Suppliers want to receive cash for new deliveries; shopkeepers fear drop in sales
01/17/2023
Americanas contacted sellers on Monday to reassure them about possible risks — Foto: Dado Galdieri/Bloomberg
Americanas already faces difficulties negotiating with large suppliers and insurers, sources say. Among small shopkeepers who supply its online marketplace — the company’s largest business — lawyers have guided them to divert sales to other platforms to protect themselves against possible issues in the operation.
Some fear that the company will lose customer traffic online — after the crisis became public — and that this will lead to a cascading effect: fewer people visiting, who buy less, which ends up leading shopkeepers to reduce their actions on the group’s platform.
On Monday, several meetings took place between manufacturers and their legal departments, and also between marketplace vendors and their lawyers. In the last hours of the day, Americanas contacted sellers to reassure them about possible risks.
Among some durable goods industries, it was adopted on Friday, the policy of authorizing the sale through a contract for a cash payment of the purchase — Samsung has already followed this path.
According to three sources, international credit insurers have reduced the limits of the credit line for guarantee operations for industries selling goods to Americanas. The supplier protects itself from payment problems from retailers, so the risk is on the insurer.
Mapfre reduced the company’s line on Friday, which was available for industrial companies to close sales, sources say. Insurers working for LG, Motorola, and Samsung have adopted the same practice. Those limits can be adjusted automatically. Mapfre, Samsung, LG, and Motorola declined to comment.
“They have a very low tolerance for scenarios like this, including because they have already experienced losses at retailers in other emerging markets. Americanas is not a relevant partner [in durable goods], it is not very strategic for those brands, which would even help now to postpone a little bit these revisions in the lines,” says a person familiar with the matter.
Multinational manufacturers do not sell without being insured for close to 100% of the value, which guarantees 100% of the receivables. Some insurance companies accept to open lines with 70% and 80% coverage, but only when the client has very low risk — unlike Americanas today.
In September, Americanas had 107 days of products in inventories, an increase of 11 days compared with the second quarter, but this volume usually falls right after Christmas. In periods of low seasonality, they range from 80 to 90 days. In product lines that retailers call “curve A” — of high turnover –, such as television sets and cheap cell phones, the average stock at retail ranges from 40 to 50 days, sources say.
“There is information that electronics suppliers have frozen new orders until they understand how the payment of the new bills will be,” says a source linked to the industry, who cited the provisional measure that protects Americanas from creditors for 30 days.
After Friday’s provisional measure, the due date for new deliveries is normal. In a sale made before the measure, Americanas may not pay, because the credit is subject to future judicial reorganization, which Americanas may file for after 30 days, said two lawyers who analyzed the measure.
“But the industrial companies can’t bring forward expiration of anything from the past,” says the lawyer of a retailer that once asked protection from creditors. “And in new contracts, suppliers can require to receive cash, and that is likely to be their move,” the lawyer said.
The text of the request states that among the protections for the company is “the preservation of all contracts necessary for the operation of Grupo Americanas, including credit and supply lines.” In other words, industrial companies and sellers could not cancel contracts unilaterally.
Regarding the marketplace, Americanas’s online competitors see, since Sunday, a certain increase in inventory in their systems, and believe that part of it comprises sellers who reduced lots for sale in Americanas’s websites (the group operates businesses such as Shoptime and Submarino as well).
About 65% of Americanas’s sales happen through the online marketplace (third-party products). The remainder refers to products from its own inventories. The company has more than 150,000 merchants registered on the platform. Online marketplaces are maintained by revenue from services sold to merchants – the greater the flow, the greater the revenue.
Valor found out that Americanas teams informed Monday, in calls to shopkeepers, that sales are normalized, in “good pace,” and that the company will not change the conditions of their contracts. The lines of factoring of receivables had no changes until Monday.
In practice, the funds from shopkeepers’ products sold through online marketplaces are “locked” in a closed account, which the platform cannot block, according to a system created a few years ago to protect digital transactions. For the website, only the commission fee is free. But some shopkeepers fear that Americanas will raise commissions or increase deadlines for the release of funds from the sale of their products. Today, the value is released every two weeks.
Americanas said it “maintains the normal flow of transfers in its online marketplace and paid sellers normally on Monday.” In a note, the company said that “the operations continue in the same way, both for small partners and for industrial companies that use the company’s platform.”
Three law firms heard by Valor, which are being consulted or hired by the online marketplace’s shopkeepers, have advised clients to keep their contracts to avoid possible questioning in court, but to also review conditions.
“The agreements will be maintained, but the conditions are of autonomy of the sellers,” says a lawyer consulted today. “That is the guidance we have given to the sellers.” This means that the shopkeeper can change, in his account of products sold on Americanas, the amount they charge for freight, product price, and the number of items for sale on the platform.
José Roberto Mendonça de Barros says new administration must define a fiscal anchor and send tax reform to Congress
01/17/2023
Jose Roberto Mendonça de Barros — Foto: Silvia Costanti/Valor
Economist José Roberto Mendonça de Barros says that the fiscal package announced by the economic team is “positive, welcome, and healthy.” But it represents the first step. It will be necessary to move forward in cutting expenses, and not only in increasing revenues. It is also necessary to present a rule that will serve as the country’s new fiscal anchor, and send the tax reform proposal to Congress.
“The ministers of Finance [Fernando Haddad] and Planning [Simone Tebet] have explicitly taken on the idea, which is very welcome, that they will try to keep the [primary] deficit between 0.5% and 1% of GDP,” said Mr. Mendonça de Barros, a partner at the MB Associados consultancy and former secretary of Economic Policy at the Ministry of Finance in the Cardoso administration. “If they hadn’t started with such a bold transition package, there wouldn’t see all this stress.”
He says, in an interview with Valor, that the Lula administration starts with a truly “cursed inheritance”: an inflation higher than 9% in the pocket of a large part of the population, well above the official index, of 5.8% for 2022. The full rate was lower due to tax cuts, which, however, do not benefit those who do not drive a car and pay the social tariff for electricity.
“This inheritance is complicated,” he said, and “increases the risk of difficulties between the Finance Ministry and the Central Bank.” According to him, it creates difficulties to take fiscal adjustment measures, such as the end of the tax relief on gasoline. On the other hand, it puts the Central Bank under pressure.
In his view, the Lula administration will face a very complicated economic scenario in the short term, with the deceleration of the world economy and a likely drop in commodity prices after March. But he sees opportunities thanks to two major trends. One is the relocation of factories from China to other parts of the world, a consequence of geopolitical tensions with the United States. The other is the decarbonization of the world economy.
“It won’t be easy,” he said. “If you start wanting to bring corpses from the industrial policy, like building refineries, naval program, chip factory, then I think it gets really complicated.”
Mr. Mendonça de Barros spoke to Valor twice, once before and once after the announcement of the government’s fiscal package. Read below the main excerpts from the interviews:
Valor:What is your view of the first days of the Lula administration?
