation of the existing contracts; the search for new businesses for idle areas; the contracting of the construction works; and internal transformations in the company.

“The great challenge is to build a new business environment. We have a port with idle capacity and many people wanting to do business. The goal is to bring these investors into the port,” said Ilson Hulle, the company’s new CEO.

Codesa is Brazil’s first privatized port authority. Its controlling shareholder is the investment manager Quadra Capital, which won the auction in March this year. The privatization included the sale of the company and the signing of a concession that gives the group the right to operate the ports of Vitória and Barra do Riacho for 35 years.

One of the first tasks of the new management team, to be done in the first six months, is the adaptation of the contracts with the terminals to the private-sector reality from the state-owned reality. According to the privatization rules, Codesa cannot reduce the scope of any operation, but extensions can be negotiated.

“I don’t foresee very troubled adaptations. For the lessee, it can only get better. New areas and new cargoes may be included to expand the volumes of the terminals, something that was not possible before. There are already groups interested in making this type of change,” the executive said.

In the coming months, the guidelines for the expansion of the ports operated will also be defined. Especially in Barra do Riacho, there are empty areas likely to house new terminals. The plan is still being designed and will depend on the conversations with interested parties. The goal, according to Mr. Hulle, is to strengthen the cargoes already present in the ports, but new operations are also in sight.

Among the segments with growth potential, he cited grains, fertilizers, containers (possibly by grabbing cargo that goes to other states), steel, and oil and gas, especially to decommission oil platforms.

The executive also foresees the need for expanding the port’s capacity through interventions.

The expansion of railroad accesses is seen as crucial. According to the contract, Codesa will have to reform the internal tracks of the port. It will also be important to make investments to connect with the great railway network. Today, the ports already have an active connection with Vale’s Vitória-Minas railroad, but an expansion is necessary.

“We will establish contact with the operator [to request the expansion],” said Mr. Hulle. “The railroad is already there, but with a very reduced volume. It would be necessary to gain the capacity to give us a leap in volume, especially in grains.”

When contacted, Vale said in a note that it “periodically evaluates the need and feasibility of making investments in cases where there is a concrete increase in demand in the region.”

Regarding road access, the necessary renovation will also depend on investments that go beyond Codesa’s contract. It will be up to the company only to make the executive project for the construction works.

As for the waterway access, the authority itself will have to increase the capacity of the ports through dredging and other interventions. “We have physical restrictions for the entry of ships, but I see an opportunity to enable slightly larger vessels, which can expand the range of cargo possibilities in Vitória.”

This may be possible both through construction works and simulation studies of the entry and exit of ships, which may indicate gaps so that larger ships can enter the port in certain time slots, with some kind of restriction. “We will work to find the maximization point,” he said.

In all, the concession foresees investments of around R$335 million. The central works, which are expected to be done in the first two years, include reforms in the warehouses, the wharf and pier structures, and the port’s internal railroad.

In addition, Codesa will be tasked with renovating its internal structure. “Before, purchases were made by bidding. The company was privatized, but it does not have a supply team or a basic flow of purchase approval. We will have to create all these procedures and train people.”

Under the terms of the privatization, the 235 employees of the former state-owned company will have one year of stability. Codesa is also expected to open a buyout plan in the next six months.

The new CEO of Codesa is a native of Espírito Santo who began his career as a trainee 17 years ago at a terminal in the port of Vitória. Just before assuming the position, Mr. Hulle worked as a terminal director at Log-in, a company that operates in the port.

This is an unprecedented project for all involved. Quadra Capital, the controlling shareholder of the business, is having the first experience as a direct operator of an infrastructure asset, although the group had already worked with credit in the sector.

For the port market, it will be the first test of a private-sector port authority. The list of candidates to join the model is relevant: besides Santos Port Authority (São Paulo), other ports may follow, including Itajaí (Santa Catarina), São Sebastião (São Paulo), and Bahia.

“We know our responsibility. Codesa will serve as a showcase. We are challenged to do an excellent job. But the question of unprecedentedness was left to the day we signed the contract. Now, the focus is to make it happen,” said Mr. Hulle.

*By Taís Hirata — São Paulo

Source: Valor International

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Brazil’s tobacco exports expected to cool down after strong growth

Strong pace of sales could have been driven by pent-up demand caused by shortage of containers, ships last year

10/05/2022

Despite the strong growth between January and August, Brazil’s tobacco exports are expected to cool down and end 2022 relatively flat in volume and with lower increase in revenue compared to last year’s results.

