Benjamin Steinbruch signed check for R$5.2bn to take over LafargeHolcim’s operations in Brazil
09/08/2022
Benjamin Steinbruch — Foto: Claudio Belli/Valor
By signing a check for R$5.2 billion, businessman Benjamin Steinbruch, the main shareholder of steelmaker Companhia Siderúrgica Nacional (CSN), concluded on Tuesday the purchase of the cement company LafargeHolcim Brasil, unveiled one year ago. The deal was approved by CADE, the country’s antitrust watchdog, in August and was not contested within the usual period of 15 days. In dollar terms, the acquisition was closed for $1.025 billion – at the exchange rate of R$5.7 to the dollar at the time, the value was equivalent to R$5.8 billion.
In a notice of material fact, CSN said its subsidiary CSN Cimentos S.A., which concentrates the group’s cement manufacturing and sales operations, takes over 100% of the shares of LafargeHolcim (Brasil) S.A. As a result, the company acquired from the French-Swiss group Holcim is now called CSN Cimentos Brasil S.A. and becomes a wholly owned subsidiary.
Last year, Mr. Steinbruch’s cement company also acquired Paraíba-based Cimento Elizabeth for R$1.1 billion.
The acquisitions of Elizabeth and LafargeHolcim elevated CSN to the rank of Brazil’s second-largest cement producer, behind only Votorantim Cimentos and just ahead of InterCement Brasil. Total annualized production and sales of the new CSN Cimentos are estimated at 12 million tonnes – a volume to be confirmed by the end of 2023.
Holcim representatives arrived in Brazil on Monday to define the last details of the deal – and receive the check from Mr. Steinbruch’s hands. They met with him and had dinner with CSN executives, the businessman said during an event held by Valor. CSN was awarded in the Metallurgy and Steelmaking category.
“I am paying this semester, until the end of the year, R$9 billion in acquisitions,” Mr. Steinbruch said, listing the purchases of the cement company, Rio Grande do Sul-based power generation company CEEE-G, and two other companies in the sector (Energética Chapecó and Santa Ana Energética).
According to the businessman, the group has a project to invest more in power generation, with emphasis on renewable energy, such as solar. The goal is to supply the group’s own demand. The manufacture of cement is electricity intensive.
CSN already owns a thermal plant (235 MW) in the steel plant of Volta Redonda (Rio de Janeiro) and stakes in the hydroelectric plants of Itá (in the South region) and Igarapava (between Minas Gerais and São Paulo).
LafargeHolcim brings a net revenue of R$2.15 billion obtained in 2021, with an EBITDA of 64.2%, to CSN Cimentos. Ten operational units (integrated plants, mills and blending) in the states of Paraíba, Bahia, Espírito Santo, Minas Gerais, Rio de Janeiro, Goiás and São Paulo will be integrated by the group, with a capacity of 10.3 million tonnes a year.
After the two deals, CSN Cimentos has 13 plants in Brazil.
Lack of consistency in inflation projections still worries asset managers
09/08/2022
The Central Bank has tried to cool expectations that it will start reducing Brazil’s key interest rate as early as the first quarter of 2023. The fact that short-term inflation slowed down and commodity prices went south in the international market was a determinant to bringing down future interest rates in the last few days. This backdrop paved the way for the market to price in the yield curve the key rate, known as Selic, below 13.75% per year as early as March 2023.
The rise in future rates on Tuesday partly eliminated this variation. Yet, some market participants still expect interest rate cuts early next year.
Central Bank President Roberto Campos Neto told the audience at an event held by Valor on Monday that the monetary authority is not thinking about lowering interest rates at this moment. He has also reinforced the message of the last meeting of the Monetary Policy Committee (Copom), in August, when the Central Bank indicated that it will analyze the need for raising the Selic once more. Mr. Campos Neto’s message was reinforced by Bruno Serra Fernandes, the bank’s monetary policy director, who showed concern on Tuesday about the de-anchoring of inflation expectations for 2024 – the median is 3.43%.
“The work of the Central Bank has already been done. It recognizes this and has signaled that, from now on, it must remain cautious in order to bring inflation expectations to the target. We agree. The Central Bank must remain cautious, but we also think that this stance will make inflation converge to the target,” said Gustavo Pessoa, a partner and fixed-income manager at Legacy Capital. The firm’s baseline scenario includes rate cuts starting in March 2023.
“Since inflation is just starting to slow down, the Central Bank doesn’t want to commit to cuts, but reality will weigh in. Inflation has started to give way strongly, and not only because of the government’s measures. And this lower inflation has left the real interest rate [ex-ante] close to 9%, a level that will be enough to make inflation converge to the target. This will allow the Central Bank to start cutting interest rates at some point,” Mr. Pessoa said.