Jose Roberto Mendonça de Barros: The Lula administration faces an enormous challenge, given the international economic situation and the inheritance received from the previous administration. I worked in the Fernando Henrique Cardoso administration, which left a blessed inheritance, which was unfairly called cursed. It was not. It was a blessed inheritance, also because of the civilized transition that was made. I believe that the government can see what a complicated inheritance is all about.
Valor:How do you see the international environment?
Mr. Mendonça de Barros: It is the most complicated scenario of the last decades. We have a strong deceleration of global growth. It is a rare combination of non-economic shocks with economic shocks, equally significant. Chronologically, it started with Covid, a huge supply shock at the height of globalization. It was inflationary pressure throughout the Western world, including Brazil, with an unprecedented fiscal and credit expansion. This response took place for understandable reasons, but in such a big way that it produced a demand shock. Then inflation came, which was an unavoidable consequence.
Valor:Will this still reverberate in 2023?
Mr. Mendonça de Barros: Yes, it will. Central banks were slow to respond. Brazil moved first, but after being a long time behind the curve. The U.S. central bank was a year behind the curve. Only now, in the last six or eight months, has the interest rate started to be high enough to knock down demand and bring inflation down. That’s not over. The discussion about the economic situation is about how far the Fed will go, whether it will raise rates by 25 basis points or 50 basis points at the February meeting. We, at MB Associations, think that it will go to 5% or 5.25% a year, at least. There is a long way to go.
Valor:In the past, the monetary tightening cycles had an impact on the exchange rates. What is going to be the channel that is going to hit us?
Mr. Mendonça de Barros: It was a different moment for us. It is always interesting to compare with Argentina. Ten years ago, we took a different path from Argentina because we had very large foreign exchange reserves. In Argentina, until today, the dollar is hand to mouth. When there is a shock abroad, inflation explodes. Here in Brazil, not anymore. The increase in commodity prices caught Brazil with a very positive capacity to increase exports. This was perceived in a very strong way last year, to the extent that the GDP was systematically higher than initially projected.
Valor:Will this trend continue in 2023?
Mr. Mendonça de Barros: Our scenario is that after March, the end of the Northern Hemisphere winter, commodity prices will fall. Demand is finally starting to fall worldwide, with the interest rate effect in the United States and Europe. China doesn’t have inflation as a problem, but it does have the Covid disaster. It has global GDP projections of less than 3%, which is very low. Absorption is going to be lower, and commodity prices tend to fall. It will be from March onwards, first by [reduced] seasonal demand for oil, although the temperature is higher than usual. In the case of food, the balance between supply and demand depends on the Latin American harvest.
Valor:Why this dependence?
Mr. Mendonça de Barros: We have the second non-economic shock in 2022: the world experienced the hottest year in history. The heat was so great that there were harvest losses in the Northern Hemisphere. And in Ukraine, you have the war, which is the third non-economic shock. The crop was not bad, but it makes the stock at the turn of last year to this year relatively low. As far as planting in Brazil is concerned, there is not going to be a problem, because we planted for a record harvest. However, it is another year of La Niña, which provokes a rainy spring. It rains well in the North and Northeast regions, but there is a lack of rain in Rio Grande do Sul. In Argentina, the weather is a disaster, they have already lost a portion of their crop, especially wheat. Brazil’s harvest will be very good, but there may be a little bit of a shortfall, as happened last year. So, this year we will no longer have this great income boost. In the last two years, a lot of tax was collected because of more expensive commodities.
Valor:How do things evolve in the medium and long term?
Mr. Mendonça de Barros: There is a geopolitical dispute between China and the United States, with many consequences, and one is the use of trade policy as a weapon. I’m talking about chips and the prohibition of direct and indirect exports from U.S. companies. We have Covid in China, which is leading companies that do not depend on the Chinese market for so-called reshoring. Part of the production is going to South Asia, part to Mexico, part to Eastern Europe itself. We have to keep an eye on this, especially in the Brazilian industry. And the other thing is the energy transition that runs in parallel. Energy transition is going through a paradoxical moment. Europe and a good part of the countries in the world have gone backward in energy because they are using coal, they are using what they have at hand. But it’s making us even more certain that we have to move forward in the energy transition. This puts us in a good position if we know how to take advantage of it.
Valor:And what about Brazil’s domestic economy?
Mr. Mendonça de Barros: Activity is slowing down. In the last quarter of last year, activity will be much weaker than in previous quarters. 2022 GDP is going to grow by 3%. But if you look at this year, everyone is working with something between 0.5% and 1%. We have 0.8%. These sources of growth from the past are going to be weakened or have the opposite sign. Interest rates are very high, at 13.75% per year, and the injection of income from abroad is going to be lower. Demand is starting to fall, defaults are rising. The service sector, which was the driving force behind the activity, is starting to slide. We enter this year with the GDP slowing down, but with very worrying inflation.
Valor:Can inflation complicate the new administration?
Mr. Mendonça de Barros: This is a truly cursed inheritance. When you look at full inflation, it is 5.8% in 2022, but the average of the inflation cores is above 9%. There are two major price groups. You have those that received tax breaks. For those who didn’t get a tax incentive, the [price] increase is much higher. The real inflation, for those who don’t have a car and pay the social energy tariff, is 9%. That is also why poverty increases. This inheritance is complicated. The minister of finance wanted not to renew the fuel tax relief, and the political wing of the government wanted to renew it to avoid a price shock upon arrival. The tax waiver costs R$50 billion per year. The Ministry of Finance was correct when it advocated the end of waivers.
Valor:Would this technically correct solution be politically possible, with radical groups in the streets?
Mr. Mendonça de Barros: I admit that increasing the price of diesel from the outset would be complicated, but not gasoline. Tax relief for gasoline is a subsidy to the middle class, it harms ethanol, it is an anti-environment measure, and it accounts for a great part of the lost tax revenue. It is possible to understand what the demand is from a political standpoint, but it was a mistake. Two months from now, if the gasoline tax is changed, I don’t know whether they will face the same problem or not. Here, inflation complicates things. The worst thing about this inheritance, in inflation, is this asymmetry that was built in a totally artificial and populist way. This increases the risk of difficulties between the Finance Ministry and the Central Bank.
Valor:What do you think of the fiscal measures announced by the economic team?
Mr. Mendonça de Barros: The Transition PEC (proposal to amend the Constitution), which leads to a primary deficit of more than 2% of GDP and strong growth in the debt-to-GDP ratio, would be destabilizing. The ministers of Finance and Planning have explicitly taken up the idea, which is very welcome, that they will try to keep the [primary] deficit between 0.5% and 1% of GDP. Why is this reasonable? All the analysts, since last year, already thought that a figure between R$80 billion and R$100 billion was reasonable. This was the waiver [to spend above the cap], which would mean something between 0.7% and 1% of GDP. If they hadn’t started with such a bold transition package, there wouldn’t see all this stress. But then, it is positive, welcome, healthy, but it is partial.
