High interest rates and investments put pressure on companies’ indebtedness on the stock exchange

The high level of the basic interest rate and the financial difficulties caused by the pandemic, the war in Ukraine and the risk of a global slowdown have been reflected in the level of indebtedness of companies with shares traded on the stock exchange.

In addition, investment plans to expand operations also contribute to the indebtedness of listed companies.

A survey by the TradeMap platform indicates the companies that make up the Ibovespa with the highest level of indebtedness until June 2022, considering the quarterly information (ITR) sent to the Securities and Exchange Commission (CVM).

The data consider the relationship between net debt and Ebitda (earnings before interest, taxes, depreciation and amortization), an indicator of cash generation capacity. The rate is used by market analysts to measure a company’s indebtedness.

(Ebitda is seen by investors as a good measure of how much money the company generates from its operating activities, not counting taxes and other financial effects. The ratio between debt and Ebitda shows how many years the debt would be paid with only the resources generated by the operations.)

The Trade Map survey does not consider the indicators adjusted by the companies to exclude effects such as investments in expansion.

In the sectorial cut, education and energy companies are among those that appear with the highest level of indebtedness — either because of the losses of educational companies in recent months, which suffered from the increase in financial expenses, or because of investments to expand the network, in the case of electrical.

The real estate sector, which suffers a negative impact from the high interest rates for financing and for the purchase demand of consumers in shopping malls, also appears among the highlights.

According to Jader Lazarini, CNPI analyst at TradeMap, the most leveraged companies, with the highest level of debt in relation to cash generation, are usually part of sectors that face some kind of difficulty in resuming business after the pandemic and because of the slowdown in the economy. global economy.

Bruno Imaizumi, economist at LCA, adds that, in a scenario of high interest rates, companies have a greater difficulty in obtaining loans to leverage their business.

“Another difficulty is the disincentive that people have to consume goods and services, which can slow down some sectors such as commerce and services and, consequently, make companies possibly generate less revenue”, says Imaizumi.

Among the individual highlights, the leadership was in charge of Azul, in the airline sector.

Lazarini says that the company should take time to reduce the level of indebtedness, since the operation has been impacted by the increase in fuel prices and financial expenses because of the high Selic.

“The debt dynamics mostly dollarized and revenue in reais is not the best of all worlds, but the August traffic data show that the load factor of international flights and the volume of domestic flights above the pre-pandemic level are on a rebound. of profitability”, says the analyst.

He also states that the indebtedness of companies varies according to the sector in which they operate and the operational moment of each one.

In the case of Hapvida, says the expert, the degree of indebtedness is related to the merger with NotreDame Intermédica, with the payment of installments to the shareholders of the company acquired as part of the agreement.

In relation to BRF, continues Lazarini, indebtedness is more related to the evolution of revenue in recent months, which grew at a lower rate than production costs. “Even consuming less cash than in the same quarter last year, BRF saw its indebtedness increase.”

BRF informed through a statement that it has a “comfortable” average debt term, around 9 years, without large maturities or amortizations concentrated in the short term.

“With the high Selic and the possible increase in charges (interest), the company emphasizes that it employs even greater diligence in capital allocation decisions.”

Having debt on the balance sheet is not always bad, says expert

Retail companies would also be highlighted in the survey, but the TradeMap analyst points out that there is a particularity to be considered in this case.

This is because companies and industry analysts tend to consider credit card receivables from installment sales as part of cash and not as debt.

Magazine Luiza, for example, reported that, at the end of June, it had a total cash position of R$9 billion, including R$1.9 billion in cash and financial investments and R$7.1 billion in credit card receivables. .

“Credit card receivables have immediate liquidity, that is, they can be converted into cash instantly. If it wanted to settle all its debts, today, with its own resources, Magalu would have a balance of R$ 2.1 billion in cash “, the company said.

In the same vein, Via says that the leverage assessment must necessarily take into account highly liquid receivables. “Considering the cash outflows and also the highly liquid receivables, which are inherent to the company’s credit operation, our leverage is positive”, says the company.

Director of the Center for Studies in Finance at Fundação Getulio Vargas (FGVcef), William Eid Junior also says that it is common for people to have the perception that having a debt in the portfolio is bad.

“In general, it is not. Debt is part of the capital structure of most companies, as it costs less than the capital of the partners”, says the specialist. “From the investor’s point of view, lending has less risk than becoming a partner.”