In Legacy’s view, in March 2023 the monetary authority will look, in particular, at inflation for 2024 on the relevant horizon, whose expectation is today at 3.43%. “We expect expectations to anchor again and the median of 2024 projections to return to 3% by March. The Focus expectations will probably drop, given the Selic rate level. So it would be a natural path for the Central Bank to start cutting interest rates. We think this will happen as of March, and how fast interest rates will drop depends a lot on inflation dynamics here and abroad,” he said.
On Monday, the yield curve was pricing a cut of about 0.20 percentage points in March 2023 as the starting point for an easing cycle. After the market closed on Tuesday, there was a relevant repricing, and the market stopped betting on cuts in the first quarter of next year.
Alexandre de Ázara, the chief economist of UBS BB, believes that Mr. Campos Neto wants to combat expectations of a premature start to the easing cycle. “I believe he said that it is important to maintain interest rates flat for a while. In my view, the Central Bank doesn’t like to see the market price cuts in the first quarter and I think he wanted to fix that,” he said.
Mr. Ázara believes it is early to price a cut in the first quarter, but sees room for stronger cuts throughout next year, as of June. UBS BB projects that in 2023 the Central Bank will make four 100-basis-point cut in the Selic rate, starting in the second meeting of the second quarter, and a final 50-basis-point reduction in 2023. In addition, the bank expects the cycle to continue in 2024, with the Selic reaching 7.75%.
“This will help inflation to converge to the target in 2024. If it falls too slowly, inflation will not converge in 2024. If it falls too early, it will not converge in 2023,” said Mr. Ázara, whose projection for Brazil’s official inflation index IPCA next year is 4%, well below the market consensus of 5.27%.
Cooler commodity prices in the international market have been key for the downward variation in short-term interest rates in recent weeks. Brent oil prices, now close to $90, drew attention.
Jose Carlos Carvalho — Foto: Leo Pinheiro/Valor
“For two and a half years, commodities put upward pressure on inflation. It was a headwind that is now changing a little into a tailwind. I think this factor hindered the Central Bank a lot, but now it can be helpful,” said José Carlos Carvalho, a partner and head of macroeconomics at Vinci Partners. Yet, he recalled that services inflation is still under pressure. “Activity is still strong and should remain that way, but commodity-related prices more than make up for the rise in services.”
Mr. Carvalho believes that the Central Bank closed the monetary tightening cycle with the Selic at 13.75% and has a downward trajectory of interest rates ahead, considering that the real interest rate in Brazil is between 7% and 8%. According to him, these are quite high levels, well above the natural rate of interest, which is around 4%. “With help from commodities and the time for monetary policy to make its effect, the cycle of Selic hikes is over. There is no reason for the Central Bank to deliver even higher interest rates,” he said.
The cycle of interest rate reduction is related to the new federal administration and its fiscal policy, the executive with Vinci said. “In the first quarter of 2023, the Central Bank will still want to understand the fiscal policy of the next administration. In the second quarter, if it is the right thing to do, it can start thinking about cutting interest rates,” Mr. Carvalho said.
The fiscal policy is precisely one point highlighted by Tomás Goulart, the chief economist of Novus Capital, to advocate the view that the key interest rate is unlikely to start being reduced at the beginning of next year. He also cited the level of interest rates in developed countries, especially in the United States.
“The fiscal anchor is the first condition for the Central Bank to start reducing the Selic. It must know what the fiscal anchor will look like in the next administration, given the fact that the spending cap has lost credibility,” he said, citing the rule created to limit growth in public spending to the previous year’s inflation, which was circumvented by the Bolsonaro administration. The monetary authority will only feel ready to start easing the Selic when it finds out which fiscal regime will prevail in Brazil, he said.
“And then, considering the legislative process, we still don’t know what the next administration will be and what will be proposed in terms of an anchor. There is no clarity at the moment. And the legislative process to replace the fiscal anchor and pass something in Congress that has credibility should take around six months, that is, it will be time-consuming,” he said. When assessing the necessary conditions for the Central Bank to start reducing the key interest rate, Mr. Goulart said that such a cycle may start in June or August 2023.
Leaders of companies that stand out in 27 sectors intend to increase investments in 2023
09/05/2022
Fiscal responsibility and an environment that provides security to private-sector investments are the basis of the model that Brazil must pursue in the next four years, according to the executives that run the most efficient companies in the country.
For this recipe to work, tax and administrative reforms were defended as priorities by the businesspeople that gathered on Monday during the “Valor 1000” award event, which highlights the companies with the best performance in 27 sectors.
Frederic Kachar, managing director of print media and radio at Grupo Globo, highlighted the renewal of winners in the categories: of the 27 winners, 12 are different from the previous year. “This shows the dynamism and how relevant companies emerge in Brazil every year,” he said. Mr. Kachar emphasized that the winning companies show “concern in developing the entire country with operations in all regions.”