Valor:Why?
Mr. Mendonça de Barros: Because what we can put some security on are four items linked to tax collection. The first is PIS Pasep, which is legally authorized to be legitimately credited as government revenue. This means R$23 billion. And then, the expectation of the return of the gasoline tax, which is estimated at R$29 billion. This should already be there, but it was postponed, for political reasons. If it comes in March, better late than never. It is also money the proposal related to the Supreme Court’s decision that forbids the use of ICMS credits to purchase inputs. The estimate is R$30 billion. There is a revenue re-estimation in the budget, which everyone imagined could happen because inflation will be a little higher than initially thought. This comes to something close to R$20 billion, R$30 billion. Adding it all up, this part really brings in R$80 billion or R$90 billion in revenue. This is enough to bring the deficit down. It might be a little more than 1% of GDP, but it is already a good start.
Valor:What else remains to be done?
Mr. Mendonça de Barros: Three things are also explicit in the remarks of the ministers. First, a review of spending. We have a tradition of being a little suspicious of spending reviews because, in the past, many times promises were made and nothing happened. But now we believe that things can happen, like the revision of the Federal Unified Registration. There have been so many facilities in this recent period that there really is a way to have some expenditure. The second complementary point, and everybody knows that, is the new fiscal policy. We have to have a discussion by, say, April. We have to show what this fiscal rule is, that it is technically well organized and credible. The third point is tax reform, especially VAT [value-added tax]. This would mean a significant step in the right direction.
Valor:Minister Haddad said that his fiscal plan is a letter to the Central Bank. Has the tension between the Central Bank and the Finance Ministry started?
Mr. Mendonça de Barros: It is present. The two entities have the same objective, but they are going to have to develop a way of working in a complementary way. It is the first time that a newly elected government is installed with an independent Central Bank by law. Hence the image of the cards, on one side and on the other. I understand this as a learning process of coexistence, in a different institutional situation, with a complex inflation situation. That is why the markets understood the situation, nobody got nervous.
Valor:Would tax reform be a way to help rebalance the public accounts?
Mr. Mendonça de Barros: I think [it is important] not so much for the impact on short-term tax collection, but rather on the expectation and the medium-term message for attracting investments. This administration may have a combination of two very powerful things. One is the new stance towards the environment. If this is combined with a message of progress in tax reform, then we can say that we may have a significant increase in investments. But then we have to add something else that worries us, besides the fiscal part, due to past experience, which is the industrial policy. If at this moment, at the same time, we want to bring in the corpses of the industrial policy, like building refineries, naval programs, chip factories, then I think it gets really complicated. To review the sanitation framework, to review things that we have advanced.
Valor:In the first week, there was a lot of doubt about what the direction of the Lula administration was going to be, with conflicting remarks. Afterward, there was an attempt to unify the message. Will it be a government with a unified line?
Mr. Mendonça de Barros: There will be no unified message. The very assembly of the government team does not go in this direction. You have many people with different views. It will be even worse if the hegemonic tendency of the Workers’ Party manifests itself. There is an enormous opportunity. You see, the performance of the previous administration was so bad in health, education, environment, science and technology, and foreign relations, that this is an extraordinary opportunity. As a great financial market operator told me, the world is anxious to buy Brazil. They want to buy Brazil because the emerging world is all messed up. But, for God’s sake, you have to give them a reason to really buy.
Investment funds participation in business drops to 23.7% from 35% in 2019
01/16/2023
In a scenario of high real and nominal interest rates, with no prospect of a reversal in the short term, and still suffering from withdrawals from shareholders, the institutional investor — in this case, basically investment funds — has progressively shrunk its share in the Brazilian stock market. After reaching a peak, when accounting for a 35.2% share of business in 2019, the category saw its participation reduced to 23.7% on the 11th — the lowest percentage in 12 years, shows Valor Data survey.
The movement is opposite to that of foreign investors. More optimistic with Brazil — and with emerging markets as a whole — due to the reopening of the Chinese economy and the weakening of the dollar with a possible end of the tightening cycle of the Federal Reserve, international players now report 55.8% participation in the stock market, the highest level since 1994 — in 2019, this share was 42.6%.
The balance of contributions by non-residents in the secondary segment of B3 in the year already amounted to R$1.54 billion until the 11th, while the institutional investors accumulated withdrawals of R$965.9 million. Last year, the balance was R$100.8 billion positive for foreign investors and R$142.5 billion negative for the second group.
Part of the institutional investors’ movement is explained by the performance of the domestic fund industry last year, when there were redemptions in all modalities — R$158.1 billion in multimarket and stock funds, and another R$48.9 billion in fixed income funds. In other words, asset managers had to act in the face of this scenario.
Institutional investors temporarily returned to the stock market in the third quarter of 2022, precisely when the expectation for cuts in the Selic, Brazil’s benchmark interest rate, was more accurately priced by the market. But this was reversed after the first signs of the new administration, whether in the fiscal area, with the Transition PEC (the proposal to amend the Constitution), or in the assembly of the economic team, more political than the market wanted.
Joaquim Kokudai — Foto: Silvia Zamboni/ Valor
“I believe that the current positioning reflects what was already outlined in the election, with foreign investors preferring the new president and local investors wanting the incumbent’s reelection. The formation of the economic team and the first fiscal measures did not help either. Now, the Brazilian funds have developed this more cautious view, even if it is still too early to say that we will not have fiscal anchoring or something along this line,” said Joaquim Kokudai, head of Somma Investimentos.
In the executive’s view, if the new administration had taken better advantage of the initial days, the environment would be more favorable to enter the stock market now. In addition, despite having difficulties seeing any movement in the basic rate other than downwards, he says that the market will probably need more robust fiscal signals to price this.
Attractive stock prices don’t attract local investors as much, says Fabio Spinola, founding partner and manager of Apex Capital, because of the high interest rates in Brazil. “The foreigner doesn’t have an opportunity cost of 13.75%, which is the Selic rate. His opportunity cost is the American interest rate,” he said. “We were pricing interest rate cuts in the middle of the year, now we believe it will be at the end of the year, but in a small magnitude and subject to revision.”
According to Mr. Spinola, however, when the Minister of Finance, Fernando Haddad, starts to make clear the fiscal framework with which he will work, this should reduce the risk premiums that are high now because of the uncertainties. He also points out that this effect may be smaller for foreigners, who keep in mind the pragmatism of both previous Mr. Lula administrations, between 2003 and 2010.
He also approves the stronger presence of international investors in the Brazilian stock market — even pointing out the difference between the foreign investor, who studies the companies closely, and the trader, who usually buys indexes or more liquid companies. “I see the investor with good eyes. It’s like I’m saying that the local doesn’t have to be so negative. And you have to be careful because the market is so pessimistic that there could be a bullish move and the local investors won’t participate.”
