Investors Looking at Brazilian Companies

As we all know the last year was really very bad to the Brazilian economy and more than that, market experts  believe we will face again in 2016 a negative GDP around 3%. However, I am thinking a little bit different. My vision is everything will depend on the actions that will be taken by the Brazilian government. Brazil needs urgently a long-term strategy for the next 15 years. The importance of this long run strategy is crucial for the market players to organize themselves e.g., the engineering companies and investors.  The main issue to perform such plan is the convergence of many different political parties to achieve a common sense in terms of long-term strategy. This kind of attitude happened in Germany when the country suffered a crisis during 2008. The social democrats and the Christian Democrats were opponents; however, they have made coalitions in order to keep the country in right track.

Many questions stand still like to liberate the Brazilian international business flow. Brazilian exports participation accounts for only 15% of GDP while in Germany this percentage reaches 70%. The issue among Brazilians is to increase the protectionism, but in fact, Brazil only will be more efficient at industry and in the economy with liberalization of the international trade. The Brazilian import duties are the heaviest ones in the world. Many sectors are not efficient enough because they are not opened to the international competition. Brazil can be an important player in many of the global chains.

Investors have appetite for the Brazilian companies specially now with the valuation of the USD currency but they want a suitable regulatory system. The country needs private finance under an adequate model. It is important international investors do not suffer with project delays e.g. environmental issues. It is not feasible a three years project delay and the budgets outline more than 60%. Many foreign investors are very interested in the infrastructure segment. We need to create in Brazil a competitive basis. A new role with no “favours”.

The global economy has strong liquidity and the returns at the developed countries are very low. The USA bonds yield 2,1% in ten years. There is an interest from foreign investors to take more risk once the conditions are better structured.

There are many opportunities in  new concessions at the infrastructure areas like airports, ports. In the energy and roads sectors, it is necessary to review the rules in a way the returns become more attractive.

Due to the crisis, nowadays the industry has a set of assets with a very high potential with restructuring needs. It is very clear there is a starting restructuring process of companies’ assets due to the new economic environment. There many companies with many good products, good business portfolio, but with strong cash flow needs, due to debts, delays in its projects conclusion and the reduction in the demand. Many investors are looking at these companies and thinking about the restructuring potential, which can be financial, strategic or operational. The strategic restructuring goes through consolidation and therefore M&A. Another important point is to understand many consumer products companies have made massive investments, however the demand has diminished. There are many foreign investors looking at these segments.

Due the current crisis, we have now moment of strong pressure  and many companies will rethink their strategies.