Construction Sector Brazil

Transcription

Construction
Sector
Brazil
June 2015
Produced by:
Any redistribution of this information is strictly prohibited.
Copyright © 2015 EMIS, all rights reserved.
-1-
Table of Contents
22.
23.
24.
25.
26.
I. Sector Overview
1. Sector Highlights
2. Economic Importance
3. GDP Trends
4. Sector Forecast
5. Construction Chain: Gross Value Added
6. Construction Chain: Employment
7. Construction Materials Production and Sales
8. Construction Costs
9. Construction Industry Confidence Indices
10.Construction Industry Survey
11.Construction Industry Survey (cont’d)
12.Construction Industry: Main Problems
13.Housing Shortage
14.Household Loans
15.Real Estate Loans
16.Real Estate Loans (cont’d)
17.Household Real Estate Loans
18.Non Financial Corporations Real Estate Loans
19.Real Estate Loans by SBPE and FGTS
20.Real Estate Loans by SBPE and FGTS (cont’d)
21.Real Estate Loan Interest Rates
Number of Enterprises
Employment
Foreign Direct Investment
Government Policy
Government Policy (cont’d)
II. Residential Construction
1.
2.
3.
4.
5.
Residential Construction Highlights
Residential Unit Launches
Residential Unit Demand and Supply
Residential Home Prices
Residential Home Prices (cont’d)
III. Non-Residential Construction
1.
2.
3.
4.
5.
6.
7.
-2-
Non-Residential Construction Highlights
Central Business District Office Market
Central Business District Office Market (cont’d)
Class A Logistics Parks Inventory
Class A Logistics Parks Net Absorption
Class A Logistics Parks Lease Price
Class A Logistics Parks New Inventory
Table of Contents
10. Construções e Comércio Camargo Corrêa S.A. (cont’d)
11. Construtora Queiroz Galvão S.A.
12. Construtora Queiroz Galvão S.A. (cont’d)
IV. Infrastructure Construction
1. Logistics Investment Programme – Phase 2
2. Logistics Investment Programme – Phase 2 (cont’d)
3. Road Infrastructure
4. Road Infrastructure (cont’d)
5. Rail Infrastructure
6. Rail Infrastructure (cont’d)
7. Airport Infrastructure
8. Airport Infrastructure (cont’d)
9. Port Infrastructure
10.Port Infrastructure (cont’d)
V. Main Players
1.
2.
3.
4.
5.
6.
7.
8.
9.
Top M&A Deals
M&A Activity (2013-Q1’2015)
Construtora Norberto Odebrecht S.A.
Construtora Norberto Odebrecht S.A. (cont’d)
Construtora Andrade Gutierrez S.A.
Construtora Andrade Gutierrez S.A. (cont’d)
Construtora OAS S.A.
Construtora OAS S.A. (cont’d)
Construções e Comércio Camargo Corrêa S.A
-3-
I. Sector Overview
-4-
Sector Highlights
Overview
The construction sector in Brazil, one of the key drivers of economic growth in the past decade, is undergoing a profound restructuring triggered by
the structural transformation of the Brazilian economy after the end of the commodities boom, the new reality of low government spending and the
ongoing corruption investigation at state-controlled oil giant Petroleo Brasileiro (Petrobras). After expanding at a real CAGR of 7.1% over 20092013, boosted by buoyant domestic demand for real estate and massive government's investment programmes to tackle infrastructure deficiencies
and prepare the country for the hosting of the 2014 FIFA World Cup and the 2016 Olympic Games, the construction sector entered a recession in
2014, with the output decreasing for the first time since 2006. The decelerating economy, stubbornly high inflation and restricted credit supply
coupled with slowing domestic demand stemming from record-low consumer and investor confidence and drastic cuts in government spending, are
all affecting the development of the Brazilian construction sector.
Drivers and Constraints
Several demand fundamentals outline the growth potential of the construction sector. These include positive socio-demographic trends, rising
middle-class population, large housing shortage estimated at over 5mn units in 2014 and underserved demand for modern non-residential buildings.
