Investors expect a pro-market name to run economy

If a politician is named for Treasury, even a pragmatic one, there may be an adjustment in assets, CIO at WHG says

11/07/2022 9:37PM  Updated 16 hours ago

Andrew Reider — Foto: Leonardo Rodrigues/Divulgação

Andrew Reider — Foto: Leonardo Rodrigues/Divulgação

The nomination of a pro-market Finance Minister in the next Luiz Inácio Lula da Silva’s administration, such as Arminio Fraga, Pérsio Arida, or, especially, Henrique Meirelles, is becoming a growing expectation in the market, and anything different from that may be enough to put pressure on Brazilian assets. The statement is from Andrew Reider, chief investment officer at Wealth High Governance (WHG).

In an interview with Valor, he said that investors have worked with three different scenarios about the profile of those who may occupy the ministry. The first is that of ideological politicians, and the second is of more pragmatic politicians, such as senator-elect Wellington Dias (Workers’ Party, PT, of Piauí), governor of Bahia Rui Costa (PT, of Bahia), and former minister Alexandre Padilha; and the third of names closer to the market.

“It seems that the chance of being an ideological politician is migrating to zero. The pragmatic politician was the consensus until a few weeks ago, but the view that it could be someone from the pro-market group is growing,” he says. “During the [past] week this has increased with Henrique Meirelles appearing a lot since he participated in an event with Lula.”

Given this expectation, Mr. Reider says, if a minister from the group of pragmatic politicians is ultimately announced, Brazilian assets tend to fall. This fall tends to be moderate, but, for the executive, the intensity may vary according to the team that will be in charge of the Treasury. “If they are several technicians, reproducing the first Lula government, it would be ok, but still a little worse than the dream the market embarked on in the last few days,” he says.

The executive recalls, however, that the global scenario also influences the performance of assets.

In case Mr. Meirelles — former Finance Minister and former president of the Central Bank — is chosen, the manager sees “the market will be a little more bullish, but not much.” In the case of an unlikely name, such as Fraga, former president of the Central Bank, Mr. Reider sees a chance for investors to get excited. “But you would have to see what the minister would say at the beginning, what would be the priorities,” he says.

According to the WHG executive, the choice of the Treasury is important for signaling what can be expected from the next government in the fiscal field. “There is talk of an increase in spending of R$100 billion to R$200 billion. A number above R$200 billion would be very frowned upon.”

While local investors are focused on the fiscal issue, foreign investors monitor inflation and when the Central Bank will have room to cut interest rates. “The two converge because if the fiscal is moderate and inflation falls, there is room to cut interest rates,” he says.

Investors abroad have already received a positive signal after the election. “The fear was that there would be something more disruptive,” he says. “In practice, I think what happened showed the strength of our institutions, with [Vice President Hamilton] Mourão and Tarcísio [de Freitas, governor-elect of São Paulo] recognizing the result immediately.”

According to the executive, foreigners see that there is a turn to the left in Latin America, with a risk of institutional rupture in some countries, but they saw that Brazil is different. “For them, this has value, although it was already expected by local investors,” he says.

Mr. Reider says Brazil was already an option for foreigners because of the several crises around the world, such as inflation and rising interest rates in the United States, lower growth in China, and the war in Ukraine. “Latin America ends up being good for a global allocator. And most countries in the region have had very anti-market elections and anti-market policies,” he says. “That leaves Brazil and maybe Mexico, which could benefit.”

*By Augusto Decker — São Paulo

Source: Valor International

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Not even elections affected corporate debt market

Expansion has resisted the uncertainties linked to politics and the country’s fiscal policy

11/06/2022

Vivian Lee — Foto: Carol Carquejeiro/Valor

Vivian Lee — Foto: Carol Carquejeiro/Valor

It seems that Brazil’s corporate debt market ignored the general elections. The moment of expansion has resisted the uncertainties linked to politics and the country’s fiscal policy. Both supply and demand for corporate debt securities showed a strong pace even in the months previous to the vote – elections typically put issuers and investors in a “wait-and-see” mode.

“We expected higher volatility before the elections, with investors apprehensive about buying new assets,” said Artur Nehmi, partner and fixed-income manager at Sparta. “But August and September were two of the best months of the year in terms of volume of bond offerings in the primary market.”

Figures from Anbima, the association of securities firms, show that issues increased 3.81% year-over-year in September, to R$40.7 billion, considering bonds, commercial notes, promissory notes, real estate receivables certificates (CRI), agribusiness receivables certificate (CRA) and credit rights investment fund (FIDC). In August, the amount climbed 1.7% year-over-year, to R$33.76 billion.

In spite of the single-digit growth, the expansion is substantial because the basis of comparison was high. According to Anbima, the fixed-income segment raised R$467.9 billion, up from last year’s record. Bonds were the main instrument used by companies last year, with a volume of R$253.4 billion, more than double that of 2020.

In the nine months of 2022, issues reached R$329.22 billion, up 24.85% year-over-year, considering the same instruments. A survey by Ibiuna based on funds with at least 20% of their capital allocated in corporate debt and more than R$100 million in net worth indicates net inflow over 18 months in a row in these portfolios. They raised R$370 billion in the period.

