Uncategorized - 10/31/2019

Funding in Brazil: where do we stand?

Earlier this year, I wrote briefly about the prospects for IPOs, a form of funding for companies, in Brazil in 2019, at an event hosted by MZ. Nine months later, Centauro (CNTO3), Neoenergia (NEOE3) and Vivara (VIVA3) have held their IPOs, raising a hefty amount of over R$6.5 billion.  C&A (CEAB3) and BMG (BMGB11) will go public in the last week of October.

This year, we have already had more IPOs on B3 than in the whole of last year. It is also worth noting that Anbima data show funding rose 42% year on year and that the 2019 figure is already the highest in the complete historical series.

However, IPOs are not the only possibility for companies seeking to raise capital in B3. The famous follow-on (process through which a company that is already listed and has already issued shares returns to the market to offer more securities) was the fastest-growing form of funding in the domestic capital market, up from R$111 million in 2018 to a substantial R$53.1 billion by September of this year.

The volume of real estate investment funds issued by September 2019 also increased more than 100% compared to the same period last year. Individuals accounted for the lion’s share of the public offerings, with 49.4%.

Even so, most of the funding (45.5% of the total) is coming from debentures, with institutional investors leading demand for this type of funding. Funding proceeds were mostly allocated to the refinancing of liabilities and working capital financing.

Talking about institutional investors and fund managers, if we look only at the shareholder bases of the main peers of C&A (Renner, Guararapes and Marisa) and BMG (Itaú, Bradesco, Santander, Banco do Brasil, BTG and Banco Pan), according to information provided by MZiQ, we have more than 1,425 institutions worldwide, with over US$ 54.8 billion invested in these peers, including 137 institutions from New York city, 129 from São Paulo and 71 from Rio de Janeiro. This means there is a wide variety of funding options for Brazilian companies – they just have to know about each one of them and choose the one that best suits their profile and need.

I hope you liked, if not, sorry about that! – Canadian style 

Published by Marco Antônio Tomás

Technology - 03/28/2019

“Your connection to this site is not secure.” What does it mean?

Since information is currently very valuable, protecting data and ensuring that sensitive or personal information does not fall into the wrong hands is highly recommended. To that end, websites are required to use security certificates, which are responsible for validating websites and establishing secure connections between visitors and website servers.

You probably have already come across the following warning when accessing a website: “YOUR CONNECTION TO THIS SITE IS NOT SECURE.” That happens to websites without the SSL/TLS security protocol. In other words, they still use HTTP protocol rather than HTTPS.

HTTPS is a combination of HTTP and SSL/TLS protocols. In short, the difference between HTTP and HTTPS is the extra layer of cryptography added by the SSL/TLS protocol, which enables safe information exchange without interception.

According to Google, since 2017 efforts to raise awareness of the use of security certificates have been producing positive effects:

  • Over 68% of Chrome traffic on Android and Windows is protected;
  • Over 78% of Chrome traffic on Chrome OS and Mac is protected;
  • 81 out of the top 100 websites use HTTPS by default;

Another research conducted by BigData Corp in 2018 indicates that 91.43% of the global website average already uses security protocols. Part of this increase is the result of Google’s actions, that, since July 2018, has been labeling uncertified websites as “Not Secure” in the Google Chrome address bar. Therefore, users can easily identify whether the website is secure or not. The absence of the security seal, which is represented by the “padlock” in the address bar and the “s” in HTTPS, leads users to rightly feel uncertain and, as a result, uncomfortable to share information.

Once websites offer the HTTPS protocol, all information, including name, email, telephone, company, banking data, among others, entered by users in the browser is encrypted and eligible for processing in the server, avoiding MITM attacks, where this information can be intercepted.

In addition, as part of the strategy to encourage secure information traffic, “secure” websites are better ranked in Google’s researches, i.e. the use of security protocols combined with SEO strategies is a great path for those seeking security and visibility on their websites. In addition to ensuring information security and avoiding users to feel uncomfortable when coming across such warning, it consequently improves website visibility on search engines, thus substantially increasing website access.

Published by Eliézer Oliveira.

Highlights - 01/31/2019

Inline XBRL (iXBRL)

iXBRL Requirements

We all knew that requirements for companies who report their Financial Statements (DFs) in International Financial Reporting Standards (IFRS) to the U.S. Securities and Exchange Commission (SEC) would eventually arrive (more details here). We also knew that the growing iXBRL chain would also become mandatory at some point. On June 28, 2018, the SEC created a phase-in model for companies and funds who report in USGAAP to begin reporting their DFs in iXBRL. In this article, we will focus on companies who use IFRS reporting and must comply with the SEC requirement that DFs be reported in iXBRL starting as of the end of their fiscal years on June 15, 2021. However, companies who wish to anticipate their iXBRL reporting in IFRS may already do so.

What is iXBRL?

iXBRL stands for InLine XBRL and it is a template that consolidates both human readable (EDGAR/HTML) and computer readable (XBRL/XML) information in a single file. Until the creation of iXBRL, companies had to file their results separately in EDGAR (human readable) and XBRL (machine readable) formats – with this new technology, reports may now be submitted in a single file that integrates both readings.

iXBRL embeds within the HTML format the XBRL tags, which allows financial figures and statements to be read by computers.

A sample of an iXBRL file is available here.

What are the benefits of reporting with InLine XBRL?

