BG will reinvest proceeds from sale in Brazil to become top producer

BG Group, a large partner of Petrobras in pre-salt oil fields, will reinvest in Brazil the $1.7 billion it got with the sale of its stake in gas distributor Comgás to ethanol group Cosan, a deal concluded early this month. “The money raised with the sale of Comgás will be entirely reinvested in Brazil,” said BG Chairman Andrew Gould. He took over the position in May and has the short-term challenge of finding a replacement for CEO Frank Chapman, who retires in 2013.

BG’s sale of its 60% stake in Comgás to Cosan was part of its global strategy of selling assets in gas transmission and distribution, as well as power generation. The company is trying to streamline its portfolio, concentrating investments in exploration and production of oil and natural gas, especially in Brazil and Australia, countries where BG is currently focusing efforts and investments.

“If all deals we announced were concluded, we would have reached our target of $7.6 billion up to mid-2013,” he said. The executive was in Brazil to meet with BG Brasil managers and meetings with government officials in Brasília. The $7.6 billion will mostly be used, Mr. Gould says, in the Brazil and Australia projects.

Down Under, BG invests in coal gas to be liquefied and focuses on exports. In Brazil, where it is one of Petrobras’s largest partners in pre-salt fields, located in ultra-deep waters, the focus is on oil production. The company aims to produce 600,000 barrels of oil equivalent (BOE) a day by 2020. To reach that goal, it announced investments of $30 billion until the end of the decade, with more than $5 billion already invested. The company aims to become the second-largest oil producer in Brazil, after Petrobras.

BG’s growth in Brazil also includes new offshore exploration opportunities. “If there is a new [bidding] round for offshore exploration, I’m sure BG would be interested in participating,” said Mr. Gould.

Mr. Gould gave as examples of divestitures, besides Comgás, the sale of its power generation in the Philippines, of its transmission and distribution assets in India and of a regasification terminal in Chile. BG also closed a deal to sell its stake in Argentinian gas distributor, which controls MetroGas, also a distributor. Mr. Gould said the divestment program was concluded with the sale of its part in a natural-gas project in Queensland, Austalia, to China’s Cnooc.

Even with the Comgás sale, there is a possibility of BG Brasil supplying natural gas from the Lula field in the Santos Basin to the distributor, as long as there are adequate volumes and commercial conditions. In a statement, BG said: “BG has been holding constant talks with Comgás — as well as other distributors — about the possibility of supplying natural gas. There are still uncertainties about the volume of natural gas coming from the Lula [field] that will be effectively available for commercialization. This uncertainty comes from the fact that tests are still being conducted to define the quantity of gas that will be necessary to re-inject in the field to optimize oil production. This information is crucial for the parts to progress in agreements.”

The Lula field is one of the five areas in which BG has a stake in the Santos Basin pre-salt. The others are Iracema, Sapinhoá, Iara and Carioca. Mr. Gould said the company doesn’t have any plans to sell assets in the Brazilian pre-salt. In 2011, there were rumors that BG would sell part of its assets in Brazil. In response to a Valor question about whether the hypothesis of selling pre-salt assets was considered, Mr. Gould said: “I believe we may have tested the market, but nobody would get close to what we believed the assets’ value would be. Thus, we removed [the idea] from the market. And at the moment there is no plan to sell any pre-salt asset.”

Source: Valor International


Brazil leads BCG ranking of standard-of-living improvements

Brazil is the country that best used the economic growth it reached to raise the standard of living and its population’s well-being. The GDP grew at an average rate of 5.1% between 2006 and 2011, and social gains obtained in the period are similar to those of a country that registered yearly GDP gains of 13%.

The conclusion is from a study carried out by international consultancy Boston Consulting Group (BCG), which compared economic and social indicators from 150 countries and created the Sustainable Economic Development Agency, known as SEDA, based on 51 indicators collected from the World Bank, IMF, UN and OECD.

In this comparison of recent progresses, Brazil leads the index with a score of 100, attributed to the country that obtained the best results in these assessment criteria. Next are Angola (98), Albania (97.9), Cambodia (97.5) and Uruguay (96.9).

The study used data available for all countries  and that allowed the creation of a comprehensive panorama of ten different areas of economic and social development, including: income, economic stability, jobs, income distribution, civil society, governance (includes political stability, freedom of expression, property rights, low level of corruption, among other items), education, health, environment and infrastructure.