Luiz Alves, manager of Versa Asset, believes that interest rates will need to fall because of the recession that is expected to occur this year. He projects that there will be a strong drop in activity already in the fourth quarter and, as much as there is an idea of maintaining rates, the recession will contain inflation, and interest rates will have to fall. “Then, if there is fiscal convergence by the Treasury, which is not so difficult, and the tax reform advances, we will have a favorable environment for the stock market to move forward,” he added.
However, even if there is a revision in profits in 2023, reflecting the projected recession, Mr. Alves believes that there is room for the much-vaunted repricing of local stocks, with investors projecting better numbers for 2024. He states that he currently operates with almost no cash on hand and maintains a strong position in retail, despite having increased his exposure to the financial and commodities sectors.
At Apex Capital, the long-only funds (which always bet on the appreciation of the stocks they invest in) are well allocated, with low cash: “I think there are a lot of cheap things, so I have little cash,” says Mr. Spinola. On the other hand, there is room to increase the long-short funds (who seek to gain both in the rise and fall of certain assets), if there is good clarity.”
According to him, the allocations of the moment are more defensive. “If we get into a more credible fiscal trajectory and a stronger possibility of interest rates falling, we can get more into cyclical companies, sectors like retail. We don’t have this today. We are more exposed to commodities, and in the financial sector,” said Mr. Spinola.
With no mandate to invest in the stock market, Rodrigo Melo, chief strategist of ASA Hedge, a multimarket fund from ASA Investments, says that the positioning in this modality is not only below historical levels, but negative. In the local market, he has what he calls a “double-carry” position, in which he operates long (betting on the rise) in the BRL, which has been helped by the interest rate differential, and short (betting on the fall) in the stock market. In the U.S., it is overbought (forecasting a rise) in interest rates and sold in the stock market.
ASA Investments did not invest in companies listed on the B3, not even in the commodities sector, one of the few that performed on the Brazilian stock exchange in 2022. “Before we even made directional investments in the companies, now we are trading the products directly. After the recent correction, for example, we added oil to the portfolio,” said Mr. Melo. “Our view doesn’t mean that no multimarket manager has a stock market, but it doesn’t seem to us a very favorable environment to make this move now.”
Some companies even consider making investments to ensure greater sugar production in the next harvest
01/16/2023
Uncertainties about what the Lula administration’s policies for fiscal balance, monetary policy, fuel pricing policy, and fuel tax policy will look like, in addition to doubts about the direction of the foreign exchange rate, are causing concern among sugarcane mills. As these factors tend to impact the ethanol market more immediately, sugarcane mills are already indicating that they could prioritize sugar production as a safe haven three months into the new harvest (2023/24).
According to Willian Hernandes, partner at Ribeirão Preto-based consultancy FG/A, there are even mills considering making investments to ensure greater sugar production capacity already in the next harvest, if necessary. “This [political] indecision is bad for [business] decisions. In this current tax scenario, making adjustments for sugar production to become larger is eminent,” he said.
An investment like this, however, can only be translated into effective production increase in at least six months – that is, if an investment decision is made now, it will only be reflected in increased sugar production from July on, at least, according to Ricardo Pinto, a partner at consultancy RPA.
As there are still many mills with idle capacity, this capacity may be filled by directing the largest supply of cane to sugar. But the capacity to reduce the ethanol supply is limited, says the consultant. “It is difficult to have big changes in volume only with mix adjustments.”
The record sugar production in the South-Central region was 38 million tonnes in the 2020/21 harvest, when the pandemic broke out, hitting the fuel market hard. At the time, the mills ended up directing all their production to sugar, for which there was still some demand. The two following harvests were shaken by drought and frost, but the consultants expect a resumption of the cane harvest in 2023/24.
The climate of uncertainty grew after the government published the provisional measure 1,157/2023, which postponed for two months the federal tax relief on fuels to allow time for reviewing the pricing policy. It is not known whether, after these two months, ethanol will recover the same special rate compared to gasoline as before the tax changes – as foreseen in the constitutional amendment approved last year – nor if and what will be the level of gasoline price control by Petrobras under future CEO Jean-Paul Prates.
The biggest fear of the mills is a repeat of what happened under President Dilma Rousseff, when domestic gasoline prices were kept well below international levels, which were high at the time, making it difficult for hydrous ethanol to compete at the pumps – and even affecting the sugar market because of the preference of mills to produce more of the sweetener.
An executive from one of the largest companies in the sector, however, told Valor on condition of anonymity that there may be an intermediation with Mr. Prates’s proposal for a price stabilization account. The alternative, however, still holds uncertainties and is expected to take a while to consolidate, creating a cloudy horizon in the first months of the harvest.
The mills are still studying whether to file a lawsuit against the federal government in case the tax relief is extended. But a normalization of the tax policy is not likely to change the scenario either. “Even if taxes on gasoline are resumed, ethanol price is unlikely to be higher than sugar price,” said Tiago Medeiros, director of the trading company Czarnikow.
The uncertainty is also causing caution in hedging, which is within the historical rate for this time of year. At Czarnikow, 65% of sugar exports for the next harvest are hedged, and 10% of exports for the 2024/25 harvest as well.
“The hedge, as much as it is a protection, brings uncertainties related to the cost, to the total return of the business, considering an ethanol scenario maybe less interesting with price controls put in place by Petrobras. The result is inaction,” said Mr. Medeiros.
The demerara sugar future contracts traded on the New York Stock Exchange that foresee deliveries during the harvest period in South-Central Brazil (for July and October) have also shown less attractive prices than the mid-crop contracts expired last year.
Lower value of iron ore brings Chinese share down to 26.8% from over 30%
01/16/2023
After reaching a share of over 30% in 2020 and 2021, China’s share in Brazilian exports fell to 26.8% last year, especially because the value of iron ore shipped dropped. The share is also lower than in 2019, when the Asian country absorbed 28.7% of Brazilian exports. Still, China remains the main destination of Brazilian exports, followed by the United States, with 11.2%, and Argentina, with 4.6%.
Experts believe that China will recover its share in Brazilian shipments in 2023, but partially, within a general landscape of expected slowdown in the global economy.
Compared to 2021, the U.S.’s share in Brazilian exports remained stable, with an increase of only 0.1 percentage point. Argentina, which is expected to be the first country officially visited by President Luiz Inácio Lula da Silva, advanced 0.4 percentage point, but is still far from the 7.5% reached a decade ago.
With the drop in shipments to China, the trade surplus with the Asian country totaled $28.97 billion in 2022, equivalent to almost half of Brazil’s total surplus of $61.76 billion. Despite being robust, the China-Brazil trade surplus was lower than in 2021 ($40.26 billion), when the Asian country accounted for two-thirds of Brazil’s total surplus of $61.41 billion.