“October is not yet consolidated, but according to the preliminary figure, the pace remains very strong,” said Vivian Lee, partner, credit strategy manager and co-chief investment officer at Ibiuna. “The funds still need to allocate capital, and a good part of this flow is directed to high-grade securities. As long as strong funding continues in the industry, demand will follow suit,” she said.

“The volume of corporate issues increased a lot [between 2021 and 2022] and matched demand,” said Ana Luísa Rodela, head of credit management and analysis at Bradesco Asset Management, at an event of the Brazilian Association of Pension Funds (Abrapp). “In eight months of 2022, there was a 30% year-over-year growth in the supply of credit [in the capital market]. So funding has grown a lot, but demand has been able to keep up.”

The resilience of the corporate debt market goes beyond rising interest rates that drove a migration of funds from equities and hedge funds to bonds, said Paulo Bokel, head of credit at Absolute. “There was a significant growth in the market sustained by the arrival of investment platforms and BNDES [Brazilian Development Bank] winding down subsidized loans to large companies,” he said. “We saw the stock growing mainly after 2017 and 2018.”

Mr. Bokel explains that in 2013, bank credit for businesses amounted to R$350 billion, while corporate debt securities stood at R$280 billion. “Today we have, in August data, a stock of R$1.1 trillion in corporate debt versus R$440 billion in corporate bank credit,” he said.

The transformation of the distribution channels, the investment platforms, and the end of subsidized credit from state-owned banks enabled the entry of new companies in the capital market and an increase in financial firms with teams focused on corporate debt, said Mr. Bokel, with Absolute. “Many new companies that were not so well known joined the market, and credit funds came in the wake of this expansion.”

The secondary market also reflected this expansion, said Ms. Lee, with Ibiuna. “When we look at the number of securities and the volume traded by the new independent firms, we see that the secondary [market] has improved a lot and this brings as a positive side a greater liquidity for the assets.”

“Since 2020, we started to have players in the secondary market of debentures [the main category of corporate debt securities] that didn’t operate before,” said Ms. Rodela, with Bram. “Most are operating in the secondary debenture market.”

According to her, “this year, we [Bram] have already had more than R$10 billion of trading in the secondary [market of debentures].” The specialist explains that they are “new securities that were with other players and now come to credit funds, bringing the possibility of active management that did not exist before, such as doing duration management [average investment term]”.

Data from Anbima indicate a traded volume in the secondary market of debentures of R$251 billion in 2022 by October 26. This is equivalent to a monthly average of R$25 billion. The volume is 13.63% above the monthly average of 2021, of R$22 billion. The level is more than double the 2020 average of R$12 billion, and almost three times higher than the trading per month in 2019, when the secondary market turned over R$8.5 billion monthly on average.

The variation in the spread – the premium traded in the secondary market – also provides a barometer of the current balance between supply and demand, even in times of uncertainty. The JGP Idex-CDI index, which tracks a basket of the most liquid CDI-indexed debentures, indicates relative stability in the average spread over 2022. CDI is the interbank deposit rate.

Ibiuna highlights the strength of fixed income in a broader vision. According to Ms. Lee, “there is still a strong flow of funds to [banking instruments such as] CDBs [certificates of bank deposit], LCIs [real estate credit bills] and LCAs [agribusiness credit bills] from large financial institutions.” In his view, many investors prefer the credit risk of large banks, as shown by “a very large flow directed to CDBs.”

The stock of debenture bonds is today around R$983 billion, said Ms. Lee. The supply of CDBs, on the other hand, which are the banks’ main funding instrument, currently reaches R$2 trillion. “The evolution of stock growth reflects this dynamic,” she said. “That of CDBs is double compared to 2019, while that of debentures in the same period advanced about one and a half times.”

In her view, the indication of an inflow of funds in fixed income signals the maintenance of demand for bonds in the following semester. However, from the moment in which the Central Bank starts to signal more clearly the beginning of a fall in interest rates, this flow may reverse toward riskier assets, such as equities. “Everyone knows that credit is cyclical. And a reversal will depend a lot on the performance of other asset classes, combined with a visibility of falling interest rates. The moment these numbers show net redemption, we will see a greater need for portfolio adjustment to maintain credit positions.”

*By Sérgio Tauhata — São Paulo

https://valorinternational.globo.com/
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Petrobras to distribute R$43bn in dividends

Workers’ Party criticized decision, as unions and minority shareholders filed lawsuits to cancel extraordinary payment

11/04/2022

Petrobras announced on Thursday afternoon the distribution of dividends worth R$43.68 billion related to the results of the third quarter. The payment was approved in a meeting of the Board of Directors, even after the Association of oil workers and minority shareholders of Petrobras (Anapetro) filed a lawsuit with the Prosecutor General’s Office (PGR) requesting the Federal Supreme Court (STF) to halt the distribution.

The high distribution of dividends by the state-owned company is the target of criticism from members of the Workers’ Party (PT), of President-elect Luiz Inácio Lula da Silva, victorious in Sunday’s election. In the elected government team, the view is that the scenario reduces the company’s investment capacity.