This initial ranking generated another three, to allow for effective or potential comparison of the countries in different moments: 1) the country’s current socio-economic level, which would be a sort of photographic record of a single moment; 2) recent progresses in a previously defined period; and 3) sustainability of improvement attained in the long term.

As expected, the richest countries in the world are among those that obtained most points in the ranking that shows current development stages. Using this comparison base, which refers to a sort of “well-being stock” existing in more developed countries, Switzerland and Norway lead the list, which includes Australia, New Zealand, Canada, the US and Singapore. When the indicator is compared to GDP per capita of these countries, it is clear that most of them show wide efficiency in transforming wealth into well-being.

According to BCG’s survey, Brazilian performance over the last years regarding improvements to the population’s quality of life is mainly due to income distribution. “Brazil considerably lessened the income gap between rich and poor over the last decade. At the same time, the number of children in school went to 97% from 90% since the 1990s, says the text of “From wealth to well-being,” officially released on Monday. The study also refers to Bolsa Família, the federal government’s family welfare assistance project, stating that the government’s help to poor families is tied to keeping children in school.

Christian Orglmeister, from BCG’s São Paulo office, says Brazil’s performance is commendable, but should be eyed with caution. “When starting from a lower level, it is easier to show progress in a certain period of time. Brazil is a lot better than five years ago in several areas, even in infrastructure, but still needs to advance a lot.”

Among the countries that take the first places in this ranking of relative standard of living improvement in the last five years, annual income per capita is very different, from less than $1,000 in some African countries to Switzerland’s $80,000. Besides Brazil, two other South-American countries – Peru and Uruguay – are in the top 20. Also in the top 20 are three African countries rife with civil war in the past decades – Angola, Ethiopia and Rwanda – and that in recent years showed improvement in terms of standard of living. From Asia, Cambodia, Indonesia and Vietnam are on the list.

New Zealand and Poland are also in this group of countries capable of generating well-being for the population above its GDP growth levels. Average New Zealand GDP growth was 1.5%, but the improvement of its well-being was similar to that of an economy growing 6% per year. In Poland an Indonesia, whose average annual GDP growth rate was 6.5% per year, standard of living climbed a dignified 11%.

The study also made a more specific analysis about recent progresses by Brics countries – Brazil, Russia, India, China and South Africa – in the generation of more well-being for its citizens. In regards to economic expansion, Brazil trailed behind its peers between 2006 and 2011, but it also outdid the average obtained by the bloc in areas such as environment, governance, income, income distribution, jobs and infrastructure.

In order to make comparisons among countries and also see how they behave in a specific areas – for example, education – coefficients were created that use the GDP per capita of each country to assess the efficiency in translating wealth generated into the population’s well-being. These coefficients were named wealth to well-being (which indicates the current situation) and growth to well-being, which shows recent progress. A coefficient greater than 1 indicates that the country is able to improve the well-being of its population above what would be expected with its current GDP growth rate. Below 1, the standard of living is below what could be expected with the country’s stock of wealth, or with recent progresses obtained by the GDP, depending on the coefficient examined.

Douglas Beal, one of the study’s authors and director of BCG’s office in Dubai, says that although indicators brought together to produce SEDA could be used to produce a new index, that is not the study’s goal. “Our goal is to make a diagnosis and create a benchmarking tool, that can provide a more ample base upon which governments can act,” Mr. Beal says – he made a preliminary presentation of the results of the study ten days ago in Doha, Qatar, during Wise, a world meeting on innovation in education.

Source: Valor International

Foxconn buys land near Sao Paulo Brazil, plans new factory

Hon Hai subsidiary Foxconn CMMSG Industria de Electronicos has bought 350 acres of land near Sao Paulo, Brazil with the intention of building a new factory to assemble smart phones, tablets and other electronics. The deal will create a fifth Foxconn factory in Latin America, and at least the second such facility in Brazil. Foxconn has paid $12.6 million for the land, and will spend more than $490 million building the new facility. The current factory in Brazil is said to be one of the primary assembly plants for the iPad mini. The future facility could be used for expanded production in the Americas.

