Brazilian stock index Ibovespa closes at record high

Even after advancing more than 10% in October, the Ibovespa started the month of November going up, giving signs that it still has the breath to seek new levels. And the first barrier has already been broken: with this Thursday’s performance (November 1), the index renewed its intraday and closing highs.

At the best moment of the day, the Ibovespa reached 89,017 points but, during the afternoon, reduced the gains and ended the trading session at 88,419 points, up 1.14%. The previous record of February 26 closing was 87,652 points – now the index has gained 15.7% since the beginning of the year.

Throughout the day, the positive tone of the American stock markets, amid the signs of dialogue between the United States and China, supported the positive session on the Brazilian market. This external outlook, coupled with investor optimism with the local political scene and the corporate balance sheet season, has put the index on the positive track since the start of the session.

However, a slightly more cautious stance on the part of investors led the Ibovespa to move away from the highs in the second half of the trading session. It is worth remembering that the October “payroll” will be released tomorrow in US – and, with the Brazilian markets closed because of the Finados holiday this Friday, many agents opted to partially reduce their exposure for the long weekend.

Warren Buffet ignores election turmoil and invests in Brazilian payments processing company’s IPO

There were no shortage of alerts from banks and managers about the risk of a billionaire IPO of a Brazilian company at the moment, in the midst of an electoral turmoil. But the payment company Stone decided to move on and, it seems, can do well. A group of heavyweight names, including billionaire American investor Warren Buffett, is embarking on the operation.

The company plans to raise as much as $1.1 billion in the offer. Stone, owner of the green processing machines, was established only five years ago. Its board of directors is chaired by one of the founders and shareholder, André Street, a 34-year-old executive.

Yesterday, Stone reported its benchmark price per share range of $ 21- $ 23 for its listing on Nasdaq. At the average price, it will reach the stock market with a market value of $5.9 billion. In the prospectus, the company reported that there is a group of investors interested in acquiring most of the shares tendered. It is a type of anchorage – but in this model, there is no obligation to purchase, just a signal: Investors are willing to announce to the market that they must enter the IPO.

In that format, Berkshire Hathaway, Buffett’s investment company, could hold about a third of the shares offered by Stone. Berkshire indicated interest in buying about 13.7 million class A shares of the Brazilian company, which represents 33.5% of the company’s primary offering. Considering the total sales volume, it represents 28.7% of the transaction, representing a little more than 47 million shares. Managers T. Rowe Price and Madrone Opportunity, who are already shareholders, may increase their holdings.

The investment in Stone could be Buffet’s biggest investment in a Brazilian company. The value of $315.4 million (corresponding to about R$ 1.2 billion) that Berkshire is willing to invest in Stone – considering the total volume indicated at the maximum price of the indicative band – is similar to what the Buffett allocated on India’s One97 Communications in August this year. The group is the controller of Paytm, India’s largest mobile payment company and also Berkshire’s first major investment in that country.

So far, Buffett’s closest relationship with Brazil has been indirect, with his joint participation in some of the works of Brazilian investment company 3G Capital. One of Stone’s advisors, Roberto Motta, is one of the founding partners and board member of 3G. Last year, Berkshire also announced its intention to expand its real estate investment to Latin America, including Brazil. Berkshire also probed the possibility of acquiring a stake in Brazilian reinsurer IRB.

Berkshire has a number of papers in the financial sector, such as American Express, Visa, MasterCard, Apple and Wells Fargo. The target figure for Stone is unremarkable for the Berkshire universe, which has revenues of $242 billion and a market value of $ 521 billion. But it makes all the difference for the Brazilian company. “Of course it’s easier to raise the share price and attract more investors when Buffett has already announced that he is interested in his company”, says a Brazilian manager.

Shareholder André Street had already set up three payment technology companies before forming Stone. After the sale of one of them, Braspag, in partnership with Eduardo Pontes, joined the banks BTG Pactual and Pan to create Stone and compete with the banks’ payment arms Cielo and Rede and with “moderninha”, PagSeguro’s machine. Over the course of five years, the partner banks left the capital of the company, which received investment rounds from major managers, such as American Tiger, the British Actis and the Brazilian Gávea. Pontes is the vice president of the company’s board.

Ibovespa rises 4.57% with record volume

São Paulo – Confirmation of the strengthening of the right wing in Congress and the run-off of the second round of the presidential elections gave the Ibovespa a boost to recover lost levels with the truckers’ strike. With such a large volume that reached an all time record .

The Ibovespa ended with a 4.57% increase at 86,084 points, a new hogh close since May 16 of this year – before the fuel crisis and the truckers’ strike – when it stood at 86,536 points. At the top, the index advanced to 87,333 points, the highest level since February’s historical levels.

Natura passes Unilever and leads the beauty market in Brazil in 2017

Natura Logo

Natura & Co, a corporation that brings together Natura, Aesop and The Body Shop, surpassed the Anglo-Dutch Unilever and took the lead in the beauty and personal care market in Brazil, according to research firm Euromonitor. The sector’s revenues in 2017 reached R$ 106.320 billion (Aprox. US$30 billion), growth of 3.2% in relation to the previous year. For 2018, the deflated forecast is expansion of 3.8%.