According to data from the Foreign Trade Secretariat (Secex) compiled by the Interstate Tobacco Industry Association (SindiTabaco), from January to August shipments totaled 349,400 tonnes, up 14.9% year-over-year, and earned $1.4 billion, an increase of 44.7%, thanks to the high average prices.

Yet, Iro Schünke, the association’s head, considers that these increases were inflated by the strong pace of sales in the first four months of the year driven by pent-up demand at the end of last year caused by the shortage of containers and ships. Thus, he expects sales to slow down in the coming months.

Consultancy Deloitte is projecting that tobacco exports will end 2022 with a stable volume compared to last year, when 464,400 tonnes were shipped out of the country, while revenues are expected to increase 6% to 10% year-over-year, to $1.5 billion.

Mr. Schünke believes that the results may come a little better than that, but reinforced that shipments are returning to normal after facing problems last year. In 2020, Brazilian exports exceeded 500,000 tonnes and brought nearly $1.6 billion.

Belgium, thanks to the importance of the port of Antwerp for the segment, continues to be the main destination of Brazilian tobacco sales abroad. From January to August, it was responsible for $360 million, ahead of China ($248 million), the United States ($103 million), and Indonesia ($70 million).

“The production chain survived the pandemic. And shipments are expected to stabilize again around 500,000 tonnes in the next few years,” said Mr. Schünke. This return to normality is a relief for farmers since nearly 85% of production goes to customers abroad.

The harvest is concentrated in the southern states. According to the Tobacco Growers’ Association of Brazil (Afubra), in the 2021/22 harvest, the region reached 560,200 tonnes, 10.9% less than in the 2020/2021 season. The drop reflected mainly a 9.8% reduction in the planted area, to 246,600 hectares, but also the decline in productivity in Rio Grande do Sul due to weather problems.

Given the reduced supply and rising production costs, prices rose. According to Afubra, the Southern producers sold a kilogram of tobacco to industries for R$17.02 in 2021/22, on average, up 61.5% over 2020/21. Thus, the total gross revenue received by tobacco growers in the South rose to R$9.5 billion from R$6.6 billion in the comparison, even with the shrinking harvest in the region.

*By Fernando Lopes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Trucks hit road as North region lacks gas pipelines

Logistical hurdles pave the way for Virtu, a company focused on gas transportation through highways

10/05/2022

Hamilton Amadeo — Foto: Leo Pinheiro/Valor

Hamilton Amadeo — Foto: Leo Pinheiro/Valor

An unsuccessful auction held by the federal government on September 30 put the viability of thermoelectric projects in the interior of Brazil in jeopardy. It was expected to contract 2,000 megawatts in the North and Northeast regions, but only 729 MW were negotiated thanks to the gas from the Amazonas state, which made projects possible.

The logistical situation is still a challenge. The bidding was designed to encourage the construction of pipelines as the network of gas pipelines, of only 9,500 kilometers, is concentrated on the coast.

Today, the fuel for Eneva’s Jaguatirica Thermoelectric Plant (140 MW) is transported by trucks in a mega-operation involving 84 vehicles, which daily carry 800,000 cubic meters of natural gas from the Azulão field all the way to the plant. Virtu LNG, a company controlled by Coencil, is in charge. The former CEO of Aegea, Hamilton Amadeo, left the basic sanitation industry and recently took over as Virtu’s CEO. He says the lack of pipelines is a growth opportunity.

“Most players still don’t know that it is feasible to do that. Everyone is focused on pipelines in their own operations. Companies that have a gas field are often reinjecting it because they have no way to transport it,” said Mr. Amadeo.

Today Brazil has less than 9,500 kilometers of gas pipelines, according to the National Agency of Petroleum, Natural Gas and Biofuels (ANP). The distribution pipelines, on the other hand, are almost 41,000 kilometers long, according to the Brazilian Association of Piped Gas Distributors (Abegás).

The bottleneck is worse in the North region: there are only 802.1 kilometers of transportation pipelines. The difficulty of environmental permit and the amortization period make transport pipelines unviable, but they could open up a market for Virtu.

