Brazil’s Iguatemi sees signs of confidence

Carlos Jereissati Filho©Getty

Carlos Jereissati Filho

One of Brazil’s biggest luxury mall operators sees early signs of a recovery in confidence in the retail market, following a change of government last month with the start of an impeachment process against President Dilma Rousseff.

But investors were still waiting for more initiatives to stabilise the economy, such as fiscal reform, before they would begin opening their wallets again, said Carlos Jereissati Filho, chief executive of Iguatemi Empresa de Shopping Centers and scion of the company’s controlling family.

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“If you ask our investors, business contacts and customers, they feel more confident although all are waiting to see those reforms go through,” Mr Jereissati said in an interview.

Brazil’s retail sector was at the vanguard of a boom in Latin America’s largest economy as the commodity supercycle, greater access to credit and government fiscal largesse put more money in people’s pockets.

But the country fell into deep recession last year following what critics said was economic mismanagement and Brazil’s failure to prepare for lower commodity prices.

The start of impeachment proceedings led to Ms Rousseff’s replacement with a more business-friendly government led by her vice-president, Michel Temer.

But analysts say the new team needs to make some tough decisions to rein in a budget deficit running at nearly 10 per cent and reform Brazil’s pension system and labour laws to encourage investors to dip their toes in again.

With the onset of the recession, in which gross domestic product fell 3.8 per cent last year and is forecast to do the same again in 2016, about one-third of the largest retailers in shopping centres in Brazil were facing financial hardship, Credit Suisse said in a report.

It said 6.5 per cent of large retailers it had surveyed were filing for bankruptcy or facing serious financial stress, while another 25 per cent were considered “yellow flag” for high debt or troubles paying creditors.

If you ask our investors, business contacts and customers, they feel more confident although all are waiting to see those reforms go through

– Carlos Jereissati Filho

However, it said Iguatemi was one of the better equipped to face these trends because of its high percentage of “top tier” tenants at more than 50 per cent of total stores.

A pioneer in the area, building the first shopping mall in São Paulo in 1966, Iguatemi now has 18 luxury malls mostly in the wealthier south-east of the country, excluding Rio de Janeiro.

The company reported a 9.1 per cent increase in revenue in the three months to March against a year earlier to R$ 180m, although net profit fell 7.9 per cent on higher financial charges.

The recession bit with net delinquency rates from store holders rising to 3.6 per cent from 2.6 per cent and a 2 percentage point increase in the vacancy rate. Yet rent revenues grew 12 per cent from recent expansions.

Mr Jereissati said the high-end consumers who visited the company’s malls were helping it weather the recession.

But outside his company, the newer or lower-end malls among Brazil’s estimated 500 shopping centres were struggling.

Mr Jereissati said Iguatemi was concentrating on reducing its leverage from about 3.25 times net debt to earnings before interest, taxation, depreciation and amortisation to 3 times by the end of the year.

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