Moreover, the large quantitative and qualitative infrastructure deficiencies resulting from the chronic underinvestment in construction of
infrastructure in the last decade, represent one of the main obstacles to economic growth and create an urgent need for action. The most recent
effort in this direction was the launch in June 2015 of the second stage of government's Logistics Investment Programme (PIL-2), which aims to
draw BRL 198.4bn in private investment through concession of new infrastructure projects over 2015-2019. Notably, in the current scenario of fiscal
tightening, the major task for Brazil is to attract private investment to resolve the widespread infrastructure bottlenecks and turn the private sector
into the largest contractor for engineering and heavy construction works. The sustainable development of both the construction sector and the entire
economy relies on the success of this challenging endeavor.
Forecast
The Brazilian construction sector is expected to emerge from the current turmoil in a more competitive shape as early as 2016. The existing
infrastructure deficiencies combined with commitment for less government intervention and a more market-friendly business environment, present
significant opportunities for foreign investors to enter the sector by acquiring assets at a reasonable price or partnering with small and medium-sized
domestic players. Notably, the cooperation between domestic companies not embroiled in the Petrobras scandal and established international
players is likely to fill the gap left by battered rivals. In the medium term, this trend will have a positive impact on the whole industry as it will allow
local construction firms to diversify their revenue streams and reduce their dependency on government contracts. The more competitive
environment will also promote the adoption of new technological and managerial processes thus improving the overall efficiency and profitability of
the sector.
-5-
Economic Importance
Main Economic Indicators
2009
2010
2011
2012
2013
2014
Q1 2015
Total population (mn)
193.5
195.5
197.4
199.2
201.0
202.8
203.1*
GDP, current prices (BRL bn)
3,328
3,887
4,375
4,713
5,158
5,521
1,408
-0.2
7.6
3.9
1.8
2.7
0.1
-1.6
8,629
11,306
13,240
12,103
11,878
11,567
-
4.3
5.9
6.5
5.8
5.9
6.4
8.1
154,555
206,537
232,998
262,495
283,500
306,675
86,731
Construction, Gross Value Added constant prices
(yoy change, %)
7.5
13.1
8.3
2.8
4.7
-2.6
-2.9
Construction, Gross Value Added (% of total)
5.4
6.3
6.3
6.6
6.5
6.5
7.2
31,679
52,583
69,530
60,543
49,342
56,050
4,738**
717
664
1,164
955
748
825
75**
2.3
1.3
1.7
1.6
1.5
1.5
1.6**
426
209
785
689
648
1,143
62**
1.3
0.4
1.1
1.1
1.3
2.0
1.3**
SELIC - monetary policy rate (end of period, %)
8.75
10.75
11.00
7.25
10.00
11.75
12.75
Exchange rate USD/BRL (end of period)
1.73
1.67
1.86
2.05
2.35
2.68
3.25
GDP, constant prices (yoy change, %)
GDP per capita, current prices (USD)
Consumer Price Index, IPCA (end of period, %)
Construction, Gross Value Added (BRL mn)
Total FDI Equity Capital Inflow (USD mn)
FDI Equity Capital Inflow in Construction of
Buildings (USD mn)
FDI Equity Capital Inflow in Construction of
Buildings (% of total)
FDI Equity Capital Inflow in Infrastructure Works
(USD mn)
FDI Equity Capital Inflow in Infrastructure Works
(% of total)
Source: Central Bank of Brazil, CEIC, IBGE, IMF, OANDA * EMIS Insight estimate; ** Data for January-February 2015
-6-
GDP Trends
GDP Composition by Industry (%)
GDP and Construction Value Added (real yoy change, %)
100%
13.1%
80%
60%
69.1%
67.8%
67.7%
69.4%
70.0%
71.0%
7.5%
71.0%
7.6%
8.3%
3.9%
40%
2.8%
1.8%
4.7%
2.7%
0.1%
-0.2%
20%
25.7%
27.4%
27.2%
25.4%
24.4%
23.4%
22.3%
0%
5.3%
4.9%
5.1%
5.3%
5.6%
5.6%
6.6%
2009
2010
2011
2012
2013
2014
Q1 2015
Agriculture
Industry
2009
2010
2011
Construction
Services
2012
2013
-2.6%
-1.6%
-2.9%
2014
Q1 2015
GDP
Comments
Since the early 1990s, Brazil has began a gradual shift from a product-based towards a service-based economy boosted by the improvement of income
distribution and social ascending of its population, combined with new demographics and consumption habits. Over the 2009-2013 period, the industrial
sector expanded at a real CAGR of 4%, falling behind the agricultural and services sectors, which resulted in a drop in its contribution to the country's GDP
to 24.4% in 2013. Construction outperformed the industrial sector during 2009-2013 by growing at a real CAGR of 7.1% and emerged as one of the key
drivers of the economy. However, the sector was among the most heavily hit by the economic deceleration in 2014, when it recorded a decline in the value
added for the first time since 2006.