The company Thursday afternoon released a material fact with the announcement of the distribution of R$3.35 per preferred (PN) and common (ON) stock in circulation. The first installment, worth R$1.67445 per stock will be paid on December 20, followed by a second installment, worth R$1.67445 per stock to be paid on January 19, 2023.

Adding dividends and interest on equity capital (IOC), the company has already approved the payment of R$179.98 billion in proceeds related to the results of the first three quarters of 2022. The amount is much higher than last year. During the entire fiscal year 2021, the company paid R$101.39 billion in dividends.

The company’s dividend policy provides that when it has gross debt of less than $65 billion, the company may distribute to its shareholders 60% of the difference between operating cash flow and investments. The policy also provides for the possibility of paying extraordinary dividends, provided that this does not affect the company’s financial sustainability. “There are no investments held back due to financial or budgetary constraints, and the decision to use the surplus resources to remunerate shareholders presents itself as the most efficient for optimizing the allocation of cash,” said the company in the material fact released on Thursday.

About R$20 billion of the amount announced on Thursday may go to the federal government. In a letter sent to the stated-owned companies in July, the Economy Minister had asked for an increase in revenue from dividends to cover the costs of the proposed constitutional amendment that allowed the payment of Auxílio Brasil of R$600, in addition to the handouts for truckers, taxi drivers and cooking gas vouchers.

PT’s president Gleisi Hoffman classified the volume of dividends as a “bloodletting” in the company. “We do not agree with this policy that deprives the company’s investment capacity and only enriches shareholders. Petrobras has to serve the Brazilian people,” she said in a post on social media. In the lawsuit, Anapetro also says that a mixed economy company, such as Petrobras, differs from a 100% private company by using the company’s profits to make “strategic investments” capable of ensuring “sustainability”, as well as the fulfillment of its social function. Instead, it says, the current policy has transformed the company, according to the association, into “a notorious distributor of lucrative dividends that have turned the company into a cash cow of the market.”

The entity also sent a letter to the board of directors of the state-owned company asking the collegiate to abstain from voting on this matter. The association argued that the dividend distribution refers to the company’s financial statements that will be approved in a shareholders meeting to be held only in April next year, after the government transition. In the letter sent to the collegiate, to which Valor had access, the president of Anapetro, Mário Dal Zot, says that the federal government, Petrobras’ controlling shareholder, guides the company to act in a harmful way to the national interest by “not having long-term planning that allows an efficient and timely energy transition.”

Jean Paul Prates — Foto: Edilson Rodrigues/Agência Senado

Jean Paul Prates — Foto: Edilson Rodrigues/Agência Senado

“We are facing a clear scenario of abuse of rights by Petrobras’ controlling power. If this abuse was already established with the distribution of dividends in this amount, the situation is aggravated by the post-electoral scenario and the generating obligations to the future management of Petrobras,” says the document. Anapetro, together with the Parliamentary Front in defense of Petrobras, chaired by Senator Jean Paul Prates (PT, of Rio Grande do Norte), will file a new lawsuit today in the Federal Court against the dividend distribution announced by the company. Mr. Prates is one of the names listed to assume the presidency of the state-owned company in the future Mr. Lula da Silva’s government.

For André Vidal, head of oil, gas and basic materials of XP, the payment of dividends does not compromise the accounts of the state-owned company, which “keeps generating enough cash” and has been operating under the leverage of its financial policy, which talks about a target of $60 billion of gross debt and may reach $65 billion. At Thursday’s Petrobras board meeting, nine members voted in favor of the dividend payment and two were against, according to sources. Currently, the board has four executives appointed by minority shareholders, a representative of the employees, and six appointed by the federal government, including the CEO of the company, Caio Paes de Andrade.

The Unified Federation of oil workers (FUP) also sent a letter to Mr. Andrade, with a request for the company to engage in the government transition process. In the letter, FUP’s general coordinator, Deyvid Bacelar, asks the company to guarantee the necessary information for the new managers that will take over the company after 2023.

*By Gabriela Ruddy, Fábio Couto, Maria Cristina Fernandes — Rio de Janeiro, São Paulo

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Rumo starts new railroad construction in Mato Grosso

Total investment is up to R$15 bn to build more than 700 kilometers of new tracks until 2025

11/04/2022

Beto Abreu — Foto: Claudio Belli/Valor

Beto Abreu — Foto: Claudio Belli/Valor

Cosan’s logistics company Rumo approved on Thursday the start of works to extend its rail network in Mato Grosso. The construction works are expected to begin this year and gain traction as of 2023, said CEO Beto Abreu.

This is a large venture to extend Malha Norte (Northern Network) from Rondonópolis to Lucas do Rio Verde, with more than 700 kilometers of new railroads. The total value of the investment is projected at R$14 billion to R$15 billion.

The project, however, is expected to be built in stages. The first phase, which will cost R$4 billion to R$4.5 billion and start now, will be 210-kilometer long and link Rondonópolis to Campo Verde. This stretch is expected to be concluded by the end of 2025 so that operations can start in the first quarter of 2026.