“We are celebrating much more than good financial results. We celebrate the values that companies have embraced and must continue to pursue as well. Efficiency, capacity to invest and innovate, environmental protection, employee and community development, for example,” said Maria Fernanda Delmas, Valor’s editorial director.
Although they see 2023 as a still challenging year, due to the need to keep fighting inflation and the still adverse external scenario, most leading companies in each sector intend to increase or maintain the volume of investments compared to 2022. The executives also emphasize the importance of ensuring social advances in the country.
Alexandre Birman, CEO of Arezzo&Co, defends the respect for the spending cap and says that “just as businesspeople need to efficiently manage the generation, allocation, and distribution of their resources, the government must do the same. It is necessary to fight ‘huge money leaks’ so that the funds are directed to the priorities.” Among these, he lists food, education, and health.
Copel CEO Daniel Slaviero agrees that the first priority is the goal of balancing public accounts, which, in his view, will create the necessary conditions for the resumption of sustainable growth, based on the confidence of the private sector. But he points out that the “government will need to establish, together with society, the size of the indispensable social safety net for the neediest population.”
This is also one concern of B3 CEO Gilson Finkelsztain. He stressed the importance of a favorable environment for the strengthening of Brazilian companies so that they contribute to the generation of employment and income. However, he cited urgent issues like “bridging the educational gap, which widened during the pandemic, and having a growth structure that contributes to reducing inequalities in the country.”
Jeane Tsuitsui — Foto: Silvia Costanti/Valor
The balance between fiscal austerity and inclusive public policies can come from increased public-private partnerships and investment in technologies that raise the efficiency of services provided to the population. For this reason, Jeane Tsutsui, CEO of Grupo Fleury, advocated an advance in health access policies, with incentives and partnerships that “bring quality care and primary care solutions to low-income populations,” such as telemedicine and digital devices.
In addition to fiscal austerity, Thiago Muramatsu, CEO of Syn Prop & Tech, lists as necessary fronts for action “the adjustment of interest rates, inflation control, and unemployment reduction.” Randon CEO Sérgio Carvalho said it is necessary to move forward with structural overhauls, an infrastructure plan and the efficiency of public management. “These are fundamental pillars to boost the country’s economy, with the potential to improve the business environment and stimulate Brazilian companies to grow, generate wealth and sustainably develop their communities.”
Reflecting on his area of expertise, Eduardo Parente, CEO of the Yduqs group, points out that in basic education it is key to improve “training and continuous development of teachers” in addition to “ways to raise the quality and mitigate regional inequalities of the public education system, which is very comprehensive but needs to deliver more quality.” As for higher education, expanding access of lower-income people to universities should be a priority, he said.
Whirlpool Chairman João Carlos Brega said that “there is no silver bullet,” but considers that the “resumption of the country’s growth and the construction of a safe, stable and attractive institutional environment for investments, capable of providing dignity, well-being and prosperity to Brazilians” depend on an agenda that includes tax and administrative overhauls, and expansion of investments in infrastructure. But he recalled that “society has a very important role to play” in pressing presidential candidates and in presenting new agendas during the electoral campaign.
A tax overhaul designed by executives was considered by WEG CEO Harry Schmelzer Jr. as the “number 1 priority.” He said that it “should include tax breaks for payrolls, investments, and exports, avoiding the accumulation of tax credits and also paying attention to the simplification and reduction of the bureaucracy of the processes.” The rationalization of the tax system also appears as one of the priorities of TIM CEO Alberto Griselli, along with the greater integration of Brazilian companies into international production chains and a “great effort to modernize the Brazilian educational system.” A similar vision is shared by Localiza CEO Bruno Lasansky, for whom investment in education and entrepreneurship is fundamental: “These are fronts with high potential to drive social transformation.”
For Milton Maluhy Filho, CEO of Itaú Unibanco, “controlling inflation and ending the cycle of high interest rates are two major short-term priorities,” since a more robust resumption of growth depends on them, with job and income generation. The continuity of the structural overhauls, especially the administrative and tax ones, is his third priority. Marcelo Arantes, the chief people, marketing and press relations officer at Braskem, listed as priorities maintaining the industry’s competitiveness and legal security, and encouraging job generation.
Suzano CEO Walter Schalka sees a weak world economy in 2023, possibly heading towards recession, which will demand attention in business management. “Although we work with products that present greater inelasticity in consumption, it is necessary to pay attention to the economy to be prepared,” he said, considering that a “fiscal contraction seems inevitable” in the country. World inflation and the cycle of high interest rates in rich countries and its effects on Brazil are also on CSN’s radar. However, CEO Benjamin Steinbruch points out that Brazil “brought forward the rise in interest rates,” which forces down inflation, and, with fiscal control, it will be possible to “put the economy back on track, getting Brazil out of the crisis.”