Source: CEIC, IBGE
-7-
Sector Forecast
Main Indicators Forecast
2015f
2016f
2017f
2018f
2019f
244.5
0.2
4.4
266.3
3.2
4.4
289.7
3.3
4.5
310.1
1.7
4.4
329.0
0.8
4.3
Residential and Non-Residential Building Industry Value
(% of total construction)
66.8
66.8
66.8
66.8
66.8
(BRL bn)
163.2
177.8
193.5
207.1
219.7
(real yoy change, %)
-0.5
3.2
3.3
1.8
0.8
Infrastructure Industry Value (% of total construction)
Infrastructure Industry Value (BRL bn)
Infrastructure Industry Value (real yoy change, %)
33.2
81.2
1.5
33.2
88.5
3.3
33.2
96.3
3.2
33.2
103.0
1.7
33.2
109.3
0.9
Construction Industry Value (BRL bn)
Construction Industry Value (real yoy change, %)
Construction Industry Value (% of GDP)
Comments
The construction sector is expected to remain stagnant in 2015, due to the escalating risks of economic recession, restricted credit supply and slowing
demand from the residential and non-residential building segments. Moreover, the corruption scandal at state-owned energy giant Petrobras has hampered
the operations of the main construction companies in Brazil, which saw downgrades in credit ratings, financial constraints and bans on contracting
Petrobras. These measures are likely to delay several construction projects, postpone investments and trigger emergency asset sales. On the other hand,
this may lead to a long-expected restructuring of the construction sector that may result in greater transparency in procurement, financing and contracting
and reduction of the entry barriers for foreign companies.
Source: EMIS Insight, BMI Research
-8-
Construction Chain: Gross Value Added
Gross Value Added of Construction Chain, 2014* (BRL mn)
400,000
300,000
250,000
200,000
Construction
Materials
13.0%
367,260
5,610
350,000
Gross Value Added of Construction Chain, 2014* (%)
Machinery and
Equipment
36,473
44,781
44,944
Machinery and
Equipment
1.5%
Construction
Companies
51.1%
Construction
Materials Trade
47,793
Comments
Services
 The gross value added of the construction chain stood at BRL
367.3bn in 2014, accounting for 7.3% of the country's GDP, according
to estimates by Brazilian consultancy Ex Ante Consultoria
Economica. Compared to 2013, the indicator showed a 5.2% nominal
increase.
Construction
Materials
187,659
Construction
 The construction segment accounted for more than half of the gross
value added, followed by the construction materials segment and the
specialised services to the construction industry (engineering,
architecture and support services).
