(Valor Econômico) – Brazil remains attractive, but investors and companies seek greater clarity on the outlook and the impact on commodities.
By Mônica Scaramuzzo and Maria Luíza Filgueiras
March 15, 2022
The Russia-Ukraine war is already affecting mergers and acquisitions (M&A) operations in Brazil, according to investment banks and specialized boutiques consulted by Valor. In the first 20 days of the conflict, no transactions have been canceled, but discussions are underway about reassessing asset prices, especially in the oil, gas, and agricultural commodities sectors, due to uncertainties.
With the rise in oil prices, the market is trying to understand the new price levels for raw materials. “This is the question that needs to be answered to define asset prices,” says Gustavo Miranda, head of Santander's investment banking division. “We’re monitoring developments to determine the next steps.”
There’s also ongoing discussion about how Brazil could be impacted by the conflict. “There’s a general understanding that Latin American countries should be less affected because they’re far from the war zone and are also important commodity producers,” he explains.
“I’m not seeing anyone postponing transactions, and interest in Brazilian assets remains strong,” says Ricardo Lacerda, founder and CEO of the investment bank BR Partners. “But we’re already observing price disruptions, especially for energy assets. Nobody wants to risk pricing them incorrectly.”
At the end of January, when the war was still a geopolitical tension, Petrobras and Eneva announced the end of negotiations for the sale of the Urucu Field—owned by the state company in the Solimões Basin in Amazonas. Eneva stated that, despite efforts by both parties, they couldn’t reach an agreement. Petrobras also announced it was ending the competitive process to evaluate better alternatives for the field.
The rise in oil prices was decisive in ending the talks. When Eneva began negotiations in February 2021, Brent crude prices were around $40 per barrel. By the end of January 2022, they had reached $90. Yesterday, the price closed at nearly $107 per barrel, though it had peaked at $130 the previous week.
Russian investors who were eyeing business opportunities in Brazil may also need to rethink their strategies. For instance, in early February, the Russian company Acron announced an agreement with Petrobras to acquire a fertilizer plant in Três Lagoas, Mato Grosso do Sul. Market sources are waiting to see the outcome of the negotiations.
Russian companies may face greater difficulties in creating liquidity and processing payments between international banks, according to a source.
Gas assets are also expected to undergo price reassessments, according to M&A specialists. Already valued before the war, renewable energy projects are expected to continue attracting investors, especially foreign ones. “We’ll see many deals in solar and wind energy, as well as carbon credits,” says Lacerda.
According to an investment banker, two clients with mandates to sell assets—one in the energy sector and the other in retail—had planned to close deals in the first half of the year to avoid price and deadline volatility as elections approached. Now, with the added uncertainty of the conflict, both have asked to extend the process, even if it means postponing to 2023.
For Daniel Wainstein, partner at the financial boutique Seneca Evercore, it’s important to note that the pre-war scenario already included demand-driven inflation, rising interest rates, and low growth prospects. “Now, there’s additional inflationary pressure from supply disruptions, alongside rising interest and inflation expectations in Brazil and worldwide.”
“We’re in a moment where investors are in ‘wait-and-see’ mode, with no urgency, waiting to see what happens in the coming weeks,” he says. Seneca has closed four transactions this year. “The appetite for Brazil hasn’t diminished. With the war, we’re in a holding pattern.”
Wainstein agrees that Brazil is among the countries that could benefit from the conflict. “Compared to other stock exchanges globally, B3 has been less affected because many of the companies in the index operate in the commodities sector.”
The war holds personal significance for Wainstein. The executive’s maternal grandparents were Ukrainian. “My grandfather was a Bolshevik who fought in the Russian Revolution. He fled when [Josef] Stalin began persecuting Jews,” he recalls.
In the capital markets, the scenario remains uncertain. “The environment is volatile both domestically and internationally. We won’t see IPO operations in the short term. Secondary share offerings (‘follow-ons’) are also challenging,” says Miranda of Santander, noting that this trend was already present due to the election year.
According to Bernardo Parnes, partner at One Partners, capital market activities are being more affected than the pace of acquisitions, especially when looking at the full year. “M&A adapts by extending timelines, adjusting prices, or addressing issues through clauses like MAC [material adverse change] or escrow accounts. But deals still get done one way or another.”
Eneva maintained its position from the January 28 statement when contacted. Petrobras declined to comment, and Acron did not respond to interview requests.
Comments