Capital injections provide relief to publicly traded companies; disbursements total R$22bn in 12 months

05/25/2024

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Luciano Lindemann — Foto: Ana Paula Paiva/Valor

Facing significant financial pressure, a group of publicly traded companies is turning to their controlling shareholders for capital injections to alleviate their balance sheets amid a prolonged period of high interest rates and crises in sectors like retail and healthcare. Disbursements have totaled nearly R$22 billion over 12 months, Valor’s analysis shows.

The largest capital injection, amounting to R$12 billion, will be led by Jorge Paulo Lemann, Beto Sicupira, and Marcel Telles for retail chain Americanas, mandated by the company’s creditors following the discovery of accounting fraud. In the healthcare sector, the Bueno family had to infuse capital into Dasa on two occasions due to the company’s high leverage. In the most recent injection announced this month, the family will provide R$1.5 billion to ensure the company does not breach its maximum debt covenants, through a capital injection. Concurrently, Dasa will also be selling assets.

Another healthcare company, Oncoclínicas, also initiated a capital increase of R$1.5 billion, with R$1 billion from Master Bank, which will finance the remaining amount to be provided by the company’s founder, Bruno Ferrari. This capital will help reduce the company’s leverage.

According to a survey by FTI Consulting for Valor, there have been about 30 capital injections since November, with 80% aimed at financial stabilization. Of these, 10 companies were burning cash (negative EBITDA) and 15 had leverage ratios above five times. “Many companies waited, hoping for better economic conditions to raise funds, but ultimately couldn’t wait any longer. Those with the option of capital injections are resorting to this measure,” said Luciano Lindemann of FTI. He notes a higher concentration of such companies in the retail, infrastructure, and construction sectors.

Mr. Lindemann said that companies must address the root causes of their increased leverage despite the capital injections. “Simply injecting liquidity and reducing leverage won’t solve the problem alone,” he said.

The current economic context has also contributed to this trend. “This movement is part of the current landscape in Brazil, with closed windows for initial public offerings [IPOs] and few secondary offerings,” said Eduardo Terra, a retail company advisor and president of the Brazilian Society of Retail and Consumption. “In some cases, controlling shareholders see more advantage in capitalizing the company to avoid future losses, especially if they have already profited significantly from the business and see the potential for medium to long-term returns. In other cases, however, they may choose to exit.”

With the uncertain macroeconomic environment, more companies may need additional resources to balance their books. Daniel Calori of Íntegra Associados said that corporate debt continues to grow, meaning more companies will likely undergo restructurings, possibly including capital injections from controlling shareholders. He said that beyond ensuring solvency, major shareholders may see the depreciated share prices as an entry opportunity, anticipating future appreciation.

Mr. Calori emphasizes that companies need to tackle the underlying issues alongside capital increases, or the injected capital will quickly deplete. Creditor banks negotiating extended terms often require a capital injection as a condition.

Companies without a controlling shareholder, or with controlling shareholders unwilling to inject more funds, will likely undergo more formal restructuring processes, as seen with Casas Bahia, which entered into extrajudicial restructuring after agreements with major creditors, said Mr. Calori. According to Mr. Lindemann of FTI, these companies may seek alternative solutions, potentially turning to investors accustomed to distressed assets, such as special situation managers.

The challenging capital market has also required greater involvement from majority shareholders to ensure capital injections when needed. For instance, last year, the Pinheiro family had to contribute to the health insurance operator Hapvida in a secondary offering to address the company’s balance sheet. Similarly, in a secondary offering for Ambipar, controlling shareholder Tércio Borlenghi Junior had to inject capital due to difficult market conditions for share offerings.

At retailer Lojas Marisa, undergoing financial restructuring in recent years, the Goldfarb family plans to contribute about R$550 million, according to sources. This year, the Trajano family arranged a R$1.25 billion capital increase for retailer Magazine Luiza, with BTG possibly subscribing to R$250 million.

In a market communication, Oncoclínicas announced a goal to achieve a financial leverage ratio of two times net debt to annualized fourth-quarter EBITDA. Ambipar and Marisa declined to comment.

Hapvida said in a statement that its last capital injection in April 2023 was aimed at strengthening cash flow and optimizing the company’s capital structure. Since then, the company has been reducing leverage through robust operational cash generation and has no ongoing capital injection plans.

Magazine Luiza stated that the capital injection in January reflects the controlling shareholders’ confidence in the company and its business model. “The operation saw record participation from minority shareholders at 75%. The funds are being used to accelerate technology investments and improve capital structure.”

Dasa said that the transaction is part of operational and strategic initiatives aimed at reducing leverage, establishing a solid financial position, and enhancing investment capacity. The R$1.5 billion injection underscores the controlling shareholders’ long-term commitment.

*Por Fernanda Guimarães, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/