Among others, Viveo CEO Leonardo Byrro has an optimistic point of view. He evaluates that inflation may converge to something more feasible and point to a reduction in interest rates at the end of the year or in the first quarter of 2023, which unlocks growth and consumption and helps to resume spending.
This scenario gives confidence for an increase in investments. Therefore, even considering the impact of the recent rise in interest rates on fundraising, Airton Gallinari, CEO of Coamo, says that “investments should be at least 50% higher than the R$588 million in the two years 2021/2022.” São Martinho has a similar concern. “For future growth and investments, we will have to be more diligent in capital allocation. This is a discipline we implemented in 2010 and never deviated from it,” CEO Fabio Venturelli said.
Economists are anticipating a more challenging scenario for the Central Bank to meet inflation targets
09/05/2022
Central Bank’s building in Brasília — Foto: Divulgação/RodrigoOliveira/Caixa Econômica Federal
Fuel tax cuts will remain in place next year, which lowered financial market inflation expectations for 2023 but did not prevent them to rise in 2024 – a year that is already entering the monetary policy radar.
And the market has begun to factor in fewer interest rate cuts next year, anticipating a more challenging scenario for the Central Bank to meet inflation targets.
The Central Bank’s Focus survey with analysts, released Monday morning, shows that the market’s median projection for inflation in 2023 has dropped to 5.27% from 5.3%. It is the third consecutive week of decline in market projections for inflation.
This drop may be linked to the fact that fuel tax cuts will remain in place next year, per the budget bill. The measure, which some market analysts had already priced in, has the potential to lower inflation by 0.6 percentage points next year.
But the measure could also have a negative effect in the longer term because it increases the fiscal risk. In fact, the market’s median inflation forecast for 2024 increased again this week, to 3.43% from 3.41%.
The deterioration in inflation expectations for 2024 is of particular concern because the Central Bank has lengthened the time frame in which it intends to bring inflation to the target. Today, the Central Bank manipulates interest rates with a view to bringing inflation to the target in the first quarter of 2024.
The Central Bank has signaled that it is reaching the end of the monetary tightening cycle. But some analysts believe, according to the Focus survey, that the Central Bank will have to tighten the key interest rate Selic more, or at least postpone interest rate cuts.
The distribution of expectations about interest rates, released Monday by the Central Bank, shows that 80% of analysts think that the monetary authority will leave interest rates stable at 13.75% in the next meeting, in two weeks, keeping them at this level thereafter. But 20% predict a further increase, to 14% per year.
The market is calculating that there will be less room for interest rate cuts in 2023. Before, the median of the analysts’ projections indicated an interest rate of 11% per year at the end of 2023; now, they see the rate at 11.25% per year.
Besides the worsening of fiscal risk after the budget bill was sent to Congress, inflation expectations for 2024 may have been influenced by the second-quarter GDP data, which show that the economy is growing above expectations – a development that may hinder the Central Bank’s efforts to slow down inflation.
The map of the distribution of inflation expectations shows that only a little more than a quarter of economic analysts believe that inflation will stay within the target in 2024, set at 3%.
More than 30% of analysts think it will stay well above the target, in the range between 3.68% and 4.28%. The mapping also shows an upward bias in expectations for 2025, with about 40% of analysts projecting inflation above the target of 3%.
Fewer greenfield projects were launched since recession of 2015
09/06/2022
Glauco Humai — Foto: Divulgação
Brazil is on its way to completing a decade since the last great cycle of investment in shopping malls with no sign of a new wave on the radar. Yet, those already in operation have left the pandemic crisis behind, are back to the levels seen before 2019, and expect to grow above the forecast this year.
Fewer greenfield projects were launched since the recession of 2015, which ended the strongest period ever for new projects. In 2013 alone, almost 40 projects were launched, compared with nine this year. Large groups rule out returning to a similar situation in the short term, partly due to the uncertain scenario for consumer spending, low occupancy rates in some cities and higher cost of capital, which makes investments more expensive.
Owners are now focused on expanding old malls, searching for the few good assets still up for sale and seeking new sources of revenues. “After the last big investment cycle, the new malls saw a slower maturation. Foot traffic is still lower than in 2019. In addition, there is still room to expand old developments. Thinking about greenfield projects now doesn’t make much sense,” said Bruno Gargiolli, head of real estate at XP’s investment banking business, in an event held by the bank.
“The model based on megaprojects no longer exists,” said Glauco Humai, head of the sector’s trade group Abrasce. “What do exist are opportunities, projects linked to mixed-use towers. We will even see retrofit efforts and renovations, opening of free spaces, boulevards. And companies will also try to better explore this field, integrate it with e-commerce, and look for other brands [of stores] to stand out.” Future projects are likely to follow this path, large companies in the sector say.