From Azulão (in the cities of Silves and Itapiranga, in Amazonas) to Boa Vista (Roraima), each truck travels 1,100 kilometers. The executive says that the costs are competitive in distances above 200 kilometers.

Given the logistical challenge of the region, the company needed to set up its own support infrastructure in point-to-point operations, with dedicated support equipment. “An operation like this requires nearly R$100 million of capex,” he said.

The process is done with cryogenic technology, liquefaction solutions, storage, transport and regasification in small scales. Mr. Amadeo said that liquefaction reduces the volume by 600 times, making transportation easier.

“We are in the final stages of enabling a joint venture with Eneva to develop these alternatives. Eneva understood that much of its gas will need this knowledge,” he said.

There are 212 isolated locations in Brazil, most of them in the North region. Consumption is low and accounts for less than 1% of the country’s total, supplied mainly by diesel -fired thermal plants. Mr. Amadeo sees market opportunities, besides the advantage of using gas, a less polluting fuel.

Roraima is the only state in the federation outside the country’s integrated electrical system. For years the state was served by Venezuela’s Guri transmission line, but after several blackouts, the lines were disconnected, and Roraima’s power depends on thermoelectric plants. The Tucuruí power line, which would connect Manaus (Amazonas) to neighboring Roraima, has been promised by several administrations, but the problem comes up against the indigenous issue, since part of the route cuts through the Waimiri Atroari indigenous reserve.

The government says that a new judicial agreement allows the resumption of work on the transmission line between Manaus and Boa Vista.

Eneva was one of the winners of the last auction and will have to build a new venture to be operational by the end of 2026. Mr. Amadeo says that Virtu’s services have synergies with new power generation projects in regions not served by pipelines, but that Eneva has other plans.

The Azulão-Jaguatirica operation does not change at all. The company will continue to transport LNG by road from Amazonas to Roraima.

“For the new thermoelectric plants that will be built in the Azulão Complex, most likely small pipelines will be built within Eneva’s operation, to take the gas from the wells to the generation plants.”

In the case of the Reserve Capacity auction, the congressional lobby to create an artificial demand did not appear in the expansion studies of the Energy Research Company (EPE), and the signal the market gave was towards not contracting in the Northeast. The government already recognizes that investments in gas pipelines are not always the best alternative.

“The transportation of gas can be done in several ways. Pipelines not always are the best alternative from the economic standpoint. Many times, the traditional modes are used [road, river, among others] with compressed or liquefied gas, until a sufficient scale is achieved to economically justify the heavy investments that a gas pipeline requires. In the Amazon region, it is even more challenging because of environmental issues,” the Ministry of Mines and Energy said in a statement.

*By Robson Rodrigues — São Paulo

Source: Valor International

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Savings accounts have record withdrawal

From August 2021 to September, outflow reached R$131bn, while inflow totaled R$67bn

10/05/2022

Fernando Honorato — Foto: Carol Carquejeiro/Valor

Fernando Honorato — Foto: Carol Carquejeiro/Valor

Brazilians have never withdrawn so much money from savings accounts as in recent months. The total withdrawals until September 19, 2022 reached a historical record of R$131 billion, counted since the balance of deposits reached the maximum point of R$1.05 trillion on August 6, 2021. Withdrawals are equivalent to 12.5% of the balance at the beginning of the period.

In the same period, the saving accounts inflow totaled R$67 billion, equivalent to 6.4% of the deposits balance at the beginning of the period. Even so, there was a record drop of 6.1% in the amount deposited, considering inflow and interests. The savings deposits balance never shrunk so much and in such a short time.

A set of factors contributed to the negative records. Fernando Honorato, Bradesco’s chief economist, believes that the historical level of withdrawals started during the pandemic. He says that the deposits in saving accounts skyrocketed during the Covid-19 crisis because a slice of the population was at home, consuming less and saving more. “Consumption fell more than income and there was money left over for families,” he said.

In fact, between mid-2016 and March 2020, before the pandemic, the balance of savings deposits, adding inflow and interests, grew at a steady rate of 8.1% per year. From April 2020 to early August 2021, the growth rate jumped to 14.7% per year.

Now, Mr. Honorato said, with the end of social distancing measures, a portion of the population is withdrawing funds from savings accounts to consume once again, which helps explain the record number. “Consumption is growing close to income or more,” he said.