With the first stage of the project, Rumo is expected to increase the railroad’s capacity from the current 25 million tonnes per year to 35 million tonnes per year. This increase of 10 million tonnes is the first step. The terminal to be built in Campo Verde is expected to reach a capacity of up to 30 million tonnes. “It will depend a lot on the expansion of the market and the speed of the construction of the railroad to Nova Mutum,” said Mr. Abreu.

The idea is to build the terminal in partnership with a strategic partner. A preliminary agreement has already been signed, but the name of the group has not yet been disclosed.

This first stretch of the railroad is the most complex and costly, according to the executive. “From the engineering complexity standpoint, the trickiest part is the beginning. We will have a challenge from start, which is the construction of a 1-kilometer-long bridge across Rio Vermelho. The other two remaining stretches are easier.”

The project foresees a branch line to the capital Cuiabá and another to the north of the state, reaching Nova Mutum and Lucas do Rio Verde. The railroad is expected to be completed between 2028 and 2029.

The construction works were delayed by a few months because the Federal Prosecution Service (MPF) required that the company consult the indigenous peoples of the Boe Bororo people, from Tadarimana e Teresa Cristina villages, who live on land close to the project.

After negotiations involving prosecutors, the Public Defender’s Office, the indigenous peoples, and the company, an agreement was signed on Thursday allowing the construction of the project to begin, with the commitment that Rumo will consult with the indigenous peoples.

The construction works begin this year with the first viaduct over BR-163, a highway that intersects with Rumo’s railroad in its first kilometers. In early 2023, construction begins to gain more traction, said Mr. Abreu.

Financing for the construction work is expected to use different sources of funds. “The company’s mantra is to operate in the coming years with a leverage ratio between 2 times and 2.5 times [net debt-to-EBITDA]. Considering our expectation of cash generation, we will move forward with the necessary funding,” the executive said.

The Malha Norte expansion project is innovative from a regulatory standpoint. Unlike other large railroads in the country, the project will be carried out under an authorization model. This means the project is in private hands, with no government counterparts. Besides, it is a state contract – not a federal one – that was signed with the Mato Grosso government in September last year.

Mato Grosso Governor Mauro Mendes (Brazil Union), who suggested the project to Rumo, was reelected in the first round last month. Mr. Abreu said that the election of Luiz Inácio Lula da Silva (Worker’s Party, PT) to the presidency does not impact the company’s plans. “We have our strategy regardless of the new administration that takes office in January. We have operated under the Bolsonaro and Lula administrations. No matter which party is in power, our strategy continues.”

*By Taís Hirata — São Paulo

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Vitol joins energy trading in Brazil

Company received initial investment of R$108m, will focus on large consumers

11/03/2022

Murilo Soares — Foto: Silvia Zamboni/Valor

Murilo Soares — Foto: Silvia Zamboni/Valor

Vitol, the world’s largest independent oil trading company, has launched its energy trading company in Brazil – a segment in which consumers directly negotiate their demands. The new company is called Vitol Power Brasil and aims at serving large energy consumers.

The company received an initial investment of R$108 million, is backed by its parent company, and has already started its first operations. The potential client portfolio, in theory, may be equivalent to Vitol’s own portfolio, which is not disclosed for strategic reasons. The solutions will be tailored to the client’s needs, a typical approach in this sector.

The company sees great potential in the Brazilian market, said Murilo Soares, Vitol Power Brasil’s chief commercial officer. According to him, this is the first step of a business platform.

The focus is on large players in the wake of ordinance 50, of 2022, published by the Ministry of Mines and Energy, which allowed consumers in the high-voltage market to buy electricity from any supplier. This is expected to increase the liquidity of the free market, which will bring more business opportunities, said Mr. Soares.

“Brazil is the largest energy market in South America, with more than 70 GW of demand and several large players. Vitol joins Brazil’s power industry with a long-term vision and commitment, bringing all its trading expertise from around the world to this market,” he said.

The liberalization meets the 500-kW limit defined by Law 9.427, of 1996, by allowing any high-voltage consumer, regardless of their consumption, to choose their supplier. Nearly 106,000 new consumer units will be able to join the free market.

The company knows the country’s potential, as it has been operating in Brazil’s oil and gas sectors for more than 20 years. The arrival of the global fuel giant will diversify its local operations, but it intends to operate mainly in the free energy market.

Brazil’s power industry is expanding mainly through the free market. Some trading companies are expanding their operations by offering services to consumers and generation companies and building greenfield projects specifically for renewable sources.

But Mr. Soares, who leads the company’s implementation and operation in Brazil, said this model is not Vitol’s path. The Dutch multinational company intends to be an independent trading company without generation assets, at least at this first moment.

“As an energy commodity trading company, we will not have a specific focus with regard to the energy sources we will trade. However, it is important to emphasize the company’s commitment to encouraging renewable sources. Vitol’s renewable energy business in the United States includes more than 1 GW of solar and wind power in operation or under construction and an additional pipeline of more than 2.5 GW of projects in solar and battery storage, totaling investments of more than $1 billion. In Brazil, we are unlikely to invest in generation assets at a first moment,” he said.