He points out that the debt has a maturity date and provides for the payment of interest, unlike shares, which do not have these same characteristics. And, in case of bankruptcy of the company, the debt holder has preference in receiving the value in relation to the shareholder, which contributes to the lower risk compared to investing via shares.

Eid Jr adds, however, that when the company accumulates an excessive level of debt, investors may start to assess that it will not be able to pay its obligations. “And then things get complicated. You can see that in the ratings of companies and countries.”

Energy companies point to increased investments to expand operations as the main reason for indebtedness

Among the companies in the survey that returned to requests for comment, the investments in progress for the expansion of operations and adjustments considered in relation to the accounting data were pointed out to justify the results.

Energisa said the leverage is in line with its strategy of expanding and diversifying into businesses that are strong cash generators, such as the distribution, transmission and power generation segments.

The electricity sector company also highlighted that, considering the net debt over adjusted EBITDA, the ratio was 2.8 times at the end of June, below the limits defined in its risk management policy.

In the same vein, Engie Brasil informed that its capital structure “is very much in line with its growth ambition and executed with financial discipline. If we analyze the sector in which we operate, which requires intensive capital, as well as the company’s history of success last 20 years, we can guarantee that our look to the future is solid, consistent and balanced.”

Engie also indicates that it currently has a ratio between net debt and EBITDA of 2.1 times, and that the maintenance of the triple A rating provides easier access and competitive cost of debt to finance the growth of operations.

The company also highlighted that it invested BRL 21.5 billion between 2017 and 2021 in new projects, with an increase of BRL 16 billion in gross debt, with the debt-to-ebit ratio increasing from 0.3 times to 2.1 times. in the break. “In other words, we were under-leveraged and currently have a more efficient capital structure. And even with this expressive volume of investments in recent years, carried out without the need to call in capital from shareholders, our balance sheet still allows us to continue growing with safe levels of leverage.”

Vibra, formerly BR Distribuidora, stated that “financial capacity and resilient cash generation are important differentials in capturing the opportunities that the company foresees in the medium and long term. The company’s current indicators are at comfortable levels when considering the investments carried out to put in motion the strategy to leverage the operations of the ‘core business’ [negócio principal] current market and for entering new markets.”

Also according to Vibra, by the calculations adjusted by the company, in order to incorporate factors such as the expansion projects in progress, expenses with depreciation and amortization, losses and provisions with lawsuits, among other aspects, the ratio between the net debt over the ebtida was 2.4 times at the end of June.

Ultrapar, on the other hand, said that “it has been reducing its indebtedness, leverage and cost of debt in parallel, with results already captured in the most recent balance sheets and with improvements planned for the coming quarters.”

According to the company, indebtedness was reduced by around 30% between December 2021 and June 2022, reflecting the improvement in the results of the three main companies in the portfolio —Ipiranga, Ultragaz and Ultracargo—, the cash inflow from the sale of companies that are no longer part of the long-term strategy, such as ConectCar, Oxiteno and Extrafarma, and debt management, with prepayment of the most expensive debts, substantially reducing the effect of the increase in interest rates.

With adjustments, net debt over EBITDA ended June at 2.2 times, against 2.9 times in December 2021, the company points out.

Cosan, in turn, said that the “pro forma leverage ratio [que considera as dívidas das empresas controladas e da Raízen, joint venture em parceria com a Shell] in the second quarter of 2022 it is 2.44 times, versus 2.7 times in the previous period, reflecting the better operational performance of all the companies in the group.”

In the case of Rumo, in logistics, the company pointed out that “the current level [de endividamento] is below the limits negotiated with creditors.”

From the health sector, Fleury reported that internal calculations indicate that “the company’s leverage level is 1.8 times”, including accounts payable for acquisitions, and without considering financing for leases of R$ 754 million as debt.

Also in the healthcare sector, Hypera Pharma said that it financed a significant part of its recent acquisitions using debt mechanisms “on attractive terms”. The drug manufacturer also highlighted that, considering the projected ebtida for the year 2022, the net debt over ebtida is around 2.5 times, “a level that it considers healthy”.

The company also said that “it reinforces its commitment to continue generating cash, at levels that have allowed continuous deleveraging, reinvestment in innovation and marketing for organic growth, expansion of its operations and return of capital to its shareholders.”