In addition to creating products for Apple and other electronics manufacturers without the shipping costs incurred from China-based production, the Fox con facilities take advantage of tax breaks and incentives offered by the Brazilian government, avoid tariffs of imported goods, and create products that can be sold in the rapidly-expanding Brazilian market. For example, an iPad mini made in Brazil avoids a 40 percent price hike caused by tariffs.

Foxconn makes goods for a wide variety of electronic manufactures, though Apple is one of its most important customers. The new factory in Brazil is likely to attract a number of clients that can use the facility to produce goods sold in the Latin American region. Apple has placed a lot of emphasis on the Brazilian market in recent quarters, with CEO Tim Cook mentioning the country and its expanding middle-class asa strong market and growth opportunity.

The iPad maker opened its iTunes Store in the country at the end of last year, and brought the iBookstore to Brazil just last month. It may not be coincidental that Apple is planning its first official retail stores in Brazil for later this year.


Brazilian educational groups rank in the world’s top 10

Brazil’s Kroton and China’s New Oriental are nose-to-nose in the competition for leadership of the ten largest publicly listed education companies in the world, according to a ranking elaborated by Valor Data with Economática numbers.

On Wednesday, New Oriental’s market capitalization was $3.025 billion and Kroton’s, $2.904 billion. But this position has been changing with every trading day. About ten days ago, the Brazilian company was ahead.

In the ranking of ten educational groups with highest market capitalization, three other listed Brazilian companies are also strong in the sector. Anhanguera is the third largest, Estácio is in fifth place and Abril Educação is in seventh.

In this ranking, there are only publicly listed companies. Thus, large educational groups are left out – such as the prestigious Harvard University, a non-profit organization whose revenues totaled $3.7 billion in the last fiscal year. Another point is that the education sector has few companies with a significant volume of shares traded, since the government’s presence in education is still very strong, especially in Europe. The most active companies on the capital markets are from the US, Brazil, and Asian countries such as South Korea, China, Singapore and India.

In Brazil, Anhanguera was the first educational company to list its shares, in 2007. The presence of Brazilian educational groups in the top-ten ranking is the consequence of a combination of factors on domestic and international markets.

US-based giant Apollo, which led the ranking for many years, had a considerable plunge in share prices due to the constant reduction of enrollment volumes at one of its main operations, the University of Phoenix, due to the US economic scenario. In the last 12 months, Apollo’s market capitalization plummeted 64.3%. Market analysts are recommending investors to sell their shares in the US company, which closed its last fiscal year with net revenues of $4.3 billion, 9.7% down compared to the previous period. “We reiterate our sale recommendation for the stock and reduce target price to R$21 from R$25,” said a report by Deutsche Bank last month.

China’s New Oriental has no problems with demand. On the contrary, net revenues of the company grew 38.3% in the last fiscal year to $771.7 million. Market capitalization, however, took a hit. On July 17th, the Securities and Exchange Commission opened an inquiry to ascertain possible irregularities in the company’s accounting and on that day the stock dropped 28%. In the last 12 months, the decline totals 16.2%.

Compared to the problems faced by some international groups, the Brazilians have been sailing smoothly, especially in the last two quarters. Minas Gerais-based Kroton became the sector’s favorite, after purchasing Unopar for R$1.3 billion last December. From then on, Kroton shares have soared 245.3%.

Among the ten largest, only the shares in Brazilian companies have appreciated. In the other companies, five US ones and one from China, stock prices only fell.

Investor optimism is founded in expansion expectations for the education sector in Brazil. “The Brazilian educational market has been in a new wave of growth with Fies [federal government’s student loans], which opened up possibilities for students with lower income to go to college,” said Bruno Giardino, an analyst with Santander’s brokerage. By October of this year, 338,000 people got Fies, compared to 154,000 in all of 2011, according to data from the Ministry of Education. “In the United States, the education market is already mature, with a lot of students in higher learning and the student-loan market is well-developed,” Mr. Giardino added.

The Santander analyst also highlighted that another factor attracting investors is the fact that the four Brazilian educational companies are investing in projects to increase profit margins and not just the size of their business.