New expansions are still an unexplored road, said Guido Oliveira, Iguatemi’s chief financial officer. “The expansion gained steam in the [2015] crisis, but it hasn’t stopped yet,” he said, at the 10-year anniversary event of JK Iguatemi, in São Paulo, a development of the golden times. Mr. Oliveira recalled that JK cost about R$320 million. Such a project would cost now at least R$500 million, considering the inflation faced by the sector, he said.
Despite the more positive estimates with the expansion of areas, they are still discrete and are picking up steam after the crisis that postponed plans in the retail and real estate markets. The five largest public companies in the industry – Multiplan, Iguatemi, BR Malls, Aliansce Sonae and JHSF – now total 11 expansions, compared with 10 projects in the middle of 2019, before the pandemic. But JHSF and Aliansce concentrate 70% of those, and some are small expansions – the largest one, of 38,000 square meters, of Catarina Fashion Outlet (JHSF), is equivalent to less than 10% of Pátio Paulista, in São Paulo.
“There is still an effect of the crisis on expansion projects, which were frozen between 2020 and 2021 because nobody knew exactly when the recovery would come,” said Luiz Marinho, managing partner at the consulting firm Gouvêa Malls. “But in addition to this growth option, we still have projects with occupancy rates of 80% or 90%, so there is room to improve this and to change store portfolios as well.”
The companies’ results show some clues. Eleven of Aliansce Sonae’s 26 shopping malls had occupancy rates lower than the company’s average in the second quarter. The same happened with 10 of BR Malls’s 29 projects and with six of Multiplan’s 20 malls. JHSF and Iguatemi do not break down figures per mall.
In the list of shopping malls, some have 20% to 25% of idle spaces. “But these are rare cases among public companies. You see more situations like this among private companies, with less resilient portfolios. The occupancy rate has already normalized this year,” Mr. Marinho said. “You see exceptional malls on Paulista Avenue and in office areas, such as Vila Olímpia, still struggling because of the hybrid work model,” he said, referring to the city of São Paulo. In his view, companies should “put more money on the table in the agreements with brands to draw new stores and foot traffic.” The search of new shopkeepers is “somewhat stuck in recent years and must be resumed.”
Aliansce and BR Malls have been approaching digital brands in the fashion and decoration segments to bring them to the malls.
Looking to the short term, part of the groups’ agenda in the coming quarters is to accelerate measures to consolidate the current recovery in sales. Figures are now being revised upwards. Abrasce is raising to 27.4% from 17.3% the projection of expansion of tenants’ sales this year. It is the second revision this year – in May, the rate had already risen to 17.3% from 13.8%.
According to Mr. Humai, the strong performance in the first half of the year – despite the low basis of comparison – and the possibility of a stronger fourth quarter led to the revision. From January to June, sales advanced about 36%. The rate may end the year at 27% because of the expectation of a weaker third quarter – August was a lower month than expected, according to Abrasce’s initial analyses.
Ygor Altero, XP’s shopping malls analyst, said there is an expectation of growth in sales of dominant malls (of public companies) of nearly 20% in the third quarter of this year, compared to the same period of 2019, in nominal terms. Considering figures adjusted by inflation, some malls still face a real drop in sales.
Companies say that the results already show nominal sales above 2019 in some quarters, while default rates are at normal levels and the discounts granted to tenants during the pandemic are being reduced. In the short term, the companies are focused on regaining foot traffic, which is still below normal.
“We have a flow of about 100 million people in Brazilian malls, below our average of 500 million visitors per month. We think it is still the effect of working-from-home policies. Maybe it will not return to 500 million this year. But those who return to the malls are more assertive in their purchases. If it weren’t for the pandemic, we would probably be between 550 and 600 million visitors per month,” Mr. Humai said.
Mr. Gargiolli, with XP, said that asset acquisitions can also be a way to gain scale and increase sales. At the beginning of the year, Brookfield studied to sell part of its assets, but gave up because of bids below expectations. And Sonae Sierra even offered in the market its slice of Parque Dom Pedro Shopping, in Campinas (São Paulo), before canceling the deal. “We still see potential negotiations. Acquisitions of mature assets improve business returns. And we believe this should grow before the return of the greenfield projects, together with the return of individual investors to shopping malls on the stock exchange,” he said.
Internet and information technology companies accounted for more than half of deals
09/05/2022
Mergers and acquisitions in Brazil increased 26.1% in the first half of this year, to 1,104 deals, compared to the first six months of 2021. Internet and information technology companies totaled 590 deals, research by KMPG shows.
The long-time consolidation drive in the technology market remains in place. Totvs announced on Thursday the acquisition of a 60% stake in Feedz, which develops human resources management software, for R$66 million. It is the seventh acquisition in the year and Totvs invested, in total, R$233.1 million this year. The recent agreement includes a clause for the purchase of the remaining 40% stake by 2025.
Semantix, a Brazilian technology company traded on Nasdaq in New York, also announced an acquisition on Thursday, when it bought the startup Zetta Health Analytics. The value of the deal was not revealed. The company offers data consulting services for the healthcare industry and complements the big data platform that Semantix offers its clients.
