Banco do Brasil possible sale of Patagonia and Votorantim to boost cash position

15 February 2019 10:06 PM | Potential M&A | REDD LatAm
Strategic considerations: Banco do Brasil’s new CEO announced this week divestment plans that include selling stakes the state-owned bank owns in Banco Votorantim, Banco Patagonia, and power company Neoenergia. The bank wants to focus on its core operations, which comprise the management of funds, insurance, and loans to families, and small and medium-sized enterprises. Such investments were made years ago when Banco do Brasil intended to internationalize operations or participate in different businesses, a strategy that doesn’t make sense anymore.
• The strategy follows other state-owned companies such as Petrobras and Eletrobras
• Basel index stands at 10%
Plans of Banco do Brasil to sell its stakes in Banco Votorantim, Banco Patagonia, and power company Neoenergia could represent a relevant capital injection in the Brazilian state-owned bank, increasing its cash position to foster its core activities, said two credit analysts.
Former CEO Paulo Cafarelli had already disclosed intentions to sell non-core assets, and now new CEO Rubem Novaes is continuing plans, which is positive for the bank performance, said investment analyst Lucas Lima at Toro Investimentos. With the divestments, the bank is seeking to continue reducing its costs and expenses and increasing operational efficiency in a leaner structure, added Lima.
Banco do Brasil will be able to invest in its core businesses, which is management of funds, loans to families, and small and medium-sized enterprises.
The state-owned bank has stakes that were bought in a different context when it had plans to internationalize operations or enter different businesses, said Carlos Daltozo, the head of research for equity markets at Eleven Financial Research. That doesn’t make sense anymore, he added.
The bank has a 50% stake in Banco Votorantim, more than an 80% interest in Argentine bank Banco Patagonia, a 9% in stake in electricity company Neoenergia, and 17.5% in Kepler Weber, a Brazilian grain-storage company, he added. Since Cafarelli was appointed, the focus of Banco do Brasil has been strengthening the Brazilian operational structure, said Daltozo.
It is the same process other state-owned companies are pursuing, such as Petrobras and Eletrobras, which have been divesting non-core assets, said Lima from Toro Investimentos. However, considering comments made by management today during a call with analysts and investors to discuss 4Q18 results, the bank is not willing to provide guidance on what will be the next steps, said Lima. During the conference, CEO Novaes reiterated several times Banco do Brasil is not in a hurry to sell assets, he added.
But investors are already estimating how much Banco do Brasil can raise with the sale. Banco Votorantim’s market value is estimated to be between BRL 10bn and BRL 13bn (USD 2.7bn and USD 3.5bn at today’s exchange rate), but it is still unclear how much of this would go to Banco do Brasil, said Daltozo. Management of the state-owned bank has yet to disclose whether Banco do Brasil will divest the entire stake or just a partial one, he added.
The market value of Banco Patagonia is estimated at around BRL 2.9bn (USD 781m), compared to BRL 1.35bn (USD 363m) in 2017, when rumors emerged that Banco do Brasil would seek to sell its stake, said Lima from Toro Investimentos.
Banco do Brasil has a comfortable position regarding its regulatory requirements, with a Basel index of 10% at the end of 2018, compared to a minimum of 8%, said Daltozo.
The bank’s adjusted net income for 4Q18 rose 20.6% YoY to BRL 3.84bn (USD 1bn), as reported. The bank’s results came in above market expectations, driven by an increase in revenue from fees, cutting of costs, and lower delinquency rates, a process that started during Cafarelli’s term as CEO, said Lima.
by Fabiola Gomes, Sao Paulo

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