According to Mr. Honorato, the fact that the government has distributed money through social programs such as the emergency aid has also contributed to the jump in savings deposits. According to data from the National Treasury, central government expenses related to the emergency aid reached R$237 billion between April and September 2020.

Caixa Econômica Federal was the lender that made the emergency aid payment in savings accounts through the Caixa Tem app. This led to an increase in the volume and quantity of low-value savings accounts.

The figures from the Credit Guarantee Fund (FGC) show that the balance of deposits in savings accounts up to R$5,000 grew 55% in this period. The number of accounts in this range increased 36%.

A part of the clients uses savings accounts as a current account, not to invest, said Leonardo Siqueira, head of investments at Santander. Almost half of Santander’s clients with savings accounts make more than four movements a month, which indicates that they use the savings account as a cash flow tool, taking advantage of the fact that it is exempt from income tax.

“Not everyone with savings accounts is an investor. Many put and withdraw money from there several times a month and use it only to set aside funds or to transfer it to other lenders,” he said. In general, these clients have accounts in more banks and transfer the money to themselves or to people close to them.

Among higher income people, with more than R$100,000 in the savings account, the balance of deposits and the number of accounts also grew consistently from April to September 2020.

In addition to the forced savings due to the closure of economic activities because of social distancing measures, the pandemic period was very turbulent for financial assets.

In a first moment, high-income investors scared with a falling market stimulated a migration of funds to savings accounts. “The savings account is an instrument that Brazilians know and trust,” said Mr. Siqueira.

However, over time, as the Central Bank increased interest rates to fight inflation, the difference in the profitability of other fixed-income investments in relation to savings grew. This was also one reason for the record withdrawals.

“Customers have started to question and seek better investments, and savings accounts are a bad alternative. Its risk is similar to that of certificates of bank deposit (CDBs), Real Estate Credit Bill (LCIs) or Agricultural Credit Bills (LCAs), which offer higher yields,” said Lucas Queiroz, a fixed-income strategist at Itaú BBA.

In addition, high inflation has compromised the population’s income and led people to withdraw money from savings accounts to cover part of the lost income.

“High prices, especially for food, and the population’s indebtedness match the hypothesis that the savings withdrawals are directed to recompose income. People are less able to take credit amid rising interest rates and are in need of money,” said Mr. Queiroz.

Mr. Queiroz evaluates that the scenario for savings is challenging and that the withdrawals are an incentive for the financial industry to seek alternatives for raising money for real estate credit. “The withdrawals are expected to drive the market to develop sources of real estate financing,” he said.

*By Marcelo D’Agosto, Júlia Lewgoy (Valor Investe) — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brookfield’s new car rental business expected to gross R$3.3bn

New company operates under brand Unidas, bought with divestiture package

10/04/2022

Claudio Zattar — Foto: Carol Carquejeiro/Valor

Claudio Zattar — Foto: Carol Carquejeiro/Valor

Under the Unidas brand, Brookfield’s new car rental business is expected to gross over R$3.3 billion this year, in addition to an EBITDA of over R$1.2 billion, said Cláudio Zattar, the chief executive of Unidas.

The new company was created by the merger of Ouro Verde – which was controlled by the fund – and some assets of the company formerly known as Unidas. Mr. Zattar, who was Ouro Verde’s CEO, took over the new business, which started to operate in an integrated way on Monday.

“Our shareholders are excited about the acquisition and there are good expectations of what this combined business will generate,” said Mr. Zattar. The financial perspectives for the year are basically the minimum of what Ouro Verde and Unidas’s slice that was bought last year posted – a scenario expected to repeat itself this year, since the synergies of the two companies together only start to happen in fact now.

The new Unidas arose from a pragmatic need: the demand from antitrust regulator CADE for a competitor in the sector to then approve Localiza’s plan to incorporate Unidas – the two were Brazil’s first and second-largest car rental companies. Localiza’s move was approved by CADE in the middle of this year. For the divestiture, Brookfield paid around R$3.5 billion

Before, Ouro Verde had a business focused on the B2B operation and planned to approach individual customers through the expansion of its car subscription branch. With the acquisition, the new company took a large step forward and now has good representation in the market. In total, there are 90,000 assets (trucks, cars, machinery, and equipment), of which 77,000 are light vehicles. Localiza, the leader, has about 440,000 cars (after incorporating the former Unidas) and Movida has 190,000 cars.