The market is likely to advance in the coming years, especially with regard to credit risk, with the entry of new and large customers, according to the executive. With greater security and liquidity, he expects a favorable scenario for increasing operations and creating new products.

“In this sense, the energy trading company is the first step towards the creation of a Vitol business platform in the country. By 2023, the company projects to commercialize about 50 average megawatts and by 2025, with the consolidation of the high-voltage market, to reach 1 average gigawatt.”

The focus on the wholesale market and medium and long-term contracts does not rule out retail operations. “We have already started the process to create Vitol Power Brasil’s retail profile in the Electric Energy Trading Chamber (CCEE), which shows that although it is not our focus, we will be attentive to opportunities.”

Currently, only consumers with a demand of more than 500kW, such as industrial companies with electricity bills over R$150,000, can buy electricity from any supplier. The Ministry of Mines and Energy proposes expanding the possibility of choice to low-voltage consumers – including residential and commercial ones, which are in the so-called regulated power market – as of 2028.

*By Robson Rodrigues — São Paulo

Source: Valor Interntional

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Investors say goodbye to Petrobras’s dividend era

Analysts start to review recommendation after elections

11/03/2022

Petrobras, Brazil’s largest company by revenues and market capitalization, emerged as a clear loser from presidential election — Foto: Leo Pinheiro/Valor

Petrobras, Brazil’s largest company by revenues and market capitalization, emerged as a clear loser from presidential election — Foto: Leo Pinheiro/Valor

Analysts had a thorny task in the last few months: predicting the future of Brazilian listed companies, especially state-owned ones, before the tightest presidential election ever, with two antagonistic projects for the country. Now that fate is sealed, the time has come to redo the math.

In general, the already consolidated understanding is that the retail, education, and low-income construction sectors will benefit most from the new federal administration. In particular, the correction of target prices and recommendations for winners and losers has begun. Petrobras, Brazil’s largest company by revenues and market capitalization, is clearly in the second group.

The state-owned behemoth has the power to cause seismic tremors in the economy and investments. According to the most recent data from Exchange B3, the shares with the public are divided among about 718,000 individuals, 5,900 companies, and 2,900 institutional investors.

This correction by banks and brokerages had already been happening more discreetly after the first round of voting, according to the events and the winds of the polls. With the definition on Sunday, it tends to become more explicit.

On Monday morning, after the results were known, XP cut by 25% its price target for Petrobras, although keeping a buy recommendation, and took the opportunity to reallocate its bets on its private-sector competitors Prio, which it started covering, and PetroRecôncavo, whose coverage was resumed. BTG Pactual cut its price target by 10%, keeping the previous neutral recommendation, while J.P. Morgan made the most radical move, cutting by 30% the company’s price target and downgrading its recommendation to neutral from buy.

Analysts have different views on what will happen with the oil company’s pricing policy but are unanimous about the change in investments – for example, the return of heavy allocations in refining – which means the end of the dividend bonanza.

“While we are confident that many mistakes of the past will not be repeated,” BTG says in a report, “investors cannot underestimate the new government’s ability to use Petrobras as a vehicle to drive economic growth, investment, jobs, and energy security.”

Put into numbers, the bank calculates that a 50% increase in investments would reduce the dividend yield in 2023 to 15% from 21%, which would cause shares to fall 25%. If investments double, in the worst-case scenario, the dividend yield drops to 9%, causing stocks to decline 53%.

J.P. Morgan foresees payment of 25% of free cash flow in dividends, compared to 60% today, and has a pessimistic view regarding the pricing policy. The bank has reduced the chances of the company passing on international oil prices to fuel prices to 40% from 60%. “The new administration has openly criticized Petrobras’s conduction and has already signaled changes in the company,” the bank said in a report.

Petrobras shares closed slightly higher on Tuesday, at R$33.37 (common shares) and R$29.86 (preferred shares), after a sharp drop the day after the runoff vote.

The state-owned oil company’s recent phase as a relatively safe and highly profitable investment, after a long recovery from the corruption scandals of the not-too-distant past under the Workers’ Party’s rule, has created a great expectation among analysts and investors of the continuity of the current strategy of divestment and large dividends, as well as potential privatization.

The shock of reality was enormous: since the stock peaked on October 21, the company’s market capitalization has dropped R$106 billion. And this is all about politics, considering that local and foreign peers gained ground in the same period.

In this particularly good year for the industry, Petrobras still rose 50%. Yet, it underperformed Prio (which climbed 78%), PetroRecôncavo (70%), and U.S.-based rival Exxon (80%).

For the coming months, there is nothing to expect but ups and downs caused by political news. The third-quarter earnings report, which comes out on Thursday, will have little to say.

In J.P. Morgan’s view, the shares will only come out of a volatile scenario when there is clarity about the plans for Petrobras, which is likely to take at least the first six months of the new term, it predicts.

Meanwhile, more analysts will review their price targets for 2023 and also their recommendations, as a correction seems inevitable. The company was, even with all the problems of a state-owned company, coming in at multiples closer to its peers. But this is now history.

