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The Russia-Ukraine war has already started to impact M&A operations, according to investment banks and firms consulted by Valor. In these first 20 days of conflict, no deal has been canceled, but there are already discussions about repricing of assets for sale, especially in the segments of oil, gas and agricultural commodities, due to the uncertainties generated in recent weeks.
With the rise in oil prices, the market is trying to understand what the new price level for the raw materials will be. “What is the peak?” — this is the question that needs to be answered to define the prices of assets, notes Gustavo Miranda, head of investment banking at Santander. “We are watching the unfolding [of the war] to start defining the next steps.”
There is also a discussion about how Brazil may be affected by the war. “There is an understanding today that Latin American countries would be less affected because they are far from the battle area and also because they are important commodity producers,” Mr. Miranda said.
“I’m not seeing anyone postponing transactions and the interest in Brazilian assets remains solid,” said Ricardo Lacerda, a partner and CEO of investment bank BR Partners. “But we have already seen price disruption, especially for energy assets. Nobody wants to run the risk of mispricing.”
In late January, when the war was still a geopolitical tension, Petrobras and power company Eneva communicated the closure, without agreement, of the negotiations for the sale of Polo Urucu — belonging to the state-owned company, in the Solimões Basin, in Amazonas. In a statement, Eneva said that, despite the efforts between the parties, it was not possible to converge on an agreement. Petrobras, on the other hand, informed that it decided to terminate the current competitive process and would evaluate the best alternatives for the asset.
The rise in oil prices was determinant for the end of the negotiations. When Eneva started negotiating the purchase of the asset in February last year, the price of a barrel of oil was around $40. At the end of January, the price reached $90. On Monday, the barrel closed at $107 — the peak in the war was at $130 last week.
Russian investors who have been prospecting in the country may have to revise their strategies. In early February, for example, the Russian company Acron announced an agreement with Petrobras to buy a fertilizer unit in Três Lagoas, Mato Grosso do Sul. Market sources are waiting for the outcome of the negotiations.
Russian companies may have greater difficulty in creating liquidity and making payments between international banks, a source said.
Gas assets under negotiation are also likely to undergo price revaluation, according to M&A experts. They were already valued before the war, and deals on renewable energy projects will also continue to draw the interest from investors, particularly foreigners. “We will see a lot of deals in solar and wind power projects, as well as carbon credits,” said Mr. Lacerda.
According to an investment banker, two clients with mandates to sell assets (one energy and the other retail) wished to close the deal in the first half, to avoid greater price and term volatility in the second half, with the elections. Now, with the conflict, both have asked the bank to extend the process, even if it stays until 2023.
For Daniel Wainstein, a partner at Seneca Evercore, it is important to note that the country’s scenario before the war was of demand-based inflation, rising interest rates and low growth prospects. “Now you have more inflationary pressure from supply and the outlook now is for interest rates and inflation rising in Brazil and globally.”
“We are in a moment in which the investor is adopting a wait-and-see approach, without much haste, in expectation in what will happen in the coming weeks,” he said. Seneca closed four deals this year. “The appetite for Brazil has not reduced. With the war, we are holding on.”
The executive says that Brazil is among the countries that will benefit from the conflict. “The B3 in relation to other stock exchanges in the world suffered a low impact because a good part of the companies operate with commodities.”
The war between Russia and Ukraine has a special meaning for Mr. Wainstein. The Seneca Evercore executive’s maternal grandparents were Ukrainian. “My grandfather was a Bolshevik and fought in the Russian revolution. He fled there when Stalin started persecuting the Jews,” he said.
In the capital market, the short term is also uncertain. “The environment is one of volatility here and overseas. We won’t be able to see IPO operations in the short term. It is also challenging for secondary offerings,” said Mr. Miranda, with Santander, noting that the movement in the capital market was already weak because of the election year.
For Bernardo Parnes, a partner at One Partners, the capital market activities are more affected than the pace of acquisitions, especially considering the full year. “The M&A adapts terms, changes price, solves problems with clauses such as MAC or with a guarantee account. But it happens one way or another,” said Mr. Parnes.
Consulted by Valor, Eneva maintains the same position as the one communicated on January 28. Petrobras declined to comment. Acron did not immediately reply to a request for comment.
Source: Valor International