The 4.5 points of difference in China’s share were spread among several trading partners. Besides countries in Asia, such as India and Singapore, the European Union and Latin American countries like Chile, Mexico and Colombia increased their shares. In all these destinations, Brazilian exports increased more than the 19.1% of the average of the country’s total shipments, data by the Ministry of Development, Industry, Trade and Services (MDIC) show.
The shipments to the Chinese also grew, but at a slower pace, only 2.1%. The result can be explained mainly by iron ore, the second item most purchased by China. The Asian country absorbed $18.2 billion in Brazilian iron ore in 2022, down 37% year-over-year, because of lower prices after a peak in 2021. With the retreat, Brazilian ore exports virtually returned to the level of 2020, when the country shipped $18.5 billion.
Besides the effect of the ore price in 2021, China also gained space in Brazilian exports in 2020, when the pandemic hit. That year, the Asian country grew amid a widespread global recession, which also makes the base of comparison high and explains the lower growth of the Chinese appetite in 2022. The situation was different last year, with evidence of greater difficulty in the economic recovery of the Chinese economy.
Also in 2023, the performance of the Chinese economy is an important variable for the evolution of Brazilian exports, said economist Livio Ribeiro, a partner at BRCG Consultoria and researcher at the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV/Ibre). In his view, China may regain a part of its share in 2023, but not all of it.
Despite general expectations in relation to the Chinese economy due to the recent decision to end the zero-Covid policy, Mr. Ribeiro still sees Beijing with difficulties to advance in the recovery of the domestic economy. In his view, the growth of Brazilian exports to China is likely to be driven more by iron ore and corn, a relatively new and rising item on the export list to the Asian country. But proteins, such as meat in general and soy, items more linked to family consumption, are unlikely to advance too much, he said.
The Chinese government’s policies to stimulate the domestic economy, he said, focus on investments. “But this China, today, is smaller than the China that consumes. As long as there is no decision to encourage consumer spending, there won’t be such a rapid movement to accelerate China’s growth.”
Sergio Vale, the chief economist of MB Associados, believes that the Chinese economy will be able to grow nearly 4% in 2023, with short-term stimulus measures. But this depends on how Covid-19 cycles will play out, he added. Depending on the effects of the disease’s impacts, the rate could fall to 3%. In Mr. Vale’s view, China’s consumption of Brazilian products, however, can benefit from the lower prices of iron ore, which will also have export values adjusted, in addition to a good Brazilian grain harvest.
In addition, he said, an advance in China’s share is likely to happen because, even with a slowdown, the Asian country is expected to grow in a scenario of sluggishness and a potential recession in important markets such as the United States and Europe.
Considering the expected global scenario of deceleration, José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB), projects for 2023 exports of $325.2 billion, which would mean a drop of 2.9% year-over-year. In this context, even if China maintains the level of demand for Brazilian items, it may gain ground in Brazilian shipments.
The 2022 scenario, he said, shows the reliance of Brazilian exports on agricultural or metallic commodities. Last year, despite the decrease in ore shipments, there was an advance in soybean and oil, the latter item driven mainly by price increases due to the Russia-Ukraine war. The three items, he said, probably accounted for 35.7% of Brazil’s export revenues last year, similar to the 35% in 2021.
Last year, the rise in oil prices also contributed to the advance of Brazilian exports. The sale of crude oil grew 39.5% and its share in Brazilian exports rose to 12.7% in 2022 from 10.9% in 2021 – it is very close now to the 13.9% share of soybeans.
The greater share of oil contributed to changes in the destination of Brazilian exports. The MDIC data highlights the rise of Singapore in recent years among the largest destinations of Brazilian products. In 2022, Singapore ranked seventh, with an increase of 43.4% in the purchase of Brazilian products in relation to the previous year. Although the advance is not new – the country’s share of Brazilian shipments increased to 2.5% in 2022 from 1.3% in 2019 –, oil exports also help explain this growth.
Of the $8.35 billion that Brazil sold to Singapore in goods in 2022, $5.9 billion was crude oil. Such a high volume, said Mr. Castro, suggests that the country re-exported Brazilian products to other countries in its region.
Fourteen auctions may take place this year, bringing R$740m in new investments
01/16/2023
In 2023, the focus of the sanitation market is expected to turn to municipal projects as there is no prospect of large state auctions in the short term. Fourteen municipal auctions are in progress and may take place this year, bringing at least R$740 million in combined investments, according to a survey conducted by Abcon, a trade association of private-sector operators.
In the last two years, the “intermediary” market of smaller water and sewage concessions has drawn interest from the private sector. Small city auctions have attracted fierce competition, with more than 10 auctions and a wide range of competitors. Even new platforms have been created to operate in this segment.
On the other hand, the segment faces a number of challenges to accelerate expansion: regulatory uncertainties, doubts about the financing of projects, and the difficulty of municipalities to structure calls for tender are cited by experts and executives.
One criticism is that the market for municipal concessions move much more slowly than the market would like. “There is a lack of projects. There are many companies fighting over crumbs, and the bids are highly aggressive,” said Yves Besse, CEO of Cristalina. The company, founded in early 2022 with a focus on the segment, has yet to win contracts.
General Water, another company that seeks to expand operations in the segment, ended up directing its efforts to the private-sector market due to the lack of auctions. “We are still interested and analyzing opportunities, but growth has been slow,” said CEO Fernando de Barros Pereira.
But the supply of projects has advanced. Today, there are 101 (of cities and consortiums) in the modeling phase, according to a survey by Radar PPP conducted at Valor’s request. In May 2022, there were 66 projects.
Considering only mature projects – those with a defined model and in the public consultation or bidding stage –, the consulting firm mapped 56 projects, compared with 43 in the first half of 2022. “Since 2020, this market is moving,” said Frederico Ribeiro, a partner at Radar PPP.
In addition, 2023 is a good year for municipal auctions considering the electoral calendar. While states are at the beginning of each governor’s term in office, which generally puts new projects on hold, the municipalities are at the third year of each mayor’s term, which is considered more favorable for bidding as there has been enough time for structuring and the following election campaign, which typically affects projects, have not yet begun.
Despite the great expectation, specialists point out challenges that cast doubt on the segment’s advance. There are at least three types of problems.
The first is the signals given by the new federal administration in relation to the new sanitation law, said Frederico Turolla, a partner at Pezco Economics. In his view, even if there isn’t a change in the rules, there is a lower expectation of inspection for the fulfillment of the universalization goals – which discourages municipalities to get concessions off the drawing board, according to him.
“The regulatory framework brought requirements that depend a lot on government action. We already see a lower interest in projects amid the prospect of flexibilization,” he said.
A second factor that may hinder municipal concessions is the restricted access to federal funds, said Renato Sucupira, a partner at BF Capital. This limitation was imposed by the sanitation law, which aimed to stimulate regionalization.
