Struggling Brazil Firms Turn to Founders for $4 Billion Rescue

Brazilian companies wrestling with high interest rates and growing debt loads are turning to the people who helped build them for a lifeline.

(Bloomberg) — Brazilian companies wrestling with high interest rates and growing debt loads are turning to the people who helped build them for a lifeline. 

Founders and key shareholders in Brazilian firms have committed to injecting as much as 19.3 billion reais ($4 billion) in capital to aid them so far this year, according to data compiled by Bloomberg. The rescues, which have come via equity offerings and real estate transactions, are expected to continue in months to come. 

“We’re likely to see more and more deals being anchored by controlling or relevant holders,” said Roberto Zarour, a partner and restructuring lawyer at Lefosse Advogados. The capital injections, he added, are not always a voluntary decision from founders but a demand from creditors. 

Interest rates sitting at a six-year high, the credit stress that followed the collapse of retailer Americanas SA and monetary tightening in the US and Europe have made it harder to borrow at home and abroad. As a result, the pile of dollar corporate notes from the nation trading at distressed levels surged to $12 billion, up 26% from the start to the year, data compiled by Bloomberg show. 

In the past few months, at least half a dozen key shareholders have stepped in. Guilherme Paulus, who founded travel agency chain CVC Brasil Operadora e Agencia de Viagens SA five decades ago but had unloaded his stake in the past few years, subscribed part of the company’s public equity offering that priced last Thursday. The transaction was part of an agreement with local bondholders in a distressed debt restructuring.

CVC hired investment bank BR Advisory Partners Participacoes SA earlier this year to advise on restructuring talks. The money raised in the share offering is expected to bolster the company’s working capital and also pay the principal payment on some of its notes. 

Another example is the billionaires behind Americanas — Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles. 

The trio, which have invested in the retailer since the 1980s and controlled it until two years ago, is negotiating injecting as much 12 billion reais in the firm by 2027 to keep it afloat after a massive accounting fraud sent it into bankruptcy protection earlier this year. 

Since the talks began, creditors have demanded a capital injection from the three, though the amount has been a point of contention.

Financial relief

Billionaire families that founded Hapvida Participacoes e Investimentos SA and Diagnosticos da America SA, two health-care companies, also stepped in earlier this year amid concern over their financial health. The Pinheiro family behind Hapvida not only participated in an equity offering, but also announced a deal to buy and lease back 10 real estate properties from the health-care provider. 

Hapvida shares are up more than 80% since the financial support was announced in late March, rebounding from near record lows. Spreads on its local bonds over the benchmark DI rate saw an average narrowing of 100 basis points through early June, according to Banco Bradesco BBI.

“The financial transactions aimed at generating liquidity balanced the company’s capital structure and reflect the reduction in financial leverage,” Bradesco BBI’s fixed-income analyst Altair Pereira wrote in a report dated June 23, adding he expects Hapvida’s credit spreads to narrow further.  

Earlier this week, furniture firm Tok&Stok — which doesn’t publicly trade — announced it received an injection of 100 million reais led by private equity firm Carlyle Group Inc., its controlling holder, amid a debt restructuring. Tok&Stok faced cash flow pressure in the past years and moved to close more than a dozen stores. 

In the case of BRF SA, Marfrig Global Foods SA — which owns a 33% stake in the chicken giant — teamed up with state-owned Saudi fund Salic to buy as much as 4.5 billion reais of shares in a public offering. The transaction is pending approval from shareholders.

Despite a 7% gain for Brazil’s equity market since the beginning of the year, the nation’s main stock gauge trades at a 27% discount to its 10-year historical average. That, combined with the expectation rate cuts will begin in the second half of the year, has some local hedge funds turning bullish on equities. 

“Those transactions usually signal confidence in the business and may eventually suggest a good entry point for shares,” said Tiago Cunha, an equity fund manager at Ace Capital in São Paulo.

–With assistance from Tatiana Freitas and Giovanna Bellotti Azevedo.

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.