According to the company, Zetta has processed more than R$42.1 billion in claims and cross-referenced data from 764 databases, and now has 640 clients. Semantix says the acquisition strengthens its big data portfolio, adding services to serve the pharmaceutical industry, insurers, hospitals and other companies in the sector.
According to the KPMG survey, during the first three months of the year, 553 mergers and acquisitions took place, up 47.4% year-over-year. In the second quarter, KPMG found that 461 deals happened, up 7.45%.
Between the first and second quarter, there was a 16.6% drop. “Despite the good perspective for this year, if this deceleration trend [in the third quarter] is maintained, we will be a little further away from surpassing the figure seen in 2021,” said Luís Motta, a partner at KPMG and head of the survey. Last year, there were 1,963 M&A deals, surpassing the previous record in 2019.
Despite the favorable exchange rate for foreign companies, about two-thirds of the 646 deals took place between Brazilian companies in the first half of the year. Foreign capital, either on the buying or selling end, accounted for 36% of the mergers and acquisitions in the first half.
The internet and information technology sectors had the most mergers and acquisitions during the first half of this year, with 410 and 180 deals, respectively. Mr. Motta said that these companies remain active in the market even in situations of macroeconomic uncertainty since attracting investments is part of their growth cycle.
He recalled that the internet and technology industry experienced robust growth in the pandemic, increasing the number of companies in the market.
Technology companies end up being especially affected by rising interest rates as a result of their business models. The many investments to gain scale and expand businesses make them leveraged companies with revenues allocated to the future, which reduces cash flow and makes acquisition by larger groups an alternative.
Company expects to triple its revenue to R$1.2bn by 2023 with new facilities
09/05/2022
Everton Fardin — Foto: Divulgação
The shortage of photovoltaic equipment on the Brazilian market is opening up opportunities for Sengi Solar. The company is investing R$440 million to build new factories in Paraná and Pernambuco with the capacity to make 1 gigawatt a year in equipment.
These are Sengi’s first factories in Brazil. The Cascavel unit, in Paraná, is ready and will start operating in September. The Ipojuca unit, in Pernambuco, is scheduled to start operating in July 2023. The company, a subsidiary of Tangipar, will have a capacity of more than 3,000 modules per day.
The investment was made with the company’s own capital, and revenues are expected to reach R$1.2 billion next year, up from R$400 million this year, Sergin’s managing director Everton Fardin told Valor.
“The market is red-hot and lacks options of local, state-of-the-art photovoltaic modules. Sengi intends to bridge this gap and grab a large portion of the market, tripling sales by 2023,” he said.
The company bets on offering the equipment to more than 80 distributors of photovoltaic equipment operating in Brazil. It stands out with short delivery times and local post-sales service, since more than 95% of the equipment in the market comes from centralized factories in China.
As ultra-efficient global supply chains face imbalances due to abrupt factory closures because of Covid-19 and logistical hurdles because of the war in Ukraine, the company’s strategy is focused on local production and regional value chains.
Brazil had been facing a decline in manufacturing in the photovoltaic semiconductor sector since 2019, even during a breakneck growth of the distributed generation and centralized generation markets, the executive said. The focus has gradually shifted to the distribution of products imported from China from local manufacturing.
“Therefore, Sengi Solar’s decision to build two new factories fights back strongly against this scenario and brings more autonomy to the supply chain of such a strategic product for the power industry and the planet’s decarbonization plans.”
The solar power industry is indeed the fastest growing in Brazil. In all, there are 16.4 GW of installed capacity of solar power in large plants and small self-generation projects, according to data by the Brazilian Electricity Regulatory Agency (ANEEL).
The investments are expected to generate 500 direct jobs in the two regions where the manufacturing units will be installed. The company invests in the domestic market according to the Brazilian Development Bank (BNDES) rules, which determine that at least 60% of the products are made in Brazil.
“The manufacturing units were dimensioned within the Industry 4.0 concept. We will produce much faster than the local industry,” he said. “Each process will take less than 25 seconds, including assembly, transformation, and inspection.”
A bet by President Jair Bolsonaro to try and reach voters of the Northeast region, program will be reduced in 2023 to 5% of what was planned
09/05/2022
The government has virtually eliminated any housing policy forecast for 2023 in the budget bill submitted to Congress. The total amount to be allocated to the National Housing Secretariat (SNH) will be R$82.3 million for all actions, being only R$34.1 million to carry out the Green Yellow House, a federal housing program.
A bet by President Jair Bolsonaro (Liberal Party, PL) to try and reach voters of the Northeast region, the program will be reduced in 2023 to 5% of what was planned this year.
In practice, officials with Congress and the SNH linked to the public budget foresee the announcement, in the coming weeks, of the cancellation of plans to resume unfinished works, the halting of works already started and the cancellation of the start of others contracted.
