Peninsula gets ready for Brazil ‘down rounds’

Money manager expects firms to run out of capital

“We’re sitting a little bit on the money in that sense, and we are extremely busy looking for opportunities in private equity and real estate in Brazil now that interest rates went up and asset prices went down.” Flavia Almeida

BRASILIA: Private companies in need of capital in Brazil will have to turn to “down rounds” to avoid going deeper into debt in an environment of high interest rates, according to the manager of one Brazilian billionaire’s fortune.

Flavia Almeida, chief executive officer and partner at Peninsula Capital, said many company founders are still reluctant to pursue such financing, in which shares are sold at a lower valuation than previous equity rounds.

Private equity funds don’t want to mark down their investments, and “entrepreneurs are facing a dilemma,” said Almeida, whose firm manages Us$4bil (Rm18.8bil) in assets, including the family fortune of retailing giant Abilio Diniz.

“But early stage companies can’t be highly leveraged in Latin America because money is more expensive here.”

Almeida expects some “significant” down rounds in the next 12 to 18 months as some Brazilian companies run out of capital, and she’s planning to buy. The key to avoiding land mines will be to have extensive knowledge about local markets, she said.

Investors “have to be extremely careful now,” she said, and before buying stakes in companies they should consider how much cash the firm has and how long it’s going to last.

Tech company shares have been falling on public markets this year.

Some startups are already letting employees go to save cash. 2TM, the Softbank Group Corp-backed owner of cryptocurrency brokerage Mercado Bitcoin, cut 15% of its workforce in September after dismissing about 90 people, or 12% of its employees, in June, according to Bloomberg Linea.

Almeida is planning to buy properties and stakes in Brazilian companies even amid political changes and an expected economic slowdown next year.

“We have the foundations of a solid economy, and I don’t foresee any radical change,” she said.

“We’re are more liquid than usual” after selling a 3.8% stake in BRF SA, Brazil’s biggest exporter of chicken, for about 900 million reais (Us$175mil or Rm824.2mil) in August, Almeida said.

“We’re sitting a little bit on the money in that sense, and we are extremely busy looking for opportunities in private equity and real estate in Brazil now that interest rates went up and asset prices went down.”

The firm is opening a fund to third-party investors to increase its stakes in what Almeida called innovation companies in the retail, education and well-being sectors.

It’s also deciding whether to let outsiders jointly invest in real estate properties, which are now 100% owned by the Diniz family.