The divestiture package purchased by Brookfield took nearly 49,000 cars and 182 car rental stores (Unidas had closed the second quarter with 245, considering its own network and franchises). Ouro Verde, focused on B2B, had no stores and focused on representatives across the country.

The sale of used car stores was not within the obligations pointed out by CADE, but the regulator gave Localiza freedom to negotiate the conditions with the company interested in the asset. This way, the group got 22 second-hand vehicle stores, said Mr. Zattar. Until then, neither Ouro Verde nor Localiza had disclosed details about the divestiture package – the only thing known for sure was the volume of the fleet, which had been previously rumored in the market.

The Unidas brand and sub-brands – such as Unidas Frotas and Unidas Livre – were also acquired. The Unidas brand was recognized as one of the 50 most valuable in Brazil according to the Brand Finance Brazil ranking.

“It’s hard to get into a rent a car business from scratch. The barriers are big, the scales are big. You would have to undergo a period of maturity. And now we are among the three largest in the country and with high potential that the market is providing us,” said Mr. Zattar, who before taking over Ouro Verde was Localiza’s head of logistics and car purchases.

Companies also saw the need to have cash on hand and decided to have fewer assets – thus looking at fleet management and outsourcing options.

“The rent-a-car market is a segment that continues to grow. And it doesn’t grow more for lack of cars,” he said, in reference to the semiconductor crisis. Even with the difficulties of buying a car, the scenario is expected to be much better than last year.

“We get availability from automakers. We are already treated as a major rental company,” he said. Even so, the executive said he does not expect a total normalization of vehicle production next year, with problems still in place in the delivery of semiconductors and chips – equipment required not only by the automotive industry.

One change in the market today is that rental companies have been forced to operate with older vehicles. In 2019, the average age of Localiza’s operating fleet in the rent-a-car segment was 7 months. In the second quarter of this year, the age was 17.4 months – the scenario was similar at Unidas. According to Mr. Zattar, the fleet purchased is in line with the average portfolio of the two rental companies.

Mr. Zattar pondered that the older fleet has its pros and cons. On the one hand, the company tends to have higher maintenance costs. On the other, the high price of cars helps companies to sell the vehicle well, and this has been a positive reinforcement in the earning reports. In addition, the strong demand has kept the average daily rates at record levels.

One movement adopted by Localiza and Movida has been internationalization. Recently, Movida bought a small business in Europe, its first step in the region. Mr. Zattar said that the new Unidas, on the contrary, has a strategy designed to be a rental company focused on Brazil. “Our strategy is here. We will continue doing the best for the Brazilian consumer,” he said.

The new Unidas will continue to disclose its results to the market and plans to maintain fundraising through debt issuance. Mr. Zattar was asked if there is a scenario to have shares traded on the stock exchange and if Brookfield would be interested in seeking partners, but he defended that, for now, there are no talks along these lines. “It is still very early … In the future, a larger capital structure aimed at accelerating the need for capital expenditure and growth [would make sense] … But it is a strategy of the controlling shareholder. We haven’t discussed [the topic],” he said.

*By Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Industrial cost slows down but inflation will still be high

Central Bank’s median projections for industrial goods inflation are 9.2% for 2022 and 3.8% next year

10/04/2022

Fábio Romão — Foto: Silvia Costanti/Valor

Fábio Romão — Foto: Silvia Costanti/Valor

Inflation of industrial goods, especially those linked to the economic cycle, accelerated again recently, reinforcing the perception among economists that the cooling of industry costs will help bring the country’s official inflation (IPCA) down this year. This will still be a gradual process, though, and industrial prices are still expected to remain historically high in 2022.

With the disorganization of the global production chains after the pandemic shock, the cost of the local industry ranged from 1.46% in the year to May 2020 to 36.37% in May 2021, a record acceleration since records began in 2006, a study by Bradesco shows. Based on a methodology suggested by the Central Bank, the bank’s economists have built an index of the cost of inputs in the Brazilian manufacturing industry.

According to the Brazilian Institute of Geography and Statistics (IBGE), a little more than 80% of the costs with inputs are local goods, but even in these cases, several of them have a defined price in the global market, notes Bradesco. This is the case of oil and its products, whose weight is almost 15% of the total cost of industry inputs, notes the bank. “In this period, from May 2020 to May last year, the price of oil, its products, fuels in general and semi-finished products, rolled products and steel pipes were the main causes for the rise in costs,” Bradesco economists Marcelo Gazzano and Myriã Bast wrote.