Source: Valor International

Dilma Rousseff makes a case for pragmatism in her administration

By Vera Brandimarte and Claudia Safatle | Madrid

President Dilma Rousseff said the Brazilian economy needs to grow a minimum of 4% a year. She said her government’s big priority will be investing in education. For that, she will present again, as part of the National Education Plan, the proposal to fully allocate oil royalties to education. Ms. Rousseff also highlighted the importance of pragmatism in government management and, in special, regarding the macroeconomic tripod — fiscal surplus, floating exchange rate and inflation targeting. “I think every government needs to be pragmatic,” she said. “A government can’t think it has the recipes and that it will follow those recipes” at any cost, she said.

After having lunch with King Juan Carlos I, of Spain, and a meeting with Mariano Rajoy, Spain’s head of government, Ms. Rousseff participated of a conference organized by Valor and Spanish daily “El Pais” on Monday in Madrid. Before opening the conference “Brazil on the Road to Development,” Ms. Rousseff received Valor for an interview.

She pointed out the importance of competitiveness of Brazilian manufacturing to support the country’s growth. She announced that the government is preparing a set of actions to develop capital markets and said it’s consensus in her government that the manufacturing industry is crucial for the multiplying effect of its growth over the entire economy.

Valor: Latin-American countries complain of Brazilian duty barriers and countries from the Pacific are uniting in a bloc directed to the Pacific. Are you worried about that?

Dilma Rousseff: They are closing such an alliance because they think they will have a bigger opportunity and there was a certain induction from the US. We haven’t raised barriers. We are one of the countries that suffered the most dramatic consequences and the European Union too, of all quantitative easing, because nobody can hold a currency from devaluing at the rate they did. There is no protectionism policy more efficient than that they used, by not only devaluing the dollar, but also by reducing the cost of capital.

ValorBut is the exit to the Pacific a viable one?

Ms. Rousseff: I think they are trying such exit, but the exit to the Pacific is complex because it is an exit to where, to China? We have a relationship with China of another quality, we want to keep trade to commodities, but we want — and the Chinese themselves recognize it is possible — to increase sales of manufactured products and add value. When there’s talk about a shift in the Chinese model, it doesn’t mean they will reduce investments, they will reduce the gross fixed capital formation linked to infrastructure creation and will increase industrial production related to more sophisticated consumer spending. It is not that they will give only more wages, they will increase investments, they will have more sophisticated manufacturing. What we want is to be part of that effort because they will produce, but they will also import. I believe there is a place for everybody. Countries that make the Pacific Alliance, they have advantages in doing that and I have the impression it is more an alliance for the US. But it’s not the type of problem one poses to an economy such as Brazil’s. We have to have a relationship with the US and I’m sure that with [Barack] Obama’s reelection we can accelerate such relationship, but we are not a country of primary goods. And you can be sure of one thing: in the government there’s conviction that we won’t trail a development path if we don’t give importance to industry.

Valor: Why?

Mr. Rousseff: Manufacturing is important to articulate the other sectors, it has an innovation power that spreads out across the economy, it is decisive to us, who need to increase the gross fixed capital formation, who need to raise our investment rate. We have the obligation of having our eyes turned to the industry. It is not that we have to protect our industry, what we have to do is make it increasingly more competitive. And the industry won’t become competitive if we don’t have a public-private partnership, meaning the Brazilian state and private sector will have to make an unheard-of effort.

Valor: You mention the creation of these technology centers and…

Ms. Rousseff: Technology centers such as the one the National Confederation of Industry (CNI) is doing and that we are fully supporting.

Valor: Is the currency devaluation in the past few months, then, a way of making this transition to a more-competitive industry?

Ms. Rousseff: What currency, ours? We are seeking an exchange rate that is not one of a devalued dollar and an overvalued real. We had an overvalued currency, nobody doubts that, either by the interest rate/exchange rate ratio, either as a result of the quantitative easing that injected over our heads more than $9 trillion. After I said that at the UN there was a reaction, “But there is no such effect, of quantitative easing.” No? It happens monthly and its effects are accumulating. There are, in total, about $85 billion a month that multiplied by 12 months amounts to about $1 trillion a year. If you don’t sterilize that $1 trillion, it will go to some places, including Brazil. It has an effect of devaluing [the dollar]. I’m not going to talk about the inflow of speculative capital in Brazil, because it’s our obligation to defend ourselves of that. The effect is guaranteeing a devalued currency and simplifying the US adjustment. Behind that there is the whole talk that the others are protectionists. If we injected $1 trillion in our economy, first we would be inflationary and then we would be artificially devaluing our currency. When they do it… The US, we have to acknowledge, has an immense capacity to be pragmatic.