*By Nelson Niero, Felipe Laurence — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Petrobras may put sale of stake in Braskem on hold

With Lula da Silva’s victory, oil company is expected to analyze again plan to leave industry

11/03/2022

Petrobras may or may not exercise the right of preference to acquire the partner’s stake, sell its part or remain in the business — Foto: Edilson Dantas/Agência O Globo

Petrobras may or may not exercise the right of preference to acquire the partner’s stake, sell its part or remain in the business — Foto: Edilson Dantas/Agência O Globo

The sale of Petrobras’s stake in Braskem is uncertain after Luiz Inácio Lula da Silva (Workers’ Party, PT) won the presidential race, sources involved in the talks say. The state-owned oil company hired J.P. Morgan as an adviser last year, when Novonor, the company formerly known as Odebrecht, decided to sell its share.

With the sale of Novonor’s stake, Petrobras may or may not exercise the right of preference to acquire the partner’s stake, sell its part or remain in the business. Novonor, with 38.4% of the company’s capital, and Petrobras, with 36.15%, are part of the petrochemical company’s controlling group.

Sources told Valor that the state-owned company was willing to offload its stake for the right bid. However, with the victory of Mr. Lula da Silva, who has already said he is against privatizing more companies, the oil company is expected to reanalyze the idea of leaving the Brazilian petrochemical company.

Sources close to Mr. Lula da Silva’s campaign have begun to discuss the role of Petrobras in the new administration. They told Valor that the integration of refineries and petrochemical companies is a global trend. One source understands that the petrochemical industry is an important and profitable field that should be strategic for Petrobras. However, there is no definition yet on the sale of Petrobras’s stake in Braskem.

One of the biggest critics of Petrobras’s strategy of focusing on exploring oil in deep waters, and a historical advocate of the company’s stake in the petrochemical company, former Petrobras CEO José Sergio Gabrielli is in the group that advises the Workers’ Party regarding the future of the state-owned company. Mr. Gabrielli told Valor he sees synergies between refining and the petrochemical industry, but only the future administration can speak on Petrobras’s strategy for the sector.

Sources linked to Novonor’s creditor banks say that the Odebrecht family will have to get rid of the business, and Mr. Lula da Silva’s election does not change this situation. However, it is unclear whether potential buyers will maintain a bid covering only Novonor’s stake should Petrobras decide to remain in Braskem’s capital.

The company received a new proposal from the private-equity firm Apollo, which raised the bid to R$47 per share, but there are no formal talks underway, a person familiar with the matter said. The U.S.-based firm will do due diligence before moving forward with the deal, but sources say this is no longer a determining factor.

Apollo’s main concern is the petrochemical company’s assets in Alagoas. Although Braskem has advanced a lot in the talks with authorities about soil sinking in Maceió, the firm still sees risks, including from the financial standpoint. The amount provisioned to cover expenses with the geological problem, allegedly caused by Braskem’s activity there, totals R$12.9 billion so far.

In previous talks with Novonor, Apollo had imposed as mandatory the due diligence before making a formal bid. Now, the company will do the due diligence at its own risk, a source said. The company is said to be interested in Petrobras’s stake as well.

At this moment, there are no negotiations on the table, despite Apollo’s decision to raise its bid. Unipar’s bid for Braskem’s sliced assets in São Paulo has already expired, and the company is waiting for signals from Novonor on what will happen with the petrochemical company before presenting the same bid again or a new one. J&F is also potentially interested but has not presented a new bid.

According to sources, Novonor’s creditor banks showed no interest in Unipar’s bid. They hold about R$15 billion in debts converted into Braskem shares. On the other hand, Apollo’s bid is supported by part of this group. BTG Pactual left the negotiations, according to a source linked to the creditors. The debt-buying division of André Esteves’s bank had asked for a steep discount.

Some creditors believe that Braskem shares can recover in the future, but are skeptical of trading them on the stock exchange in the short term. The banks wait for a better bid, especially from foreign investors.

Novonor and Unipar declined to comment. Apollo and Petrobras did not immediately reply to requests for comment.

*By Mônica Scaramuzzo, Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Blau buys Bergamo, seeks new deals

Purchase is first since IPO, in April last year, and new mergers and acquisitions are expected

10/01/2022

Marcelo Rodolfo Hahn — Foto: Ana Paula Paiva/Valor

Marcelo Rodolfo Hahn — Foto: Ana Paula Paiva/Valor

Blau Pharmaceuticals signed a contract to purchase 100% of the capital stock of Bergamo Laboratory, a subsidiary of the American Amgen, one of the largest biotechnology companies in the world, for $28 million. The acquisition is Blau’s first since its IPO, in April last year, and new mergers and acquisitions operations are likely to take place, according to the company’s command.

“The acquisition will increase our offer of oncological products, with an important increase in production capacity”, said Marcelo Hahn, CEO of Blau, to Valor.

Bergamo Laboratory reported net revenue of approximately R$185 million in 2021, according to Blau, and produced about 2.2 million units, with a portfolio of 19 products and about 190 employees. Founded in 1946, the laboratory was acquired in 2011 by Amgen.

