Crisis hit Brazil: Sadia, Aracruz Lose Finance Heads on Bad Currency Bet (Update3)
By Carlos Caminada and Fabio Alves
Sept. 26 (Bloomberg) -- Sadia SA and Aracruz Celulose SA, two of Brazil's largest exporters, reported losses on bad currency bets, spurring speculation more producers in the commodities-driven economy are at risk from the real's 15 percent tumble since Aug 1.
Sadia, Brazil's second-biggest food company, fell the most in at least 14 years after the company fired Chief Financial Officer Adriano Lima Ferreira and posted a 760 million-real ($410 million) hedging loss. Aracruz, the world's biggest eucalyptus- pulp maker, slumped the most in a decade as its CFO resigned and the company assessed losses from derivatives investments.
Latin America's biggest economy, once the darling of emerging-market investors, is losing its luster as global financial turmoil and a drop in prices of the nation's oil, metals and agricultural commodities curbs economic growth. More of Brazil's companies may have been surprised by the real's reversal after it surged 44 percent since the end of 2004, according to CM Capital Markets' Tony Volpon.
``The fact is there are a lot more of these types of losses out there,'' Volpon, chief economist at the Sao Paulo-based brokerage, said in an e-mail to clients. ``Not exactly good news for a stock market already on the skids.''
Share Slump
Sadia, based in Concordia, Brazil, plunged the most since at least August 1994, losing 3.30 reais, or 35 percent, to 6 reais at 5:14 p.m. in Sao Paulo trading. Aracruz lost 1.415 reais, or 17 percent, to 7 reais, the biggest drop since October 1998.
Cia. Vale do Rio Doce, the world's largest iron-ore producer, may have lost 600 million reais on currency derivatives, Banco Bradesco SA said in an e-mail to clients. The company is in no immediate danger of currency hedge-related losses, said Roberto Castello Branco, the director of investment relations, in a conference call with reporters. Shares of Rio de Janeiro-Based Vale fell 3.7 percent.
Declines in exporters dragged down Brazil's Bovespa stock index, which slumped 2 percent to 50,782.99, capping its first weekly retreat in three. The real, until early September the biggest gainer this year among the 16 most-actively traded currencies, was unchanged at 1.8445 per dollar.
Brazil was dislodged as the best-performer of the world's 20 biggest equity markets in May as economic growth slowed and borrowing costs began to climb. The benchmark Bovespa index fell as much as 39 percent from its May 29 record to this year's low on Sept. 18.
The drop in commodities prices prompted foreign investors to pull money out of Brazilian stocks in August at the fastest pace since January 2000.
Developing Markets
The tumble in Brazilian equities has coincided with declines in other of the largest developing markets. The MSCI BRIC index, which tracks stocks of Brazil, Russia, India and China, quadrupled since the end of 2001, when commodities such as oil, iron ore, silver, copper, wheat, sugar and steel began to rally. The index is down 38 percent this year.
Cia. Siderurgica Nacional may have lost $700 million on an ``ADR swap,'' Bradesco said in the e-mail to clients. Shares of CSN fell 4.7 percent.
Cosan SA Industria & Comercio, the world's biggest sugar- cane processor, said in a statement it doesn't have ``speculative'' positions in the foreign-currency market.
Marfrig Frigorificos e Comercio de Alimentos SA also said in a statement to Brazil's securities regulators that it doesn't own leveraged derivatives or similar instruments that aim to reduce its exposure to foreign currencies. JBS SA, the world's largest beef producer, didn't answers calls for comments.
Real Rally
Brazil's real more than doubled from January 2003 to Sept. 4, more than twice the 47 percent gain of the Canadian dollar, the second-best performer of the major currencies in the period. The real reached a nine-year high of 1.5545 per dollar on Aug. 1 before slumping 26 percent to 1.9606 by Sept. 18.
Sadia fired Ferreira after he carried out currency-related investments that exposed the company to longer-term risk than policy allows, according to his replacement, Welson Teixeira Jr.
Aracruz, which plans to merge operations with Votorantim Celulose e Papel SA, said in a statement late yesterday that Isac Zagury resigned as finance chief. The company said today that it hired an outside firm to quantify losses from its currency- related transactions.
`Total Surprise'
``This came as a total surprise and increases the company's risk in the eyes of investors,'' said Brascan Corretora analyst Denise Messer, who is now revising her 14.60 real share-price forecast and ``market perform'' rating on Sadia.
Sadia, whose credit rating was cut today by Moody's Investors Service, increased its short- and medium-term debt to help cover the loss, Teixeira said in a conference call today. The company will operate with higher debt levels in coming months and proceed with the majority of its expansion plans, he said.
The loss was limited to financial transactions and didn't affect operations, Teixeira said. A small part of the loss was related to transactions with New York-based Lehman Brothers Holdings Inc., Teixeira said, without disclosing any details. Lehman filed the biggest U.S. bankruptcy ever on Sept. 14.
All debt ratings related to Sadia were cut to Ba3, three levels below investment grade, from Ba2, Moody's said today in a statement. The ratings remain under review for possible further downgrade.
To contact the reporters on this story: Carlos Caminada in Sao Paulo at at ccaminada1@bloomberg.net; Fabio Alves in New York at falves3@bloomberg.net. |