Under the current rule, cities that make an independent project – rather than within regional blocks – cannot tap financing from federal banks, which hinders their viability. “It’s not an impediment, but it is discouraging,” he said. It remains to be seen how the new government will treat this rule, he added.
Finally, a third obstacle to the segment’s advancement is the difficulty that local governments have in structuring good calls for tender. This is an old problem that not only affects the sanitation market, and explains the high rates of project “mortality” – many of them are paralyzed or discussed in court due to inconsistencies.
“In recent years, we see an improvement in quality, but this is still a problem. In small and medium-sized cities, structuring capacity is often very limited,” said Frederico Bopp, a partner at the law firm Azevedo Sette Advogados.
Despite the challenges, the expectation is that the “intermediary” sanitation concession market will continue to expand. The question is how fast it will advance.
“I believe that the market will continue to grow. I don’t know if at the same speed and scope as Brazil, because I would have to multiply the speed. But it will grow,” said Mr. Pereira, with General Water.
Italo Joffily, founder of Ysanso, another recently created platform focused on mid-sized projects, said that the municipal projects market will not end, even if there are changes in the sanitation framework. “Municipalities were doing concessions before the law. So, if there is a setback, there may be a reduction in speed, but the market remains,” he said.
Today, the company is trying to draw investors to enable the acquisition of contracts and participation in auctions. According to the executive, there are talks with three funds – two from the United States and one from the Middle East. The recent regulatory uncertainties in the sector hinder the conversations, but are not an impediment, he said.
For Mr. Besse, with Cristalina, the advance in the number of models brings a good perspective. “The success of recent auctions, which had high fixed concession payments, is encouraging other cities to build concessions,” he said. The company focuses on projects in São Paulo, Minas Gerais, Santa Catarina, and Rio Grande do Sul.
In addition to auctions, Mr. Joffily notes that there will be opportunities in the secondary market, for example, with large operators selling assets that no longer fit in the portfolio.
In the case of the auctions of regional blocks, which have been structured by states, with the support of the Brazilian Development Bank (BNDES), the expectation is for 2023 is low. “It is hard to believe that state governments will launch anything. Even in cases of reelection, there are always changes in the teams,” said Camillo Fraga, a partner of the consulting firm Houer.
For him, even the Porto Alegre municipal project, which is already mature, may be delayed, because it is structured by BNDES – Houer is among the advisors of the development bank. Mr. Fraga believes that this auction, which is not on Abcon’s list, could still be held in 2023, which would add R$2.2 billion in new investments.
According to Abcon, besides the 14 projects planned for this year, there are 23 others on the radar, both at the municipal and the state levels, with the potential to generate at least R$14 billion in construction works. Yet, they are still in early stages.
In strong expansion, the egg company estimates revenues of R$2bn this year
01/13/2023
Denilson Dorigoni — Foto: Divulgação
After investing more than R$1.5 billion in 15 acquisitions since it was created, in 2006, by businessman Ricardo Faria in Nova Mutum, Mato Grosso, Granja Faria is preparing to take the lead in the Brazilian commercial eggs market this year, with an expected revenue of R$2 billion, compared to R$1.3 billion in 2022.
The leap will be guaranteed mainly by the purchase of BL Ovos, announced in December and closed for R$290 million. But it also includes organic growth and the effective entry into the commercial phase of a new business field – the production of organomineral fertilizers.
In the meantime, however, new purchases may be announced. “We are prospecting,” said CEO Denilson Dorigoni. The executive explains that the total injection from the beginning includes assets and improvements and adjustments made after the incorporation.
Granja Faria is waiting for the green light from CADE, the antitrust regulator, to take over BL Ovos’s operations, and the company’s farms will also be improved with new technologies. The antitrust agency’s approval is expected to come in the coming weeks.
With the acquisition of BL, which has units in Espírito Santo and Goiás and posted revenues of R$300 million last year, Granja Faria expands its production and geographic presence. The brand is likely to be maintained because the egg market is still very regionalized.
“We have 22 units, all with their production and commercial areas. And with BL we will start serving Espírito Santo and Bahia, where we were not present,” said Mr. Dorigoni.
With headquarters and commercial egg production in Santa Catarina, and units in Rio Grande do Sul, Paraná, Minas Gerais, Goiás, and Tocantins, Granja Faria is focused on establishing itself in the Northeast region.
The fertile eggs are produced in units in Rio Grande do Sul, Santa Catarina, Paraná, Goiás, and Mato Grosso. In this division, 50% of the production is exported.
As the commercial eggs area was a natural consequence of the fertile eggs business, a large part of the company’s hens are free-range — about 1.5 million, out of a total that will reach 13 million, including the 3 million that will come with BL Ovos and the 4 million of the fertile egg division.
Mr. Dorigoni calculates, the total number of birds is around 200 million, and about 5 million of these are free-range.
Still in the egg segment, Granja Faria also has a processing industry that manufactures liquid and powdered products, sold to companies in the pasta and bakery segments, among others. This business accounts for nearly 5% of the company’s revenues.
Another area in which the company has been operating since 2021 is organomineral fertilizers. And for this one, the perspectives are for a strong advance in 2023, when production will start to take off in two plants, in Tocantins and Minas Gerais. The turnover was marginal in 2022 but is likely to reach R$200 million this year, according to the CEO.
Startup will operate importing and distributing products
01/13/2023
Claudio Lottenberg — Foto: Ana Paula Paiva/Valor
Zion Medpharma and Tegra Pharma launched on Thursday Endogen, a startup the two drugmakers called “the largest medical cannabis healthtech” in Brazil.
The new medical cannabis and nutrition brand will operate by importing and distributing products. In addition, it will take actions aimed at medical education, to expand the access of patients in the country to therapies with cannabinoids – active ingredients of cannabis.
Zion works with pharmaceutical products NatureLab, a laboratory of nutritional supplements, and Tegra is a local leader in importing cannabis-derived products for medicinal purposes, according to the statement from Zion and Tegra.
The partners in Endogen said the project initially envisages a commercial and operational agreement, with the integration of their scientific, educational, and sales teams.
Claudio Lottenberg, Endogen’s co-founder and chairman, said that “the new brand will impact the entire medical cannabis chain in Brazil, with benefits for patients, physicians, shareholders, and the scientific community in Brazil.”
“The outcome of this partnership is very positive. We will promote medical education to train and guide health professionals on the prescription of cannabis-based products; and direct education to society,” said the physician, who is also chairman of Sociedade Beneficente Israelita Brasileira Albert Einstein, which controls the namesake hospital based in São Paulo.
The statement informs that according to the Brazilian Cannabis Yearbook edited by the specialized consulting firm Kaya Mind, the country currently has more than 180,000 patients being treated with medical cannabis, considering the different ways of legal access to the medicines, among them the two areas of activity of the new company: imports and purchase in drugstores.