Payment for Bergamo does not involve shares and will be made in cash upon the closing of the deal. The acquisition still needs to be approved by regulatory authorities such as the antitrust regulator Cade, which is expected to happen between 90 and 120 days.

“For us, it is an excellent opportunity. Bergamo Laboratory has biological products and specialized in oncology,” said the head of mergers and acquisitions of Blau Pharmaceuticals, Roberto Morais. “The biggest asset is the immediate increase in production capacity and some new oncology products, chemotherapy,” Mr. Morais said.

Bergamo Laboratory has one plant in Brazil, in Taboão da Serra, in the metropolitan area of São Paulo, very close to two other Blau’s plants, in São Paulo and Cotia, close to the capital. With the acquisition, Blau adds a unit to the other five it already has, in addition to the plant that will be built in the Suape Port Complex in Pernambuco state.

According to Hahn, Bergamo Laboratory will also add to Blau a good knowledge of the industry and a go-to-market model, a differentiated approach to commercialize oncologic products inside clinics and hospitals. According to him, Amgen has differentiated knowledge and works with innovative drugs, and with the acquisition, Blau also receives expertise in the commercial area.

The CEO also says that Blau is looking for new opportunities. The company carried out an IPO in April 2021 and raised R$1.26 billion. “We have never been so active in the area of mergers and acquisitions. We have many companies in our pipeline right now,” in various stages of negotiations, Hahn says. Blau is reinforcing its mergers and acquisitions team.

“We have a well-defined strategic plan. Besides opportunities and pillars for growth in the organic part, we want to increase our industrial park to increase our production capacity. We want to grow in the market and position ourselves as one of the major manufacturers in Brazil and Latin America. For this, we will depend on acquisitions”, according to Mr. Hahn.

The idea is to maintain the operation in Brazil and be able to supply South America and other countries. “In the business plan, we have investments in Brazil, the United States, and Europe for manufacturing”, says the CEO. According to him, in Latin America, there are offices, packaging, and quality control area, necessary in some countries, but the proposal is to centralize in a place with high production capacity and low operating costs.

Besides that, the company is investing in plasma collection centers in the United States. In June last year, it began the collection of plasma in the first center and is finishing the construction of the second, which may start operating by the end of this year, says Mr. Morais. According to him, the company already has defined the location of the third plasma center and is in negotiations for the fourth location, in the Florida region. Mr. Morais says that the company is on schedule for the IPO

“The feeling is that we are just beginning, we still have enough breath to grow, next year we have a public offering, and we will have a very strong investment in the coming quarters to continue growing and bringing value to shareholders,” says the CEO.

*By Cristiana Euclydes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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CSN will invest to replace imported steel

Steelmaker, which acquired a line to make high added value, pre-painted steel in South Korea, has a project valued at up to R$400m

11/01/2022

Luis Fernando Martinez — Foto: Silvia Zamboni/Valor

Luis Fernando Martinez — Foto: Silvia Zamboni/Valor

Brazilian steelmaker CSN wants to occupy a market seen as relevant for high-value-added steel that is currently served by imported material, almost entirely from China. This type of steel, qualified as pre-painted, is used to make white goods like refrigerators, freezers, washing machines, and others, and others, like as coating panels for home construction.

The company is preparing an investment of R$350 million to R$400 million to set up a production unit in Brazil, in a place to be defined this month or by the end of the year. The steel company has acquired in South Korea a complete sheet-painting plant, which will have an annual capacity of 160,000 tonnes, said Luis Fernando Martinez, CSN’s chief commercial officer.

According to him, the rolling mill belonged to the South Korean steelmaker Hyundai Steel and had been paralyzed since September 2020. It is being disassembled and will start being shipped to Brazil later this month.

“We have been analyzing this project for some time, aiming to add value to CSN’s galvanized steel,” the executive said. To make the pre-painted steel, the company uses its own galvanized steel coils.

Mr. Martinez said that there are a few potential sites where the plant could be assembled, including Araucária (Paraná), where it already has operations; Volta Redonda (Rio de Janeiro), next to CSN’s steel production plant; São Paulo; and the Northeast region. All these possibilities, with more or fewer chances, depend on negotiations for the concession of incentives, besides logistics and trained employees.

CSN plans to start the operation of this industrial unit in up to 18 months, seeking to speed up construction and to begin sales to the market in the first quarter of 2024. The infrastructure in Araucária and Volta Redonda is ready, which is seen as an advantage. “This speeds things up,” he said.

Brazil currently imports 165,000 tonnes per year of pre-painted steel coils, he said. “We want to occupy this space and replace imports.” Almost 95% of the material comes from China, through ports in Santa Catarina. São Francisco do Sul, Imbituba, and Itajaí account for almost 91%, according to data from importers.

CSN is already Brazil’s only producer of pre-painted steel. The company’s rolling mill facilities in Araucária have an installed capacity of 120,000 tonnes a year. “We are operating at maximum capacity,” said Mr. Martinez, stressing that it is a booming market.

