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A series of mining and metals deals have been reported in Brazil since 2016, with positive developments in the local M&A scenario.
Companies operating in both sectors also have improved their bottom-lines in the last quarter, showing a recovery in the country's economy.
BNamericas spoke to KPMG capital markets partner Rogério Andrade about the current M&A scene and some regulatory flaws that could preclude some companies from accessing certain types of transactions in the capital markets.
BNamericas: We have reported in recent months a series of mining and metals deals in Brazil, such as the sale of non-essential assets by Vale, the acquisition of ThyssenKrupp's CSA steel plant by Ternium and the merger of ArcelorMittal's local long steel operations with Votorantim Metais. Currently, how do you see the domestic M&A market for the mining and metals industries and overall?
Andrade: The mergers and acquisitions markets including mining and metals, as well as certain other markets, were showing signs of recuperation following the improvement in the economy fundamentals, such as interest, inflation, growth in GDP.
In my view, Brazil is always looked at by investors as a market for long-term investments, but the current political scenario is sometimes slowing or holding up investment decisions. It will be key for the country to rapidly respond to these political challenges, which may help the capital inflow into the country.
BNamericas: Some public traded companies in Brazil, such as CSN and Braskem, failed to report their audited results in a timely manner in the last quarter. From the regulatory point of view, is there an explanation for the conduct?
Andrade: Regulation in Brazil requires companies to release their annual financial statements 90 days after year-end. With respect to quarterly financial information, the deadline is 45 days after the end of the quarter. There is no regulatory waiver for those requirements.
BNamericas: What do companies miss by acting this way? Are there any penalties?
Andrade: Fines and other penalties may be applied to these companies and their management by the regulatory bodies and the stock exchanges. Sometimes, depending on the duration of the delinquency, trading of their shares may be suspended or the company may be delisted from a particular exchange - noting that usually stock exchanges have different rules and regulations.
BNamericas: And from the market's point of view? Is there a breach of trust to some extent?
Andrade: Usually, the prices of traded securities are negatively impacted by situations like this, meaning that markets price down a default by a company to comply with regulatory requirements.
This is not always the case, but this trend is common. Also, the lack of audited financial statements may preclude a company's access certain types of transactions present in the capital markets.
About Rogério Andrade
Rogério Andrade is a capital markets partner at KPMG in São Paulo.
About the company
KPMG provides audit, tax and advisory services.