Valor: Is your government also pragmatic?

Ms. Rousseff: I think every government has to be pragmatic. A government can’t think it has the recipes and that it will follow those recipes. Example: I’m going to do the most austere adjustment in the world and it will be successful. What will happen? My growth falls and, then, my deficit rises. Because of that the denominator plunges, the GDP plummets and the ratio of public debt/GDP rises. They are experiencing that here in Europe. And we know what it is because we already went through that. When your GDP starts to grow, your adjustment becomes easier.

Valor: And why is the Brazilian economy taking too long to react and grow?

Ms. Rousseff: Because we have to make an effort in terms of competitiveness. That is not just rhetoric, it is real. We have to reduce the cost of capital, we are trying to do that, we have to increase the sources of financing for long-term investment, it can’t be only the BNDES [the national development bank]. We have to have cheaper capital, coming from the capital markets. Brazil will have to get more sophisticated, we have to have capitals, we have to have financial products that turn investment viable.

Valor: Is the government preparing measures for the capital markets still this year?

Ms. Rousseff: The government is preparing them, but I’m not sure they will be for now. I won’t say which measures they are because they are still being prepared. We have to change financing conditions in the Brazilian economy. We also have to increase the presence of companies in several activities. For example, in infrastructure we have to have partnerships, PPPs [public-private partnerships], and we will do it. We have to make a big effort in education, especially in professional education. We need that. We have to reduce the cost of labor, and for that we are cutting payroll taxes. We will have to advance, within the possibilities of the several involved agents, in tax cuts. We started the tax cuts in payroll, we started with 15 sectors, expanded them to 40, and we will do more. We have to solve the problem of ICMS [a state sales tax that the federal government wants to unify to avoid a tax war among states], but you can’t solve that problem without compensation to states. And also we don’t have all of the world’s money to go out doing all of that simultaneously. We will also have to have an investment in education. Another thing I think people didn’t realize is why we want to allocate [oil] royalties to education. We will have to make an effort to persuade… Because it is not only the Congress that is responsible, it is the entire society. Because if we don’t have education, we will not go far. I need to do this and the next leaders of this country will have to bet heavily on education. I need to make alphabetization at the right age, because 15% of eight-year-old children don’t know how to read, they don’t know how to write a little, they don’t have the ability to interpret a text. We have to change that, we have to have full-time education and we have to have professional education. I’m not even talking of Science Without Borders [a government-sponsored scholarship program to stimulate research], or about research. We are proposing to put all the efforts, whatever the split [of royalties revenue], on education until 2020.

Valor: Are you proposing to use the entire federal government share of oil royalties in education?

Ms. Rousseff: Yes. Ours and theirs, because responsibility over education falls mainly on municipalities and states. Where are they going to put the money? Norway solved with oil royalties a very severe problem they had, social security. Our very severe problem is education. Later we will present again the National Education Plan, PNA. And we have to do the possible and the impossible to make the country grow. Brazil needs to grow at least 4% a year.

Valor: And what else the government will do to achieve such growth?

Ms. Rousseff: I can’t say, but we will make some other things. We have some victories, such as My House, My Life [a housing program for low-income families], where we reached 1 million houses and will build 2 million more. It’s 1 million delivered and 2 million hired.

Valor: And the infrastructure problems?

Ms. Rousseff: We have several infrastructure problems. We solved several with the special procurement regime, RDC. Brazil has to have a bank for projects; we are trying to solve that. And in many things we need to make states and municipalities more efficient. Because we don’t have the means to invest in sanitation, for example.  Our problem is not money, it’s execution. Ask Miriam [Belchior, minister of Planning] if it is lack of money.

Valor: Is the macroeconomic issue less relevant today?

Ms. Rousseff: No, and that notion that we stopped using the three pillars [floating currency rate, inflation targeting and primary budget surplus] is absolutely mistaken.

Valor: But isn’t the exchange rate being managed?

Ms. Rousseff: I don’t think so.

Valor: Isn’t it at R$2 to R$2.04 per dollar?

Ms. Rousseff: I don’t think so, due to the international situation it may even be… It is keeping a certain level, sometimes it rises, then people say “Tombini [Central Bank President Alexandre Tombini] will do a swap.” Then it falls and people say “it will fall”…

Valor: Would you say the tripod of fiscal surplus, inflation targeting and floating currency can also be managed with pragmatism?