The Brazilian market for this type of steel last year totaled 259,000 tonnes, according to data from the Brazil Steel Institute and the Economy Ministry. Of this volume, 156,800 tonnes were absorbed by the home construction activity, while 45,100 tonnes were used to make housewares and for commercial purposes. Capital goods, especially electronic materials, accounted for 33,200 tonnes. The automotive industry, the fourth-largest market, accounted for 11,600 tonnes.

Companies such as Whirpool, Panasonic, Metalfrio, Kingspan (panels), Metalúrgica Barra do Piraí, Marko (roof tiles), Imbera, Panatlântica, Facchini (vans), J. Paulatti, Fiat, Elevadores Atlas, and Frigelar are among the users of pre-painted material in Brazil, sources say.

Imports have had continuous growth in the last five years: they went from 73,000 tonnes in 2017 to 95,000 in 2018, 119,000 in 2020, and 165,000 last year, according to official data.

Mr. Martinez said that the applications of pre-painted sheets have been growing in several sectors, many of which it cannot serve. He cited, for example, trailers and semitrailers, van manufacturing (which uses a lot of aluminum, a competitor metal), building facades that imitate wood, and other architectural solutions.

From its Araucária unit, CSN delivers the material to the clients cut in the format ordered, painted, and packaged with plastic film, said Mr. Martinez. In other words, ready to enter the production line. “With the new line, which will further increase quality, we will be able to replace the so-called post-painted steel [painting done at the client’s site or service provider] with pre-painted steel. This is one more market,” the executive said. “A lot of imported material doesn’t meet quality standards.”

*By Ivo Ribeiro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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EU rejects Lula’s plan to change agreement with Mercosur

Mercosur and the EU continue to work technically on the bi-regional agreement

11/01/2022

Ursula von der Leyen — Foto: Jean-Francois Badias/AP

Ursula von der Leyen — Foto: Jean-Francois Badias/A

The European Union signaled its opposition to president-elect Luiz Inácio Lula da Silva’s intention to change the Mercosur-EU agreement.

On Saturday, the day before the runoff vote, Mr. Lula da Silva published an article in the Paris-based newspaper Le Monde saying that “improving the terms of the Mercosur-European Union agreement will allow us to increase our trade, deepen the bonds of trust and strengthen the defense of our common values.”

In his first speech after his victory in the presidential race, on Sunday, Mr. Lula da Silva warned that he wants to “resume relations with the United States and the European Union on new bases.” And that he was not interested in trade agreements that condemn Brazil to be an eternal supplier of commodities.

When asked by Valor, the EU answered Monday with a clear “no” to Mr. Lula da Silva’s idea, saying that the focus should now be on working towards the implementation of the negotiated understanding.

“We believe that the agreement negotiated with Mercosur is very beneficial for both parties and will provide a framework for strengthening political and sectoral cooperation, trade and sustainable development,” said Mirian Ferrer, EU’s spokesperson for Trade and Agriculture.

“We look forward to engaging with the Brazilian authorities, as well as with the other Mercosur countries, to bring the ongoing process to a successful conclusion (of the agreement). We are notably seeking to strengthen our cooperation on sustainability and deforestation through an additional instrument,” she added.

Mr. Lula da Silva’s idea, which means eventually reopening the trade agreement, had already been cited by him during a trip to Europe before the election campaign. The president-elect suggested that Brazil should get more concessions, for example in the industrial front, and not limit itself to slight gains in agriculture, sources say.

But Brussels indicates that nothing will change. A source from the bloc reiterated that “in principle” it is unlikely to change. The Europeans are still talking about sending to Mercosur a call for an additional commitment against deforestation by the end of the year. This European document is still in the making in the European Commission, and has not yet been sent to the 27 member states, sources in Brussels say.

Reopening the Mercosur-EU agreement, after complicated negotiations over 20 years with interruptions, means continuing to delay an improvement in bilateral trade conditions for companies on both sides against a particularly tense geopolitical backdrop.

Mercosur and the EU continue to work technically on the bi-regional agreement, recently closing issues such as geographical indications. Nobody expects anything to move forward soon, not least because the president-elect’s transition team will have other priorities.

In Brussels, the president of the European Commission, Ursula von der Leyen, in a recent speech to the European Parliament, failed to mention Mercosur when talking about trade agreements. She cited new updates of agreements with Mexico and Chile, but these two are not going to come out any time soon either.

People within the Bolsonaro administration believe that Brazil’s private sector has not asked to reopen what has already been negotiated with Europe. And that Argentina’s President Alberto Fernández, aware of the fragility of its economy, is the one willing to review the understanding.

Plus, some people in Brasília feel that the Europeans made a mistake by failing to close the agreement with Mercosur as soon as possible and to accelerate Brazil’s entry into the Organization for Economic Cooperation and Development (OECD).

The prevailing assessment is that European governments, in order to satisfy some segments of the population that demanded more emphasis on the environment, have antagonized too much the relationship, especially with Brazil. As a result, European companies that want to invest more in the region do not have the advantages they could have through the bi-regional agreement, for example.

*By Assis Moreira — Geneva

Source: Valor International

https://valorinternational.globo.com/
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