(ESTADÃO) Despite progress, such as the increased sophistication of the economy and legal improvements, companies still face difficulties in reducing their debt.
By Cristiane Barbieri — São Paulo and Rio 03/10/2025
Although the expectation is that Brazilian companies will continue to struggle with debt in the coming years, experts do not foresee a widespread collapse of the economy, as happened during Dilma Rousseff's government. In December 2014, at the end of her first term, the debt of smaller companies listed on the stock exchange was 5.4 times their cash generation (compared to 2.7 times currently), according to a study by the restructuring consultancy Sêneca Evercore.
The coverage ratio, which measures companies' ability to pay their financial costs, was 0.5 during that period, compared to 1.4 today. The higher this ratio, the greater the company’s ability to meet its financial expenses.
"At that time, we had two consecutive years of GDP contraction, unlike now, when we have the lowest unemployment rate in history," says Ricardo Lacerda, partner at the investment bank BR Partners. "It would only happen again if there were a sudden slowdown in the economy, which no one is forecasting."
Moreover, experts say, the Brazilian economy has become more sophisticated over the past decade, with unprecedented growth in the financial and capital markets. Instruments that allow corporations to access credit, such as receivables certificates and debt securities, have gained significant weight, something that did not exist before.
Sêneca’s research, based on data from the Central Bank, showed that in 2015, bank credit accounted for 81.7% of the funds borrowed by companies. Today, it accounts for 50.8% of total loans granted. Corporate debt securities, which made up 18.3% of credit ten years ago, reached 49.2% in December.
"Companies have had the opportunity to shift their financing source from a few hands to many," says Daniel Wainstein, partner at Sêneca Evercore. "Today, companies can pay lower rates because a large community of credit investors has formed in Brazil, which did not exist until very recently." This is one of the areas in which companies like Sêneca and other debt restructurers have advanced.
Ricardo Knoepfelmacher, known as Ricardo K, partner at RK Partners, says that banks have also learned from the recent previous crises. "The major banks that concentrate corporate credit have created internal restructuring departments," he says. "They've become proactive in inviting companies to talk when they see that continuing on the same path will lead to problems."
According to Ricardo K, in addition to the capital markets, the regulatory environment has also evolved in the past decade. The extrajudicial recovery mechanism has become more widely used in cases where there is alignment between debtors and creditors, in order to avoid the costs of filing for bankruptcy protection in court. The improvement of judicial recovery in 2021 also made the tool more effective for those seeking to collect debts.
However, this institutional improvement does not mean that the coming years will be easy. According to Lacerda, even companies that generate large amounts of cash are struggling to reduce their debt. "The situation will only change when there is a clear signal of interest rate reductions," he says. "Today, companies are working to pay banks."
Without the possibility of capitalizing through an initial public offering (IPO), with expensive bank credit and limited mergers and acquisitions, options are limited. According to Wainstein, political noise has kept foreign companies away from the country for at least two years, companies that could have entered Brazil by acquiring assets as a way of reducing the debt of local companies.
Among the 20 largest mergers and acquisitions of 2023, according to Sêneca, almost half (nine) were made by international buyers or sellers. This year, foreigners only made two of the 20 largest acquisitions, despite Brazilian assets becoming cheaper in dollar terms.
"Unfortunately, we haven't been promoting our country well for some time," says Wainstein.
According to him, while the previous government’s image abroad was affected by environmental neglect, now fiscal mismanagement, the expectation of high interest rates, and currency volatility are turning away potential investors, especially those who have never had a presence in Brazil. Even the threat of a coup and assassination plans for authorities add to the concern. "Foreigners are basically scared of Brazil and the moment we're going through," he says.
The uncertainties brought about by the trade war initiated by Donald Trump in recent weeks also do not help improve the outlook for this trajectory. "Brazil exports $40 billion a year to the U.S.," says Ricardo K. "If there is a heavy tax on agricultural, steel, and other commodity products, it will be a disaster for some Brazilian companies."
What could change the scenario, according to experts, is once again agribusiness, whose production is expected to hit a new record this year and inject a new wave of resources into the economy. Likewise, recently approved microeconomic reforms are expected to positively impact the business environment in the long term. "There are trump cards, such as tax reform, whose impacts have not been sufficiently studied and communicated," says Ricardo K.
Published in Estadão on 03/10/2025, available at: https://www.estadao.com.br/economia/empresas-endividamento-dilma/a/
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