Marcelo Galvão, founder of Tegra Pharma, said that Endogen’s value proposition “stands out because it unites a cannabis specialist with a relevant player in the pharmaceutical and nutritional market, with a presence in more than 70% of pharmacies in Brazil.” “Plus, it offers the best products in the market, at truly competitive prices,” he said.
According to the statement, the healthtech will offer about 50 products, including cannabis-based pharmaceuticals and nutritional supplements. Two of its medical cannabis products have already been approved by Anvisa (the country’s regulatory agency) for sale in pharmacies, and eight more are expected to receive the same authorization in the coming years.
Lukas Fischer, the co-founder of Zion Medpharma, said it will be a brand positioned in the pharmaceutical channel, which offers a category of health products that stimulate endogenous factors in a preventive way, from the inside out, to promote the body’s balance (homeostasis) and the integral well-being of the individual.
The creators of Endogen had a joint turnover of more than R$40 million in the last two years, according to the statement. They expect to reach R$50 million in the next year.
In its first round of investments, the healthtech had the participation of the Green Rock fund and is already making new funding (Series A) under the leadership of MMK Brasil. In the first half of the year, Endogen intends to launch a digital marketplace for medical cannabis.
Analysts predict that labor market will calm down and average income will evolve slowly
01/13/2023
Unlike what most economists expected, the recovery of the Brazilian labor market started in 2021 maintained steam in 2022 — not only recovering from the losses caused by the Covid-19 crisis but also bringing down the unemployment rate to levels not seen since 2014. However, even in the face of signs of red-hot hiring — which weakened at the end of the year, the real average income of workers grew more slowly and has not yet returned to pre-pandemic levels. Economists estimate that this process may come to an end only in 2023 or even in the following years.
According to the latest Continuous National Household Sample Survey (Pnad Contínua), the average real income of Brazilians reached R$2,629 in the October quarter, up 4.7% compared to the same period in 2021. Still, it is between 2% and 3% below the pre-pandemic period, depending on the seasonal adjustment applied.
Unlike the recovery in employment, which took place gradually between 2021 and 2022, the flattening of income has been slow to reverse itself. At first, after the pandemic hit, many Brazilians ended up accepting lower wages or lower job positions to get back into the market. This situation led the average real income of workers to drop 8.9% in December 2021, when compared to the levels seen in February 2020, according to calculations by LCA Consultoria.
“During the pandemic, the ample idleness of the market put the bargaining power in the hand of companies and employers,” says Rodolfo Margato, with XP Investimentos. “Now, with current unemployment even below the Nairu [rate below which the labor market begins to impact inflation], the situation has reversed and the bargaining power would be more on the side of employees,” he adds. Mr. Margato ponders that the situation varies a lot depending on the industry and the region — in Santa Catarina, the unemployment rate is around 5%, while in states of the Northeast it reaches 12%.
Another factor that “delayed” this convergence was inflation, whose variation in 12 months reached double-digit levels between September 2021 and July this year, which ended up eroding the purchasing power of the adjustments, even in the face of strong nominal increases.
With the expected deceleration of inflation in the coming months and a labor market still heated, the real income is expected to continue recovering, said Mr. Margato. XP calculates that this indicator is still 3% below the pre-pandemic level and that this hole will only be closed in the second half of 2023.
For Gabriel Couto, an economist at Santander, another factor that helps to slow down the recovery of the real income was the lack of adjustment for civil servants in the last two years. “A faster recovery, in this sense, would depend on movements to replace the losses of this segment of workers,” he says.
Mr. Couto evaluates that this movement will be slow in the short term, in the wake of a more restrained labor market. Santander estimates that the average annual unemployment rate may grow slightly again in the next two years, to 10.1% in 2024 from 9.5% in 2022. Accordingly, it says, the average real effective income — a metric that considers the usual income and also extraordinary or occasional variations, such as bonuses —, is not likely to fully recover until 2025 or stay until 2026.
Bruno Imaizumi — Foto: Leonardo Rodrigues/Valor
In the calculations of Bruno Imaizumi, an economist at LCA Consultores, the return to the pre-pandemic level may only happen in the first half of 2026. Contributing to this very gradual scenario is a still significant contingent of the population with informal jobs and the cooling of employment dynamics.
Another way to measure the loss of purchasing power of workers, he says, is to use the basic food basket as a proportion of the average nominal income. Using prices practiced in São Paulo, Mr. Imaizumi calculates that, on average, workers spent 22% of their income to buy the basket in February 2020. The proportion reached 31.3% in April 2022 before dropping back to 27.7% in October.
“What I want to highlight is that income may improve, but perhaps not at the same speed as the variation of important prices for some groups, such as food,” he says. He estimates that the basic food basket would be 25.2% of income at the end of 2024. Mr. Imaizumi’s scenario also contemplates a relatively stable labor market, with the average unemployment rate dropping to 8.8% in 2023 from 9.2% in 2022.
A final factor that may help delay this movement is the slowdown in the generation of formal jobs — which generally pay better salaries. After consistently exceeding expectations in the first half of the year, the creation of formal jobs has lost momentum. In October, 159,000 jobs were created, according to the General Register of Employed and Unemployed Workers (Caged), against expectations of 210,000.
“Some studies are starting to show that, given the slowdown in the economy, informality is gaining some steam again,” says Rodolpho Tobler, an economist with the Brazilian Institute of Economics (Ibre), of Fundação Getulio Vargas. He ponders, however, that he hardly sees this rate surpassing 40%. In August, informality was a record 39.1%, but it has slightly decreased since then.
It is not new to hear about possible “creative accounting” at the retail chain Americanas. However, the disclosure of a R$20 billion misclassification in the funding of suppliers and financial expenses — which will affect profit, equity, and leverage of old financial statements — fell like a bomb among asset managers and analysts. Some portfolios will be hurt by the devaluation, but others were betting the stocks would fall and will reap gains.
Asset manager Moat reported that its funds’ positions in Americanas common stock amounted on Thursday to a maximum of 8% of Moat Capital FIA’s master equity and that all positions in that asset are in line with the risk metrics of the respective portfolios, despite the stress scenario. “Like the market as a whole, we were surprised by the company’s notice of material fact. We will do everything in our power to guarantee and protect our rights as a minority shareholder and in defense of our investors.”
ARX released a statement to shareholders with estimates of the impact on the shares of its corporate debt funds. The ARX Everest master and the ARX Denali pension fund version had the largest exposures, of 1.2% and 1%, facing adjustments of -0.542% and -0.449%, respectively. The managers declined to comment. Western Asset, in turn, says it is monitoring the unfolding news and is waiting for more information about the next steps taken by the controlling shareholders to have the dimension of the impact on the company shares.
As Americanas is a large issuer of debt, its shares are widely spread in the market and most assets have some exposure, says a credit manager. He says his firm’s funds have positions in short-term bonds, maturing in May and June, which have covenants clauses — a leverage measurement requirement that if it exceeds a certain level triggers early buybacks or upon waiver request. “The willingness of bondholders today is to demand prepayment of these debts at least.”