The economic team forwarded a document to the Ministry of Regional Development in June saying that funds available totaled R$788 million, including R$650 million for the Green Yellow House program. The National Housing Secretariat is part of this ministry. In the budget bill, however, the total amount for the secretariat fell to R$82.3 million (10.4%), while the program will receive only R$34.1 million (5.2%).
Contracts are long-term, so they go beyond four-year terms in office – the Bolsonaro administration is paying for contracts signed during the Rousseff administration (2011-2016), for example. With no prospect of funds to continue running the program after the end of the year, the construction works will stop.
With the bill as it is, the hope for maintaining a housing policy in 2023 would fall on a change in the allocation of budgetary funds by Congress. In other words, the construction of houses for the poorest population may be at the mercy of the Centrão – a cluster of center and center-right parties that props up Mr. Bolsonaro – and the benefits of the multi-billion “secret budget,” a system for distribution of public funds used to maintain political support for the government.
In his government plan registered in the Superior Electoral Court (TSE), President Bolsonaro, which is running for reelection, cites the Green Yellow House program once, stating that the program “promotes the right to citizenship, in order to universalize access to housing acquisition in urban areas.” It also says that the program offered “the lowest interest rate ever for financing residential properties, starting at 4.5% per year.” In addition, it briefly mentions the importance of popular housing, stating that this is one of the factors that promote “well-being,” along with basic sanitation, education, leisure, culture, and security.
Asked about the funds foreseen for the Green Yellow House program next year, the Regional Development Ministry said that “fund needs for the 2023 budget have been formally forwarded” to the Economy Ministry. The Economy Ministry, on the other hand, acknowledged that “the funds foreseen fell short of the need and will of the federal administration,” but stressed that the budget bill will still be debated in Congress.
José Carlos Rodrigues Martins — Foto: Ana Paula Paiva/Valor
In an online event on Thursday, the head of the Brazilian Chamber of the Construction Industry (CBIC), José Carlos Martins, said that the budget reduction meant “a disaster.” He cited the possibility that construction works will have to be paralyzed again due to a lack of funds.
Mr. Martins told Valor that some construction works within the program will be paralyzed by lack of funds. In this bracket, the funds are aimed at households with incomes of up to R$1,800, and the value of the property is subsidized by up to 90%. The bracket was eliminated when the program name changed from My Home My Life (created by the Workers’ Party administrations) to Green Yellow House.
Ronaldo Cury, vice-president of housing at the São Paulo Civil Construction Union (Sinduscon-SP), said that the Green Yellow House program “will not change at all” with the budget cut because the program only uses funds from the Workers’ Severance Fund (FGTS).
Even so, Mr. Cury said that construction companies have been asking the government to inject funds from the federal budget into the program because it would help to strengthen the housing policy.
(Ana Luiza Tieghi contributed to this story from São Paulo.)
Real economy businesses are expected to come back more strongly than technology companies
09/05/2022
After a sluggish year period for IPOs, investment banks project that capital markets will accelerate again as of November. After the elections, regardless of who wins the presidential race, companies will start to resume plans to raise money in the Brazilian stock market, executives told Valor.
Despite the many uncertainties including monetary tightening abroad, with high interest rates to combat inflation, the risk of recession, and the Russia-Ukraine war, investment banks see room for up to 35 share offerings in Brazil next year.
Banks see real economy businesses, especially those in infrastructure and commodities, as candidates for financing through the stock exchange. On the other hand, technology companies will take a little longer to resume the levels seen before the tech crisis.
Basic sanitation companies BRK Ambiental and Aegea are among the candidates to follow this path, sources in the financial market say. BRK, which has expanded through acquisitions and tried to go public earlier this year, may resume its IPO plans next year. CBO, an offshore vessel operator controlled by Vinci and Pátria, is expected to follow the same course. The market sees the exit of the funds as a natural path.
Vitor Saraiva — Foto: Silvia Costanti/Valor
Vitor Saraiva, head of equity capital markets at XP, is among the most optimistic executives in relation to the resumption of deals as of 2023. “I see a constructive scenario in the local market, with macro data indicating falling inflation and GDP growth of up to 2% this year. Brazil is in a good position, among emerging countries, to draw some foreign capital. And second-quarter earnings reports indicated improved results for more than 70% of companies,” he said.
Some companies that filed for IPOs but failed to move forward with the offerings may resume their plans soon, Mr. Saraiva said. “We saw 109 companies giving up in 2020 and 2021.” He foresees 10 to 20 share offerings, one-third of which could be IPOs, in the first half.
UBS has found at least 30 companies eligible to tap the market in the following months, including 10 to 15 that could potentially do so next year, CEO Daniel Bassan said. Four of these companies may make their market debut.
