Worst currency drop makes losers of gol, BRF: corporate Brazil
By Bloomberg
The worst quarterly drop for Brazil's real in three years is making losers and bigger losers out of companies from Gol Linhas Aereas Inteligentes SA to Petroleo Brasileiro SA.
Brazilian companies carrying large dollar debt including Gol, BRF SA and Natura Cosmeticos SA will post a surge in borrowing costs when they start reporting third-quarter results on Oct. 14. Companies on the Ibovespa index have $353.5 billion in foreign debt, or 25 percent of their total, up from 17 percent three years earlier, data compiled by Bloomberg show.
Meanwhile, exporters like Vale SA and Fibria SA, which typically experience a pickup in demand as a weaker real makes their products cheaper for foreign buyers, will see those benefits muted because the U.S. currency is also rallying against those of rival commodity-producing nations, said Alvaro Marangoni, a partner at Quadrante Investimentos.
While the real has gained 2.6 percent this month on bets that President Dilma Rousseff may lose her re-election bid, its 8.6 percent plunge in September was the biggest among the world's 31 most-traded currencies. That compares with a 6.3 percent drop for the currency of Australia, home to Vale competitor BHP Billiton Ltd.
"Brazil doesn't have that much of an advantage for exports because it's the dollar strengthening against various currencies," Marangoni said in a phone interview from Sao Paulo. "And those who need imported products or have dollar debt will have an initial impact, and that could be hard to pass on."
Dollar Rally
The dollar strengthened in the quarter ended Sept. 30 against all the world's most-traded currencies except the Chinese yuan on signs that the U.S. Federal Reserve will soon start raising interest rates. The real has made up some of its lost ground this week on speculation presidential candidate Aecio Neves, favored by markets, may win the election against incumbent Rousseff later this month.
Fibria and Natura declined to comment on the currency's impact on their earnings. BRF and Vale didn't respond to requests seeking comments.
State-run oil producer Petrobras, as Petroleo Brasileiro is known, and Gol, Brazil's biggest airline, are also hurt by the weaker real because imports of gasoline and jet fuel become more expensive, said Joao Pedro Brugger, who helps manage 520 million reais ($218 million) at Leme Investimentos.
Embraer
Gol spends more on jet fuel than any other airline its size in the Americas, according to data compiled by Bloomberg. Petrobras has posted more than $40 billion in refining and distribution operational losses since 2011, when Rousseff started using the oil producer to subsidize fuel imports to rein in inflation.
Petrobras and Gol didn't respond to e-mailed requests for comments.
"For these companies, the outlook for earnings is not so great," Brugger said.
There are some winners: Industrial companies such as planemaker Embraer SA can gain from the currency swings, said Luis Gustavo Pereira, an analyst at Guide Investimentos.
"For a company like Embraer, the impact of the currency on its sales happens immediately," Pereira said in a phone interview from Sao Paulo. "Unlike commodities producers, whose sales depend on international prices, Embraer just gains more reais for each plane it sells in dollars."
Embraer's press office declined to comment.
No Rebound
The outlook for companies with debt linked to foreign currencies won't improve anytime soon because forecasters call for the real to stay weak, said Brugger. The Brazilian currency will be at 2.40 per dollar by the end of 2014 and 2.50 next year, according to estimates among economists surveyed by the central bank last week.
Petrobras has $102.3 billion in foreign debt, 72 percent of its total, and Gol has 38 percent of its $2.45 billion in debt linked to currencies other than the real, according to data compiled by Bloomberg.
"I don't see the real rebounding in the medium term, so there won't be any signs of relief for these companies," Brugger said in a phone interview from Florianopolis, Brazil. "Results will probably remain under pressure for awhile."