With a 11.7% share, Natura & Co ranked first and in the previous year, it was in second place with 10.8%. Unilever had 11.1% of the market, losing 1.5 percentage points compared to 2016. Grupo Boticário remained in third place a slight gain of 0.2 percentage point, to 10.8%.

Brazil is out of Trump’s steel surcharges, says US trade representative

US President Donald Trump has decided to “suspend” the steel surcharge for some countries that are in negotiations with Washington. Brazil, Argentina, Australia, Europe, plus Canada and Mexico, are on this list, according to US Trade Representative, Robert Lighthizer.

He appeared before the Senate Finance Committee on Thursday and was questioned by Democratic Senator Ron Wyden of Oregon about countries that were cut off from fees.

Trump plans to impose a 25% duty on imported steel and 10% on aluminum from abroad. The sanctions aim to hit China, which floods the market with these cheap products.

Incidentally, within today, the Trump administration intends to announce sanctions on China.

Canadian McCain acquires 49% of Brazilian producer of cheese bread, Forno de Minas

McCain do Brasil Alimentos, a subsidiary of Canadian-based McCain, maker of pre-fried and frozen potatoes, has entered into an agreement to acquire a 49% stake in Forno de Minas Alimentos. The value of the acquisition was kept confidential by the parties.

Helder Mendonça, president of Forno de Minas, said the negotiations lasted about ten months. “Last year, we looked for alternatives to the Bozano fund, which had a 29.3% stake in Forno de Minas. The objective was to attract a financial partner, but the opportunity came with McCain”, he said.

According to the executive, the two companies realized that there were many affinities and saw possibilities of synergy in Brazil and abroad. “McCain is going to help us in the process of globalizing cheese bread sales”, said Mendonça. “In Brazil, I see synergies mainly in the commercial area”.

McCain operates in Brazil with the sale of frozen pre-fried potatoes, which are produced and imported from its factories located in Argentina, France, the Netherlands and the United States.

“This agreement presents a great opportunity for both companies, which have very strong brands in the Brazilian market. We trust in the success story of Forno de Minas and in the management of the Mendonça family to continue leading the company”, said Aluizio Periquito Neto, General Manager of McCain Brazil.

Under the agreement, McCain, through its Brazilian subsidiary, will acquire 29.3% of the shares belonging to the Bozano Group and a portion of the shares that are in the hands of the founders of Forno de Minas – Helder Couto de Mendonça, Maria Dalva Couto Mendonça, Hélida Stael Mendonça and Vicente Camiloti – totaling 49% of the capital.

“With this transaction, we are revitalizing Forno de Minas and we will be able to accelerate growth projects in Brazil”, said Mendonça. Without citing figures, the executive said the company intends to invest in the expansion of factories in Conceição do Pará and Contagem (MG) to develop product lines.

In the accumulated period from January to September 2017, the company recorded a net loss of R$ 18.5 million (aprox. US$ 6 million). Net revenue was R$ 232.6 million.

Forno de Minas is a family business founded in 1990. In 1999, the control was sold to the American multinational General Mills. In 2009, the founding family repurchased the business. In 2010, Forno de Minas received an investment from the Mercatto investment fund, which assumed a 29% interest. In 2013, the Bozano Group acquired Mercatto, becoming a shareholder of Forno de Minas.

In January of this year, Forno de Minas decided to cancel its registration as a publicly traded company and close its capital.

Read more about the Brazilian Food Market

Fitch downgrades Brazilian sovereign rating to BB-

Credit rating agency Fitch today downgraded Brazil’s sovereign rating to “BB-” from “BB”, and changed the outlook from negative to stable.

According to the agency, the cut reflects the persistence of the large fiscal deficit, a high and growing government indebtedness and the failure of legislative reforms that could improve the structural performance of public finances.

S&P Global Ratings had already cut the Brazilian note. Last month, the agency downgraded Brazil’s rating to “BB-“, with a stable outlook.

Fitch noted that “the government’s decision not to put Congressional Pension reform to vote anymore represents a major setback on the reform agenda, which undermines confidence in the medium-term trajectory of public finances and the political commitment to address the issue”.

According to the agency, “the occurrence of a presidential and legislative election in October means that pension reform will only occur after the election and that leaves uncertainties as to whether the next administration will be able to get approval in a timely manner”.

Fitch pointed out in the analysis that the Brazilian fiscal deficit “remains large and with the prospect of only a gradual decline.” For the agency, the deficit reached 8% of GDP in 2017, a result well above the median of 3% for countries in the same Brazilian sovereign note range, “BB”. The agency also projects that the average public deficit will reach 7% of GDP between 2018 and 2019.

Government general debt reached 74% of GDP in 2017, meaning significantly above the 45% of GDP of the bloc countries with a “BB” rating. Fitch predicts that public debt will reach 80% of GDP in 2019 and maintain growth in the coming periods.