Since iXBRL integrates two file formats into one, it will reduce costs and the amount of time needed for the preparation of DFs, which will now undergo only a single revision process due to the cancelation of one of the formats. Financial reporting will be become more reliable and precise as inconsistencies between the HTML and XML files will no longer exist, allowing accounting teams to have full control of how the information will be presented within the HTML format, along with an enhanced document viewing experience for investors who prefer to access the XBRL information within the HTML file.

Originally published by Fernando Fernandes

Highlights - 01/28/2019

2019 and IPOs in Brazil, what to expect?

By holding an IPO, companies raise a significant amount of funds to invest in their growth and expansion, and improve their capital costs, among others.

In Brazil, Banco Inter, NotreDame Intermédica and Hapvida raised R$650 million, R$2.4 billion and R$3 billion, respectively, in their IPOs in 2018.  Now, with lower interest rates and BNDES decreasing its share to finance large companies’ investments, what should we expect in 2019?

Currently, as pointed out in an event held by MZ last week about IPO perspectives, international investors are taking a closer look at Brazil. There is no euphoria or a wave of optimism as was the case in the past due to uncertainties over necessary structural reforms, but attention is turned to the country, and companies may benefit from this more favorable scenario.

As pointed out at the event, there has been an interesting rise in IPO and Follow On volumes raised since 2013 (over R$100 billion in the period), with Ibovespa moving up from 50,000 points at the end of 2013 to more than 87,000 in 2018, and foreign investors’ share reaching 51%. According to B3, the average funding cost is 4.5%, and 65% of the companies that held IPOs were Private Equity investees. Sinquia (former Sênior Solution) and Banco Inter were two successful cases. The companies prepared themselves for their IPOs and, since then, their value has increased by more than 100%.

But B3 listing is not the only option. As did PagSeguro and Stone, which raised US$2.3 billion and US$1.5 billion respectively, listing shares in the United States is an option for Brazilian companies that seek to increase liquidity and prospect new investors, either through dual listing or listing only on Nasdaq or NYSE rather than Brazil. (Netshoes has taken this same path). The advantages and facilities of this option for the U.S. market were addressed and explained to the participants during the event. The speakers also addressed the importance of implementing solid corporate governance and storytelling in the investment thesis.

At the panel’s final stage, which included Stone representatives, a company listed on Nasdaq in 2018, and OdontoPrev, which was listed on B3 in 2006, the participants were able to share a bit about their experience, alerting that investors and analysts will always want to learn more and that the company must take precautions in order not to try to please everybody by telling them something that might be considered inside information, and that both the Board and Management must constantly be informed of the market’s feedback, especially regarding negative aspects and perceptions, as they indicate the IR program’s weaknesses that need close attention and further improvements.


Originally published by Marco Antônio Tomás

Sector Report - 06/05/2018

The impact of MiFID II on IR day-to-day activities

The Markets in Financial Instruments Directive II (MiFID II) came into effect in the European Union on January 3, 2018, changing several financial market rules not only for EU member countries, but potentially for the whole world.

The more than 7,500 pages of the new legislation include two major points of interest for Investor Relations professionals: individual payment for research reports and corporate access. Until last year, it was common practice not to pay for research reports or the corporate access provided by brokers, as this cost was embedded in brokerage fees (bundle). MiFID II has changed this dynamic because it requires that these services be paid for separately, forcing the unbundling of the “brokerage + research + corporate access” package.

In practice, these two changes mean that investors have to review their budgets in order to adapt to the new reality. Regarding research, the size, scope and reach of sell-side research tends to decline, as the demand for research on large companies and market darlings should remain stable or fall, while the demand for small-cap and lesser-known companies should drop.

From the corporate access viewpoint, the frequency of roadshows and other events is expected to decrease. In addition to the aforementioned reasons, we must consider that neither investors (or potential investors) nor companies need an intermediary to be able to interact, although it is an undisputed fact that banks and brokers are great facilitators of this process.

Therefore, the IR team should face and be prepared for the following situations:

  • Smaller reach of the message sent to the market through the sell side;
  • Increased demand directly from investor or potential investors; and
  • Reduced reach of roadshows and events organized by banks and brokers, such as reduced attendance and number of meetings.

Reach beyond the European Union

It is wrong to think that MiFID II applies only to European companies and investors. As mentioned above, the recent regulation of the European Securities and Markets Authority (ESMA) establishes that all those who have business or do business with the European Union are subject to it.

This means that, if an Italian bank has a branch in Argentina and this branch hosts a roadshow in a EU member country, it will be subject to the rules of MiFID II. If a Brazilian bank has a branch in Portugal, this subsidiary is subject to MiFID II. If an American broker has a customer in Germany, operations with that customer must comply with MiFID II standards. And so on.

In Brazil, when talking to several IRs of companies from various sectors with various market caps, we see there is not yet a uniform view of the impacts of MiFID II on day-to-day operations. Some have said that they have felt little or no difference in the behavior of analysts and investors since the implementation of the new rules in the European Union; others reported having already felt greater demand from investors, who have been asking for more calls and meetings (one reported to have received a request for a meeting between events he was attending in the US); while another reported that roadshows in Europe can no longer fill all their time slots.

However, regardless of the view of each IR team, it is undeniable that MiFID II has already changed and will continue to change the modus operandi of the financial market. Other countries are likely to adopt some of the measures set out in the new regulation in order to standardize their operations around the globe.

Originally published by Rafael Rosenberg.