Brazil Has Record Reserves: Over US$ 350 Billion

Brazil's Central BankBrazil’s Central Bank informed Brazilian foreign exchange reserves reached an all-time high on Wednesday (August, 10), at US$ 350.881 billion.

This year, US$ 62.306 billion have been added to the country’s reserves, representing an increase of 21.59%. By the end of last year, the figure was US$ 288.575 billion.

The increase is mainly due to the daily spot market purchases that the Central Bank is making to reduce the vast supply of US currency in the domestic market.

By late July, out of the foreign exchange reserve surplus, which was US$ 346.144 billion, 88%, or US$ 304.692 billion, consisted of bonds.

Less Abroad

Brazilian companies reduced their expenses with acquisitions of foreign companies by 70% in the first half of this year. According to figures disclosed by the National Investment Bank Association (Anbima) on Thursday (11), the value was 42 billion Brazilian reais (US$ 26 billion) in the first half of last year and dropped to 12.3 billion reais (US$ 7.6 billion) in the first half of this year. The number of acquisitions dropped from 22 to 16.

According to the president of the Subcommittee for Mergers and Acquisitions at the Anbima, Bruno Amaral, the first half of last year was atypical. “We have returned to the traditional average participation of Brazilian companies buying abroad,” he said.

In early 2010 there were several great operations, like the purchase of a share of cement producer Cimpor, by Camargo Corrêa construction company, the purchase of share capital of the Bank of Patagonia by the Bank of Brazil, the BM&F Bovespa buying into the Chicago Mercantile Exchange and Weg taking over the Mexican Voltran.

Amaral warns, however, that what is currently taking place abroad – the recent crisis in the European and North American markets – may once again reheat Brazilian purchases abroad, as foreign companies should have depreciation in their market values. “They may become attractive,” he said, regarding a possible movement in the second half of the year.

The same crisis may also cause multinationals operating in Brazil to decide to sell their assets in the country to compensate problems in other areas.

The main movement in mergers and acquisitions in Brazil early this year was by Brazilian companies that developed business among themselves. They answered to 41.3% of operations, with 31.1 billion reais (US$ 19 billion), while acquisition of foreign companies by foreign companies totaled 17.1%, or 12.9 billion reais (US$ 8 billion), and the acquisition of Brazilian companies by foreign companies represented 25.2%, or 19 billion reais (US$ 11.7 billion). Purchases of foreign companies by Brazilian organisations represented 16.7% of the total.

In all, there was reduction in the turnover of mergers, acquisitions, public offerings for acquisitions and shareholder restructuring in Brazil in the first half of this year. While in early 2010 the turnover was 91.7 billion (US$ 56.3 billion), in the same period of this year it was no greater than 75.3 billion reais (US$ 46.2 billion).

According to Amaral, this reduction is due to the fact that the first half of last year showed record results. “Surprisingly, the first half of this year was strong in mergers and acquisitions,” he said.

The telecommunications sector was the highlight in the period, representing 45% of all operations. This, according to Amaral, reflects the continuation of operations that took place in the sector in 2010, when there was strong movement.

The natural resource sector (oil, gas and mining) answered to three of the greatest operations; the financial sector was responsible for another of the three greatest and the electric energy sector for two of the top ten.

Amaral stated that it is not possible to forecast whether the same volumes of mergers and acquisitions will be maintained in the second half of this year, but says that the international crisis – if it does not take on greater proportions and go on for too long – should not have a significant influence in the sector.

That is because mergers and acquisitions are long-term strategies. “In everyday life there is not as significant an impact as there is in the stock markets,” said the president of the subcommittee, regarding the movement identified in the sector in these early days of the crisis.

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