Ms. Rousseff: There is no policy that is not pragmatic. Tell me one? You will be orthodox and will see that you go nowhere. Have you seen moments in history when the people are very orthodox? We are seeing that now, here [in Europe]. In the US they never are. The International Monetary Fund in our times [in the 1980s and 1990s] was totally strict. Then it decided now to make an evaluation of indicators of the effects of policy adjustments and realized the negative effect they have over growth. The problem here [in euro zone countries] is that there is a political problem too. Euro is not a complete work. You start with the currency, the currency demands a state and demands a lender of last resort and demands bond issues. Then, when there was no crisis they held it. Now you have to negotiate and how do you negotiate with 17 parliaments? You have a political problem. It’s the so-called “consensus trap.” And I think there’s very strong speculation against the euro.

Valor: Will Brazil present a candidate to the command of WTO?

Ms. Rousseff: Not necessarily. We can both present and support one of the candidates that may emerge.

Valor: Who could be the Brazilian candidate?

Ms. Rousseff: I wouldn’t tell you who. Nobody knows yet. We have to look at this in relation to all the other things that are on the table. It is not only that decision on the table, we have to see the advantages and disadvantages.

Valor: And the issue of power concessions, there is a big confusion and Eletrobras is complaining…

Ms. Rousseff: Do you think I want to make Eletrobras go bankrupt? Now, between bankrupting Eletrobras and [the company] wanting an income that doesn’t belong to it, that belongs to Brazilian companies and the population…

IdeasNet bets on holding EAX to integrate its internet ventures

IdeasNet, a Brazilian venture capital company that invests in technology startups, remodeled part of its internet business. Three weeks ago, it instituted The Ecommerce Alliance (EAX), a holding company that assembles MoIP, Xura! and CiaShop, with the goal of increasing revenue growth in IdeasNet’s business area.

IdeasNet carried out a series of changes in its investment portfolio between last year and this one. As part of the changes, the company announced the creation of EAX in the 4th quarter last year to foster what the company calls “e-commerce play.” It’s an environment developed to provide all the technology necessary for the creation of an e-commerce site.

To head the project, the company hired René Abe as CEO, who was previously global director of financial services for PayPal between 2009 and 2011 and vice president of financial services for BuscaPé, between 2007 and 2009. Before that, he worked at BNP Paribas for five years, in e-commerce project development. “At PayPal, they gave me the option of working in Europe, but I’m a romantic. I want to see large internet companies emerge in Brazil and be part of that,” Mr. Abe says.

As its first action, EAX created TurboStore, which offers all technology developed by MoIP (in the payment area), Zura! (internet traffic management and virtual store inventory) and CiaShop (software for virtual store installation) for free.

Mr. Abe said he decided to offer a technological package to install an e-commerce site in five steps for free, to attract mainly regional retail networks, and small and medium-sized shops who still don’t sell via internet. Without announcing the new service, 420 companies created virtual stores with the EAX service. The company’s goal is to end the year with 2,500 stores and reach 30,000 stores by the end of 2013’s first half.

As part of the project, the company agreed to a partnership with the National Confederation of Store Leaders, or CNDL, to advertise the service among retailers associated to the institution in Brazil.

Mr. Abe says the goal is to turn EAX into a sort of Brazilian eBay, making it possible to form a commerce chain between buyers and sellers, without the need for businessmen to “install” their virtual store in a shopping mall or another portal of the sort.

Turbostore’s differential compared to other virtual store creation services, however, is not the free supply of technology. Innovation, says Mr. Abe, is in the supply of store products management software and advertising, which allows for automatic closing and publication of ads and sponsor links on search engines when a product is no longer available at the store.

Traditionally, e-commerce sites pay search engines like Google and Microsoft’s Bing, to show up in searchers’ results. They also pay a value that varies according to the number of shoppers that arrive at the virtual store after clicking on the sponsored link. However, if the store’s inventory runs out, the company sometimes keeps receiving the flow of web surfers who clicked on the sponsored link and pay for it, even with no sale closed. “This is an important cost variable for e-commerce sites and can be better controlled with this new technology,” Mr. Abe says.

Source: Valor International