Brazil for Sale to the Highest Bidder
The Chinese government and foreign corporations are hunting for sweet deals to acquire land and infrastructure.
The Brazilian economic and political crisis and the appreciation by almost 50% of the US dollar against the real in the last 12 months have provided foreign investors the ideal scenario to buy off pretty much anything that is for sale.
On the one hand, Brazilian entrepreneurs have a noose tied to their necks as they witness how the slowing economy knocks demand down and how a rising dollar increases public and private debt.
Furthermore, foreign hard currency in their pockets presents a chance to buy Brazilian assets at lower prices.
Last year the number of acquisitions of Brazilian companies by foreign players exceeded that of domestic investors, according to a study of the multinational consultancy KPMG.
In 2015, however, the transactions of mergers and acquisitions in Brazil fell 5.5% compared with the previous year.
“The current economic situation and the devaluation of the real against major foreign currencies may have accelerated the entry and expansion of international companies in Brazil despite the worsening of growth prospects and the higher country risk”, explains Luis Motta, a partner at KPMG.
In 2015, 773 mergers and acquisitions were made in Brazil. Of this total, 296 were foreigners who bought companies located in the country.
An even higher figure was obtained when adding the 102 foreigners transactions between Brazilian companies sold or bought last year.
The sectors with more transactions in the Brazilian economy were information technology (121 purchases), Internet companies (70 purchases) and food, beverages and tobacco (65 purchases).
The sale of the cosmetics division at Hypermarcas, owner of lines such as Bozzano, Monange, Risqué and Biocolor, to the multinational Coty, for 3.8 billion reais, was one of the most significant, according to Rogério Gollo, a Brazilian partner at PwC and a specialist in mergers and acquisitions.
Apparently, the company strategy was to reduce its debt and focus on the pharmaceutical area.
To Gollo, such purchases by foreign companies will continue to increase and the trend is that the difference between domestic and foreign operations will also rise.
“Consultations on operations are increasing and now it is basically the single factor that attracts foreign investment,” he explains.
This incentive should continue for some time, according to market experts, who believe that the dollar will continue at the level it is now, approximately 1 dollar per four real.
On Wednesday, the dollar was trading at over 4.10 reais. The figure is the highest since September.
“This movement of acquisitions by foreigners is positive, as there is a flow of resources to operate permanently in the country. These investors can bring money or sell their property and businesses in Brazil, it is the kind of investment that the country needs.” The question is, for whom will the current trend be positive for? Certainly not for the average Brazilian.
Investors with more appetite who want to take advantage of this ‘cheap Brazil’ are mainly technology sectors, food and retail, Gollo said.
In terms of the number of operations, the countries that have invested in Brazil are the United States and the United Kingdom.
“The Chinese have strength but do operations in specific sectors such as infrastructure,” says Rogério Gollo.
One of the largest transactions last year occurred in the electricity sector. China’s Three Gorges Corporation topped concessions for Jupiá hydroelectric plants and Ilha Solteira by 13.8 billion reais, or US$ 3.3 billion, following the meeting of President Dilma Rousseff and Chinese Prime Minister Li Kiqiang, last year.
Another major operation took place in November, when the Chinese group NHA made the acquisition of 23.7% of the airline Azul, in a transaction of 1.7 billion reais, or US$ 416 million.
Ambassador Luiz Augusto de Castro, president of the Brazil-China Business Council, also agrees that, despite the recession, there is a tendency to buy Brazilian assets.
“Brazil is an important economy, a huge market. The crisis frightens investors who think in a relatively short time. However, those who have a strategic vision and think of results in 10 years want to buy now. They know that the recession will pass,” he says.
For China, the investment in Brazil goes beyond the lower asset prices. The strategy is to export capital in a time of transition in the economic model.
“But this change, which will have more emphasis on the domestic market, will take some time.
The Chinese economy grew immensely based on exports and now has a large idle capacity, with excess capital, and has nowhere to invest.
For its part, Brazil lacks infrastructure investments, which is what the Chinese are interested in,” he explains.
Chinese investors are also prepared to enter the road sector in Brazil. The Brazilian government is in advanced negotiations to sell the BR-153, on the stretch between Anapolis (GO) and Palmas (TO), granted to Galvão Engineering, which is involved in the corruption operation Lava Jato and which never started the construction of the highway.
The Spanish Ferrovial has also shown interest in the upcoming auctions of airports and highways in Brazil, according to local media.
Just as it is happening with infrastructure, other sectors of the Brazilian economy are also being acquired by foreign interests. This month, Cúbico Inversiones Sostenibles, a company that belongs to Spanish bank Santander and Canadians shareholder funds, announced the purchase of two wind farms for 2 billion reais, or US$ 489 million, of the Brazilian developer Casa dos Ventos.
The facility is located in the northeast of the country. The head of Cúbico Brasil, Eduardo Klepacz was clear, according to Reuters, to highlight that the financial strength of the company will be a “differential” at present in the Brazilian electricity market, in which companies have difficulty raising funds. “We are making a long-term bet,” he said.
The case of Brazil is not new. We have seen how State governments and the Federal government in the United States has auctioned highways, bridges and toll roads. They have also illegally confiscated public and private lands to auction them to the highest bidder, which in the case of the US has been Chinese corporations that are owned by the Communist Party. In Greece the neoliberal policies of the Troika made the government open auctions on Greek islands and infrastructure that resulted in the purchase of public property for pennies on the dollar.
Brazil is only one of several developing countries where the global economic crisis and the lousy management of public finances by its corrupt political elite have resulted in the decay we all know. In simple terms, Brazil is being taken away from the Brazilian people and handed over to foreign interests who have the cash to acquire significant parts of its infrastructure and territory.
The sale of Brazilian assets began with the discovery of the pre-sal and continues with the projects related to the World Cup of 2014 and the Olympic Games of 2016. Now, foreign investors, those who belong to the 1% are making their way in to ransack the remaining valuable assets that the country has. The Amazon jungle is being destroyed by cattle ranchers and Big Agra companies, who are destroying the forest to plant GMO seeds. All of this is happening with the complacency of a Federal government that could care less about who owns what, as long as they stay in power.