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.

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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.

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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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Brazilian CVM Vetoes Acquisition of Bitcoins by Local Investment Funds

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The Brazilian Securities and Exchange Commission (CVM) has decided to not allow local investment funds to directly acquire bitcoins and other criptocurrencies by . On the other hand, the commission does not yet have a conclusion on investments in the modality through funds abroad, in places where the operation is already allowed.

The orientation from the Institutional Investor Relations Superintendency (SIN) is for the market to wait for a later and more conclusive report from the technical area, which should occur only in March.

The regulator’s guidance is in a statement released on Friday (12). The CVM recalls that Brazil and other countries have discussed the legal and economic nature of these investment modalities, without a final conclusion on the concept, especially in the “domestic market and regulation”.

“Thus, based on this uncertainty, the interpretation of this technical area is that the crypto-coins can not be qualified as financial assets … and for this reason, their direct acquisition by the regulated investment funds is not allowed”, says the document.

The CVM also received consultations on the possibility of setting up investment funds in Brazil with the objective of investing in other vehicles abroad that invest in cryptocurrencies. Or, to invest in derivatives created in regulated environments in other jurisdictions.

In the letter, CVM reminds that the existing discussions about the investment in crypto-currencies, either directly by the funds or in other ways, are still at a very incipient level. The document cites Bill 2.303 / 2015, which, if approved, may prevent, restrict or criminalize the negotiation of these investment modalities.