A preliminary estimate by Itaú BBA suggests an even greater potential: 25 to 35 IPOs and follow-ons could materialize next year, raising R$60 billion to R$80 billion, said Roderick Greenlees, head of investment bank.
Future share offerings are expected to bring larger checks – above R$1 billion, unlike the last two years, when the stock exchange saw smaller deals. Most newcomers to the stock market face strong devaluation.
Citi and Morgan Stanley declined to make any projection. Marcello Lo Re, head of Brazil equities capital markets at Morgan Stanley, recalled that IPOs and follow-ons were weak all over the world, including in the United States. “The trajectory of high interest rates has inhibited investors, who are averse to risk,” he said.
The resumption of share offerings in the U.S. market will set the tone for market recovery in other countries, the Morgan Stanley executive said. “You also have to know the appetite of companies seeking to tap the market.”
The resumption of the capital market in 2023 depends on a number of variables, said Eduardo Miras, head of Brazil investment bank at Citi. Among them, clearer movement of falling inflation and the end of monetary tightening in Brazil and abroad. The commitments of the future federal administration to fiscal austerity may also stimulate deals in the market.
It is almost a consensus in the financial market that this year will end without an IPO, due to the uncertainties caused by the elections. The year will be marked by follow-ons – the most emblematic of which was that of Eletrobras. Brazil’s main power utility raised R$33.7 billion in June in one of the largest deals in the capital markets around the world this year.
Secondary offerings are expected to raise R$60 billion to R$65 billion this year if new offerings materialize by December.
“Companies halted offerings in the third quarter because of the elections and will have a short period of time between the publication of third-quarter results and the filing of documents that must be sent to the Securities and Exchange Commission of Brazil [CVM],” Mr. Greenlees said.
Last year, considering IPOs and follow-ons, 76 deals raised nearly R$130 billion. In 2020, companies raised R$117 billion through 51 share offerings.
Aegea Saneamento said it is constantly studying the possibility of going public and that such a move depends on some factors, like market conditions, use of funds, and a decision by shareholders. “It is a relevant part of our strategy the management of the capital structure, and tapping the stock market is one alternative studied. Currently, Aegea is registered as a public company at CVM [authorized] to issue bonds and debentures.”
In a recent interview with Valor, CBO said that it is studying an IPO. BRK declined to comment.
Economists are anticipating a more challenging scenario for the Central Bank to meet inflation targets
09/05/2022
Central Bank’s building in Brasília — Foto: Divulgação/Rodrigo Oliveira/Caixa Econômica Federal
Fuel tax cuts will remain in place next year, which lowered financial market inflation expectations for 2023 but did not prevent them to rise in 2024 – a year that is already entering the monetary policy radar.
And the market has begun to factor in fewer interest rate cuts next year, anticipating a more challenging scenario for the Central Bank to meet inflation targets.
The Central Bank’s Focus survey with analysts, released Monday morning, shows that the market’s median projection for inflation in 2023 has dropped to 5.27% from 5.3%. It is the third consecutive week of decline in market projections for inflation.
This drop may be linked to the fact that fuel tax cuts will remain in place next year, per the budget bill. The measure, which some market analysts had already priced in, has the potential to lower inflation by 0.6 percentage points next year.
But the measure could also have a negative effect in the longer term because it increases the fiscal risk. In fact, the market’s median inflation forecast for 2024 increased again this week, to 3.43% from 3.41%.
The deterioration in inflation expectations for 2024 is of particular concern because the Central Bank has lengthened the time frame in which it intends to bring inflation to the target. Today, the Central Bank manipulates interest rates with a view to bringing inflation to the target in the first quarter of 2024.
The Central Bank has signaled that it is reaching the end of the monetary tightening cycle. But some analysts believe, according to the Focus survey, that the Central Bank will have to tighten the key interest rate Selic more, or at least postpone interest rate cuts.
The distribution of expectations about interest rates, released Monday by the Central Bank, shows that 80% of analysts think that the monetary authority will leave interest rates stable at 13.75% in the next meeting, in two weeks, keeping them at this level thereafter. But 20% predict a further increase, to 14% per year.
The market is calculating that there will be less room for interest rate cuts in 2023. Before, the median of the analysts’ projections indicated an interest rate of 11% per year at the end of 2023; now, they see the rate at 11.25% per year.
Besides the worsening of fiscal risk after the budget bill was sent to Congress, inflation expectations for 2024 may have been influenced by the second-quarter GDP data, which show that the economy is growing above expectations – a development that may hinder the Central Bank’s efforts to slow down inflation.
The map of the distribution of inflation expectations shows that only a little more than a quarter of economic analysts believe that inflation will stay within the target in 2024, set at 3%.
More than 30% of analysts think it will stay well above the target, in the range between 3.68% and 4.28%. The mapping also shows an upward bias in expectations for 2025, with about 40% of analysts projecting inflation above the target of 3%.
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