In August 2022, the industry’s cost still varied by almost 21%, they calculate. “We are seeing a normalization, but coming from a very high base,” said Mr. Gazzano. “At the point it is, it’s not enough. It must keep improving, it should not stagnate now,” said Ms. Bast.

September data from Bradesco’s proprietary survey of 3,000 companies indicate that this improvement continued last month, said Ms. Bast. In another metric for the industry cost index, considering a six-month period and a year, the variation in August is already lower, at 15%, said Mr. Gazzano.

In the September forecast, industrial goods inflation accelerated again to 0.32%, against 0.28% in the August IPCA-15, according to MCM Consultores. Underlying industrial goods, which do not include items with more volatile prices such as ethanol and cigarettes, went to 1.02% from 0.91%. In 12 months, the general inflation of industrial goods even decreased to 11.88% in September from 12.77% in the August preview, but the underlying inflation went to 13.83% from 13.48%.

In the Focus bulletin, the Central Bank’s survey with market analysts, the median projections for industrial goods inflation are 9.2% at the end of this year and 3.8% next year.

Bradesco projects industrial goods inflation at 9.2% this year, from 12% in 2021, but believes it could be just under 3% in 2023. “If nothing changes and it follows a trajectory like we are seeing in the fiscal year, we could have the industrial IPCA settling around 5% next year. But in our scenario, this will continue to adjust, so this is not our official projection,” said Mr. Gazzano.

The “stress indicator” of global chains drawn up by UBS’s global research team and Evidence Lab was 1.2 standard deviations from normal in August this year, the Swiss bank said in a report. By October 2021, this indicator had reached 5 standard deviations. The UBS BB team that follows Brazil highlights that August was the fifth consecutive month of improvement of the global indicator, signaling future normalization of goods inflation also in the country.

According to UBS BB’s calculations, the deceleration of goods prices accounts for more than 1 percentage point of the expected deceleration of the IPCA until the end of the year. UBS BB projects IPCA at 5.7% in 2022 and 4% in 2023, with industrial goods at 8.4% and 0.7%, respectively.

“Everything that happened in the pandemic and also because of the war between Ukraine and Russia is hindering a clearer deceleration of industrial goods. More recently, in the second half of the year, we are seeing partial rearrangement of the production chains and commodity prices losing strength. This contributes to a less arid formation of industrial prices,” said Fábio Romão, an economist from the consulting company.

He projects 9.8% for industrial inflation in 2022 and 5.4% in 2023. “There is the prospect that global economic activity will lose strength next year, which signals that industrials will slow down. We may have from 2023 onwards a rate of evolution of industrial prices that is not so different from the index,” he said.

In the September Inflation Report (IR), released last week, however, the Central Bank estimated that the normalization of production chains in Brazil was slower than the global average as of May this year, even though it maintains the rebalancing trend. In addition, the monetary authority warned that new shocks, especially lockdowns to combat the transmission of Covid-19 in China or problems arising from the war between Russia and Ukraine, may interrupt the normalization trajectory in the world and Brazil.

*By Anaïs Fernandes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Battle between Oi, mobile business buyers heats up

Telco obtained injunction ordering Telefónica, TIM, Claro to deposit R$1.5bn in court; trio sought B3 arbitration chamber

10/04/2022

The battle between Oi and the buyers of its mobile business – Telefónica, Telecom Italia’s TIM and América Móvil’s Claro – over the value and agreements on the transaction intensified on Monday. Oi obtained an injunction ordering the three companies to deposit in court R$1.5 billion within 48 hours for services provided to them.

On the other hand, the three telcos also filed for an arbitration proceeding in the Market Arbitration Chamber of B3 on Monday. The companies ask for a R$1.73 billion correction in the value of the asset purchase by revenue metrics that should be met by Oi, but claim that the company has not proven to have achieved them.

In the case of the injunction, the determination for Telefónica (owner of Vivo), TIM and Claro to deposit the amount was granted Monday by Judge Fernando Viana, from the 7th Business Court in Rio de Janeiro.

The amount refers to about R$600 million that would be paid by the three telcos as part of a contract for services to be provided by Oi in the agreement to buy the mobile business, in a judicial sale in 2020, for R$16.5 billion.

