Good morning! Brazil’s most-awaited IPO will finally happen: XP Investimentos. South America’s move on Venezuela. Agro exports are down. And the president’s latest health report. (This newsletter is for platinum subscribers only. Become one now!)


Brazil’s most-awaited IPO will finally happen

Financial services company

XP Investimentos has reportedly mandated JP Morgan, Goldman Sachs, and Morgan Stanley as book-runners for an upcoming initial public offering—to be held either on the New York Stock Exchange or Nasdaq. Pricing will happen between December and January 2020, with the IPO likely to be scheduled for early next year. The move comes two years after 49.9 percent of XP shares were purchased by Itaú, Brazil&#8217;s largest privately-owned bank.&nbsp;</p> <p><strong>Why it matters.</strong> One of the reasons for going public is to help finance the creation of an XP bank—which has been in the works for some time. The IPO could push the company&#8217;s value up to BRL 60bn, making it one of Brazil&#8217;s biggest financial firms. For the sake of comparison, Brazil&#8217;s top 4 private banks are valued at a combined BRL 850bn.</p> <p><strong>NY over SP.</strong> Like many Brazilian financial firms, XP opted to <a href="https://brazilian.report/tech/2019/06/11/brazilian-tech-companies-new-york-ipo/">go public in New York</a>, despite having to go through tougher regulatory hoops and pay higher fees. Companies make that choice to have access to a broader base of investors who are not trading in São Paulo, and to be in a market with far more liquidity than in Brazil.</p> <p><strong>History.</strong> Founded in 2001 in the southern city of Porto Alegre, brokerage firm XP fell in the good graces of investors after providing all kinds of investments, while traditional banks favored their own products. The company also invested in financial education products, encouraging people to think they wanted (or even needed) to invest. Over H1 2019, the company posted BRL 94.7m in net profits.</p> <hr class="wp-block-separator"/> <h2>South America&#8217;s move on Venezuela</h2> <p>The Organization of American States (OAS) will meet to discuss whether or not to activate the Inter-American Reciprocal Assistance Treaty (Tiar), a defense alliance dating back to the Cold War. The move was presented by backers of Juan Guaidó, who proclaimed himself Venezuela&#8217;s legitimate president in January, and could trigger mechanisms allowing for a military intervention against the Nicolás Maduro regime.</p> <div class="flourish-embed" data-src="visualisation/670497"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Why it matters.</strong> Under an increasingly authoritarian regime, Venezuela is immersed in a full-scale socioeconomic collapse, which has been called the most severe humanitarian crisis in the Western world. While the treaty could eventually lay the grounds for intervention, Brazil is looking at it instead as a mechanism that may allow the country to slap economic sanctions on Venezuela (today, such sanctions can only be adopted by Brazil if approved by the UN Security Council).</p> <p><strong>Head-scratcher.</strong> Costa Rica proposed a motion to bar any military action against Venezuela, but Brazil voted against it. Unofficially, diplomats said it is because OAS only approved a meeting to discuss the treaty—but wasn&#8217;t discussing its merits.</p> <p><strong>When?</strong> The OAS meeting should take place on September 23 in New York—just before the start of the UN General Assembly—and will be presided over by Colombia.</p> <p><strong>UNGA.</strong> President Jair Bolsonaro will deliver a much-anticipated opening speech at the UN, his first international appearance since the crisis sparked by the global outcry against Amazon fires. The speech will have inputs from Steve Bannon, the former White House advisor who has embarked on a quest to spread nationalist movements globally.</p> <hr class="wp-block-separator"/> <h2>Brazilian agro exports down 11%</h2> <p>Agro exports rose USD 8.3bn in August, yet this represents an 11-percent drop from one year ago, according to official data. The results follow a recent trend and are the result of a lower demand from China, Brazil&#8217;s main destination for exports. Since July 2018, the Asian giant has battled a major outbreak of African swine fever—which reduces the demand for soybean-related products, used to feed hogs.</p> <p><strong>Why it matters.</strong> This year has been challenging for agribusiness, with the sector expected to post flatlining results in 2019 and an expected growth of only 0.5 percent. The sector, however, is the core of the Brazilian economy, responsible for creating production chains that represent around 22 percent of Brazil&#8217;s GDP.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Bolsonaro.</strong> President Jair Bolsonaro has postponed his return to office to Tuesday. He underwent abdominal surgery last Sunday to remove a hernia, and has recovered well, according to doctors. However, he has shown swelling in his abdomen and will require more rest. Meanwhile, VP Hamilton Mourão will be the country&#8217;s acting president.</p> <p><strong>Pollution.</strong> AirVisual, the investigation unit of Swiss air purifier manufacturer IQAir, released its latest study on air quality around the world. The ranking of most-polluted cities in the world was dominated by countries such as China and India—and the first Brazilian city to be featured was Osasco, the world&#8217;s 610th most-polluted area. A total of <a href="https://www.airvisual.com/world-most-polluted-cities?continent=59af929e3e70001c1bd78e50&amp;country=S6WZCqRunkTTJ8NGj&amp;state=&amp;page=1&amp;perPage=50&amp;cities=">11 Brazilian cities</a> appear on the list—all of them in the state of São Paulo, the country&#8217;s industrial center.</p> <p><strong>Contraband.</strong> The port of Itaguaí, west of Rio de Janeiro, is one of Brazil&#8217;s main gateways for contraband. Between 2015 and 2018, its customs office increased seizure operations of illegal material by 6,712 percent, apprehending merchandise worth BRL 483.7m last year. But Marshal José Nóbrega, who heads the customs office, is being targeted by President Jair Bolsonaro—who wants him out. Speculation has it that the president wants to replace him with an official who has no experience in customs.</p> <p><strong>IPO.</strong> The Belgium-based C&amp;A retail group will hold an initial public offering of its Brazilian operations. The company was known for its secrecy over its results—which were made public for the first time in 43 years only recently, when C&amp;A turned in its corporate information to Brazil&#8217;s Securities Commission. With 282 stores, C&amp;A posted net revenues of BRL 5.1bn in 2018, and net profits of BRL 173bn—an 80-percent increase from 2017. The retailer&#8217;s IPO is expected to raise at least BRL 2bn.</p> <p><strong>Prosecutor general. </strong>Still seen with suspicion by the men and women he will lead, soon-to-be Prosecutor General Augusto Aras is trying to lower the opposition to his appointment by President Bolsonaro. After criticizing Operation Car Wash in talks with senators (who are still to confirm his nomination), Mr. Aras talked over the phone with the operation&#8217;s lead prosecutor, Deltan Dallagnol, pleading for &#8220;constant dialogue.&#8221;

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BY Gustavo Ribeiro

An award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.