“I would be shocked if it were R$5 billion, R$20 billion is a lot,” says a stock manager who has small exposure in the shares. After attending the company’s conference, he says he got the feeling that not even the executives who had just taken over and resigned know the size of the problem. When you look at the liabilities, with a total of R$32 billion, of which R$5 billion are suppliers — [outgoing CEO Sérgio] Rial spoke of a little more — and there is a R$20 billion divergence, it gives the impression that there is something off the financial statement.”
He recalls that two years ago, when Via (owner of Casas Bahia) unveiled a labor liability of about R$2 billion, all hell broke loose. Now it is a R$20 billion event for a company that has assets of R$15 billion. The doubt is how much the trio of partners, Jorge Paulo Lemman, Beto Sicupira, and Marcel Telles, from 3G Capital, the controlling group, will be willing to contribute to the company’s capital injection.
For the creditor banks, it was difficult to make any credit assessment of the company because the financial statements of recent years are not reliable. If they stop paying the suppliers, the Americanas will cease receiving products on the shelf and the business will become unviable. Mr. Rial’s message, he says, was that if this happens, the solution stops being through capital injection and goes to court-ordered reorganization. “If the banks don’t pull the rug under the company, Americanas will keep going, and the capital injection will happen, who knows how big.”
This manager says he sees some contagion to other B3-listed retailers, but looking at the statements of Via and Magazine Luiza, there is apparently greater transparency on operations to the total supplier funds. “If you look at it maliciously, executives have always received an aggressive compensation package for hitting targets. Those who benefited were the executives with a fat bank account on top of profitability levels that didn’t happen.”
The decision, for now, was to keep the 1% exposure in Americanas shares in the portfolio, which after Thursday’s devaluation (77.3%) will fall to a residual slice of 0.25%. “Under normal conditions, I would have more or reduce to zero, but right now, given that there is no information, I don’t do anything because the loss has already come.”
Stunned by a failure that seems to have been repeated for years without being noticed by the board of directors, auditors, and creditors, a stock manager who does arbitrage strategies tells that he had a short position in Americanas because he observed an inefficient operating cash burn and a higher margin than its competitors, which didn’t seem compatible. “I didn’t think it had an accounting inconsistency, I saw numbers that the company couldn’t explain, that generated some discomfort,” he said.
He maintains that transparency compared to other 3G Capital ventures was lower, with Ambev on an international level, and Americanas more prone to omitting information. “There was a big governance gap between two companies that belong to the same economic group. It was always a little bit strange, which makes us separate what is a trade and what is an investment.”
This manager believes that the problem with Americanas, on the audit side, is even greater than it was with Petrobras, where a lot of things went off the earnings report, according to the investigations disclosed during Operation Car Wash. In the current case, it was inside the statements. “It seems to have a worse reputational issue and raises questions about similar practices in other companies.”
The firm’s funds will report a positive result for Thursday. The manager says that the short position would continue to make sense, but that the rental market has practically dried up, with rates rising from 20% to almost 100%.
A credit manager who held Americanas bonds in the local market but was short on the company’s bonds overseas will also reap profits. It is worth making adjustments now, but he does not reveal why the strategy was not executed. “The most important thing is how this impacts the credit market as a whole. For now, we haven’t seen any forced selling.”
The stock analyst at an asset management company says that the R$20 billion figure is a legacy of the previous management, but instead of making a mega provision, downgrading to a loss whatever was necessary to put the house in order, Mr. Rial decided not to take that risk. “If it was just an accounting practice in the classification of the operation, putting the gain that should be financial and changing the line, taking it from operational to result, okay, but it’s trickier when it affects the gross profit.”
Ilan Arbetman — Foto: Leo Pinheiro/Valor
The accounting inconsistency raises questions about whether the episode will unfold into a systemic risk, which goes beyond the companies in the retail sector, said Ilan Arbetman, an equity analyst at Ativa Investimentos.
“When you are faced with a notice of material fact that has the resignation of the CEO and the institutional relations officer 10 days after they took over, under the justification that there may be a line of suppliers that overnight goes to more than R$20 billion from R$5 billion, it makes us rethink the analysis of financial statements as a whole,” he says.
Despite the questions about how Americanas will come out of this, he says that the operation between companies, suppliers, and banks is good for the whole chain, but if such a hole is proven, it becomes clear that an adjustment in this accounting is necessary. “The same way this is hidden in Americanas, it would set a precedent to at least investigate whether there is something of the same nature in other retailers, which often share market practices,” he says. “Thinking about the stock market and the capital market, it could spill over and raise the risk level of how Brazilian assets are viewed.”
Mr. Arbetman, with Ativa, evaluates that the case is more of an accounting failure than some kind of purposeful action to make up the numbers, but that there may be a loophole on the regulatory side that allows some kind of interpretation that caused this snowball. “I see that if the company and the auditors knew of the existence of this situation and the possibility of the numbers being contested, there could have been some kind of indication, either on the financial statement or in the press release, but it was not done.”
The analyst says that “luckily” he didn’t have the shares in his recommended portfolio since late last year, lowering the indication from “buy” to “neutral.” The asset will undergo a new re-evaluation.
Mantaro Capital also no longer had the shares in its fund, due to the assessment that the company was already in a weaker competitive position, especially in the e-commerce activity, says Andreas Ferreira, retail analyst at the asset. “The company had already been on a quarter-to-quarter leverage trajectory and had a problem with working capital, it burned a lot of cash,” he said.
Mr. Ferreira cites that, by the adjustments he makes internally, the debt/Ebitda ratio was already around six times and that, when considering this new surprise, the leverage could explode. For now, he adds, everything is preliminary, it is still necessary to know what the impact of the reclassification will be on the old financial statements and how the capital injection will take place. “Possibly, the company will have to downsize, make its operations more efficient, will enter survival mode, and will find it more difficult to retain and attract good people.”
Mr. Ferreira says that it is common in the retail sector to have operations in which the company assumes the drawn risk when banks advance funds to suppliers, but that in general they account for this correctly. Another possible contagion would be to the banks, but the sector in Brazil is solid and the risk seems to be well distributed.
An asset manager evaluates that the fact that the controlling shareholders are almost “celebrities” in the business world helps the market to have patience with the company, after the success of the creation of Ambev, a result of the merger of the Brahma and Antarctica breweries. “This ended up hiding a controversial governance history,” he says, citing, for example, the conversations that resulted in the merger with Interbrew, in 2004, in which the Belgian group agreed to buy the “bad Ambev”, with the shares that the controlling shareholders had, and in exchange, Ambev took a Canadian brewery using preferred shares and paying a high price for it.
The deal, valued at R$8 billion, provided for shared management even with a larger Belgian share in the combined operations that gave rise to Inbev, which would later become the world’s largest brewery. “Everybody forgot about it because it was a fantastic success.”
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