On September 19, Telefônica, TIM and Claro charged Oi for a correction of the purchase contract worth R$3.18 billion. Of this total, the three operators retained R$1.44 billion as collateral when closing the deal. The R$1.73 billion difference is what they are asking Oi.

Oi did not reply to requests for comment. B3 said that every process in the arbitration chamber is secret and does not comment on the subject. Telefónica, TIM and Claro published a statement to the market on Monday about the decision to appeal to B3, but declined to comment further.

*By Ivone Santana, Rodrigo Carro — São Paulo, Rio de Janeiro

(Felipe Laurence contributed to this story.)

Source: Valor International

https://valorinternational.globo.com/
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Brazil imports more from China driven by solar power, agricultural inputs

Growth of 35.1% between January and August exceeds average rise of foreign purchases

10/03/2022

Taking advantage of the expansion of solar power in Brazil and the demand for agricultural inputs, Chinese imports this year have advanced more than the average of Brazil’s total imports. From January to August this year, imports of products made in China totaled $39.74 billion, up 35.1% compared to last year and 63.8% compared to 2019, the pre-pandemic period. The average of total Brazilian foreign purchases grew 32.3% and 44.3%, respectively.

Data from the Foreign Trade Secretariat (Secex/ME) show that imports of Chinese products were driven by solar panels and equipment and agricultural inputs. These two groups totaled $8 billion in foreign purchases from January to August, or 20% of Chinese products that arrived in the period. That means $5.12 billion more in imports of these Chinese products, nearly half of the growth of $10.3 billion in purchases from the Asian country this year compared with the same period last year.

The first in the ranking of Chinese items most imported by the country are electrical and electronic equipment and devices that total $3.55 billion, of which 95% are solar or photovoltaic modules or panels. The amount represents 8.9% of the total bought from China in the first eight months of this year. It is also more than double the $1.43 billion imported in the same period last year, and five times the $700 million of 2019, always considering the January-August period.

More than increasing exports, China is virtually the only foreign supplier of these items for now. It sold Brazil 95% of what the country imported from January to August in photovoltaic modules and panels.

Chinese suppliers take advantage of a moment of expansion of renewable power sources in Brazil at the same time that the Asian country has sought to diversify its own power generation mix, said José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB). With the plan of becoming carbon neutral by 2060, China bets in solar power within a plan to foster the development of technologies in this field and the diversification in exports of products linked to renewable sources, Mr. Castro said.

Data from the Brazilian Electricity Regulatory Agency (ANEEL) and the Brazilian Photovoltaic Solar Energy Association (Absolar) show the advance of solar power in Brazil. The country’s installed capacity in this source jumped to 18.65 GW in August from 13.82 GW in 2021. Photovoltaic energy currently accounts for 9.1% of Brazil’s power generation mix. According to ANEEL, Brazil surpassed 185 GW in power generation capacity in August. Of the 650.14 MW of power increase this month, 57% came from solar plants.

Rafael Cagnin — Foto: Silvia Costanti/Valor

Rafael Cagnin — Foto: Silvia Costanti/Valor

Rafael Cagnin, an economist at the Institute for Industrial Development Studies (Iedi), also recalled the so-called taxation of the sun should come into effect as of 2023, bringing taxation that does not exist today for those who install solar panels at home. This may have accelerated the installation of the photovoltaic system in 2022, not only because of the tax benefit foreseen for those who adopt the source until January of next year, but also stimulated by the high cost of energy in Brazil. “We must remember that China has an almost unbeatable competitiveness in the production of solar panels in the world.”

Another group that draws attention in Chinese imports this year is insecticides, fungicides, herbicides, fertilizers, and their raw materials. Imports of these agricultural inputs totaled at least $4.46 billion between January and August, three times the amount seen last year ($1.45 billion) and more than four times the amount seen in 2019 ($1 billion) in the same period.

Mr. Castro considers surprising that China, a major destination for Brazilian soybeans, now stands out in the supply of agricultural inputs to Brazil. The picture, said Mr. Cagnin, is explained by the shortage of these products in the world, intensified by the war between Ukraine and Russia, and by Brazil’s great dependence on these items. According to government data, cited by the economist from Iedi, 85% of the internal demand for fertilizers is met by imports.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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