Girish Gupta



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Private Equity Looks to Brazil
Jun. 17, 2011

Published by Minyanville

Private equity groups are eating up the Latin American market, specifically Brazil. Burger King, controlled by private equity, has announced a tenfold expansion into the Latin American giant -- which exports more beef than any other country. The fast-food behemoth, controlled the investors at 3G Capital, is to team up with Vinci Partners to push its share in the Brazilian markets to more than 1,000 outlets. 3G Capital has Brazilian wealth as its largest investors.

Carlyle is another group looking toward Brazil. “Broad economic trends, including the rising middle class, make South America in general and Brazil in particular a desirable investment destination,” the company said on announcing this week that it had raised $1 billion in equity to invest in the region.

McDonald’s (MCD) saw sales in Latin America hit $3.6 billion in 2009. Burger King will have fewer outlets there but the region will represent 9% of its total market share, compared to 6% of McDonald’s. Both outlets must also consider local competition from companies such as the Colombian Hamburguesas El Corral which has outlets there and in Panama, Chile and Ecuador.

Brazil Must Act as a Leader

Author James Lockhart Smith writes in the Financial Times this week on the need for Brazil to secure its own backyard. The nation must be seen as a regional leader, he says. “One of the reasons why its bid for a permanent seat on the UN Security Council continues to go nowhere, for example, is opposition from Mexico and Argentina,” Smith writes.

The trouble is the delicate relations between Latin American countries. If Brazil were to criticize president Hugo Chávez in Venezuela, its oil investments would be threatened, for example. Yet, the emerging market must show the world that it not only can stand up to some of Latin Americas more left-field governments but also, and perhaps more importantly, can get along with them to secure its interests.

"The China of Brazil"

Focus looks to be settling on Brazil's northeast, described as an “emerging market within an emerging market” as well as the “China of Brazil." Its nine states are home to 53 million people, with new money.

Almost 70% of the region in 1995 earned less than $100 a month. By 2016, only 28% of people will be earning so little. This is thanks to investment from the Brazilian government and its encouragement of multinationals such as Kraft Foods (KFT), Unilever (UL) and Fiat to invest in the region.

The Sway of the Wealthy

However, while the middle classes grow, it is the “sway of the wealthy” that remains strong in Brazil’s major cities, according to the Globe and Mail. The paper highlights the lack of integration of the country's elite with ordinary Brazilians. Residents of Sao Paulo’s upper-class neighborhood Higienópolis have recently voiced concerns on the building of a Metro station there. Despite the huge traffic problems, one resident complained about the “a different type of people” that the subway would attract.

“The boom years have … catapulted into the stratosphere the country’s mega-rich, who increasingly tuck themselves into some of the world’s most expensive neighborhoods, spend portions of the world’s highest salaries on luxury items, and sometimes even take to the sky for their daily commutes,” says Vincent Bevins, writing for the paper. “In what has traditionally been one of the world’s most unequal societies, the gap between rich and poor remains cavernous.”

Peru's Humala to Use Brazil as Example

Peruvian president-elect Ollanta Humala has again cited Brazil as an example for his country’s future, quashing concerns that after winning the election he would follow the path of Venezuela.

“The Peruvian economy is very solid and we need to move to a second step which is social inclusion, and we want to use Brazil as an example which has already had plenty of success in this respect,” he said after meeting former Brazilian leader Luiz Inácio da Silva.

Humala has been a keen and vocal fan of the popular former president and his words will be welcomed by those who fear that Humala would turn the way of president Hugo Chávez in Venezuela.

Brazil Less Risky Than US

Many this week celebrated the news that Brazil is now less risky than the United States, following the announcement by Brazil’s finance minister Guido Mantega.

“This is the first time the risk of Brazil is lower than the risk of the US,” he said. He is known to be fond of knocking the US, according to the Financial Times. “We are happy with this because it shows the solidity of the Brazilian economy and the confidence that markets have in the Brazilian economy.”

The London-based Times, however, does go on to add that the news might not be so water-tight. Mantega’s excitement is down to Bloomberg’s announcement that swaps on the US government that expire in June 2012 have climbed about 50 basis points from 25 at the start of May. One-year swaps in Brazil rose about one basis point during the same period to 39 this week.

The paper points out that the one-year CDS market cited is not thought to be the best measure at all, rather the five-year market in which the US wins, hands down.


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Brazil and Mexico Look to Rewrite Auto Trade Pact
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Yet another minister resigns from Brazil government
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Brazil Prosecutors Move Forward in Chevron Oil Spill Case
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British Visit to Brazil Overshadowed by Falklands Dispute
Jan. 20, 2012

Brazil Pesticide Use Sends Orange Juice Prices to Record Highs as FDA Threatens Ban
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Brazil Overtakes UK, Looks Forward to 2012
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Chevron, Transocean Face $10 Billion Fine in Brazil Oil Suit
Dec. 16, 2011

© Girish Gupta