According to the agency’s analysts, “social security reform and other spending adjustment measures appear to be essential components of any strategy to facilitate fiscal consolidation, boost confidence in the medium-term public finance trajectory, and make the spending ceiling, an important anchor of fiscal policy, viable and credible in the medium term”.

The agency also commented on the transfer of R$ 130 billion to the government by the BNDES in an operation to repay resources borrowed by the Treasury as a factor that could “ease debt growth this year”. But the agency considered the measure as “insufficient” to stabilize the public sector’s debt path, as it is a one-off event.

Despite calling attention to the uncertainties and challenges associated with the election this year, Fitch said “do not anticipate a turnaround toward greater state interventionism and populism as a result of the campaign.

Read more about Brazilian macroeconomics

Government is now evaluating changes to the pension plan without touching the constitution

After giving up on the Social Security reform – amid federal intervention in the security area of ​​the State of Rio de Janeiro, a measure that prevents changes in the Constitution while it is in force – ministers of the economic area now study changes in pensions that do not depend on constitutional amendments, said journalist Miriam Leitão in her blog on the website of the newspaper “O Globo” and in her participation in TV Globo’s “Bom Dia Brasil” program earlier.

The changes could be made during the federal intervention in Rio without even having to suspend the “state of exception”, says the columnist.

According to her, the ministers have studied measures that can improve the situation of the public accounts without moving on the Brazilian Magna letter. The idea would be to prioritize simpler procedural issues, without depending on the approval of three-fifths of each house of Congress in two rounds, as is the case of amendments.

The focus now would be on rules that change the benefit calculation and bring some fiscal relief in the future.

Walmart to divest from Brazil: looking for partner

Walmart LogoAfter just over two decades in the Brazil, Walmart is negotiating the sale of part of its business in Brazil. The company has already started looking for a partner. But the model of the operation still depends on the proposals that are being presented to the retailer. At least four companies, including asset managers and private equity funds, are in talks with the company. They are: Advent, Catterton, Carlyle and General Atlantic.

The ongoing talks with private equity manager Advent International would involve the sale of 50% of the Brazilian subsidiary, newspaper “O Globo” reported yesterday. Both Advent and Walmart do not comment on the subject.

The US parent is taking direct care of the negotiations. Goldman Sachs has been advising the American group in the operation.

According to sources, there is a search for proposals for different options to structure this operation in the most convenient way for Walmart.

It is possible that the sale is of a minority slice or even the control of the two integrated operations (online and brick and mortar). Both options will be evaluated, according to a source. This is considered a sensitive trading, since it is not a practice for the American retailer to trade assets with investment firms. In the world, Walmart controls most of its business. In China, they have a minority partner.

When analyzing the parties interested, Catterton already has a retail operation in the country – it’s a partner in St Marche and Eataly. In the case of Carlyle, the fund also has retail operations in its portfolio – executive Hector Nuñez, president of RiHappy, was CEO of Walmart Brazil from 2006 to 2010.

Due to the complexity of the food retail business, and the results that the subsidiary has been presenting, industry executives think there is little room for a large number of interested parties.

Read More about Brazilian Retail Stocks

With 471 stores and ranking third among the largest food retailing groups in the country, Walmart did not grow in 2015 and 2016 when it achieved gross sales of R$ 29.4 billion (US$ 9 billion) – there is no data from last year. Until 2017, when it stopped detailing Brazil’s results in the world’s balance sheet, operating profits were alternated with losses in different quarters.

In the country, Walmart suffered in the past with errors in conducting the operation. There was too much interference from the headquarters, with mistaken decision making. The integration of networks bought in the country took years and the results were slow to appear. The integration process was finalized in 2016 and the subsidiary is currently running a R$ 1.5 billion plan to reform all supermarkets and hypermarkets in an attempt to breathe new life into the operation. This process is supposedly bringing some sales results to some stores.

Read more about Brazilian stocks

S&P Downgrades Brazilian Credit Rating to BB-

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Standard & Poor’s (S&P) downgraded Brazil’s sovereign credit rating from “BB” to “BB-” on Thursday. The rating was already in Junk territory, but it is now three steps below investment grade. On the other hand, the perspective for the rating has changed from negative to stable.

The downgrade was already expected by the market due to difficulties the government is facing to get the pension reform approved.

In the justification for the decision, the agency pointed out as “one of the main weaknesses of Brazil” the delay in approval of fiscal measures that rebalance the public sector accounts.

“Despite several advances by the Temer administration, Brazil has made slower-than-expected progress in implementing significant legislation to address structural fiscal issues and rising levels of indebtedness”, S&P said in a statement, adding that uncertainties of the 2018 elections aggravate this scenario.

In addition to the difficulty in approving reforms with long-term effects, S&P also pointed out that “there have been setbacks even with short-term fiscal measures – such as the decision to suspend the postponement of salary increases for public sector employees”.

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