50,000
Total
0
2014
Source: Ex Ante Consultoria Economica, FIESP, - * Estimated data
Construction
Materials
Trade 12.2%
Informal
Construction
150,000
100,000
Services
12.2%
-9-
Construction Chain: Employment
Employment in Construction Chain, 2014* (people)
12,000,000
Construction
Companies
25.9%
11,304,191
68,557
603,739
10,000,000
Employment in Construction Chain, 2014* (%)
Machinery and
Equipment
665,078
1,169,946
8,000,000
2,925,508
6,000,000
Construction
Materials
Services 5.9%
Informal
Construction
51.9%
Services
 A total of 11.3mn people were employed in the construction sector at
the end of 2014, equivalent to 8.6% of the employed population in the
country.
Construction
Companies
5,871,363
 Informal employment continues to be one of the major problems of
the construction sector. Notably, more than half of the employed
people were in the informal sector at the end of 2014. The high tax
burden and labour costs, the red tape for business and ineffective
enforcement of labour laws are the main reasons for this situation.
Informal
Construction
2,000,000
Total
0
Machinery and
Equipment
0.6%
Comments
Construction
Materials Trade
4,000,000
2014
Source: Ex Ante Consultoria Economica, FIESP, - * Estimated data
Construction
Materials
Trade 10.3%
- 10 -
Construction Materials Production and Sales
Production of Typical Construction Inputs (yoy change, %)
Construction Materials Domestic Sales (yoy change, %)
10
14.4
5
2.0
0
-3.5
-5
4.1
-4.1
1.5
-8.7
-10
2009
-15
2014
2011
2012
2013
2014
Q1 2015
-6.6
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
2013
2010
3.0
-8.8
2015
-8.8
Comments
In 2014, the production of typical construction inputs dropped by 5.9% y/y, the first annual contraction since 2009. The decelerating economy and the
deteriorating consumer and investor confidence in 2014 stemming from above-target inflation, restricted credit supply and poor fiscal policy, resulted in
lower demand for real estate, increase in existing inventory and postponement of investments. The latter hampered domestic sales of construction
materials, which decreased by 6.6% compared to 2013. Moreover, the completion of several construction and infrastructure projects for the 2014 FIFA
World Cup coupled with heightened political and economic instability, energy and water rationing put additional constraints to the construction activity.
Source: ABRAMAT, CBIC, IBGE
- 11 -
Construction Costs
Average Basic Unit Cost of Construction in Brazil (CUB)
1,200
1,000
1,156
1,155
1,152
1,145
1,145
1,143
1,142
1,140
1,137
1,127
1,113
6.8 6.6 6.9 6.8 6.7 6.4
6.2 6.0 5.8
5.7 5.3
1,103
1,098
1,092
7.7 7.8 7.6 7.8
1,089
Basic Unit Cost of Construction by Type (BRL/m2)
800
32
36
600
368
402
412
2009
42
39
50
52
545
598
621
445
494
417
430
444
459
475
481
2010
2011
2012
2013
2014
Q1 2015
400
200
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2014
Total Price (BRL/m²)
46
2015
Total Price (yoy change, %)
Construction Materials
National Construction Cost Index (INCC)*, yoy change (%)
Labour
Equipment and Administrative
Comments
9.0
In 2014, the national construction costs index (INCC), which measures
the evolution of housing construction costs in seven state capitals (Sao
Paulo, Rio de Janeiro, Belo Horizonte, Salvador, Recife, Porto Alegre
and Brasilia) rose by 7.0%, down from 8.1% in 2013, dragged mainly by
higher labour costs.
In the first quarter of 2015, the construction costs in Brazil continued the
upward trend that started in 2010, albeit at a slower pace. In March 2015,
the average basic unit cost of construction (CUB) in the country reached
BRL 1,156 per m2, 5.3% up y/y, with labour and construction materials
being the two major expenditure groups.
8.5
8.1
8.0
7.5 7.5
7.5
7.1
7.0
7.0 6.9
6.5
Apr, 2015
Jan, 2015
Oct, 2014
Jul, 2014
Apr, 2014
Jan, 2014
Oct, 2013
Jul, 2013
Apr, 2013
Jan, 2013
Oct, 2012
Jul, 2012
Apr, 2012
Jan, 2012
Oct, 2011
Jul, 2011
Apr, 2011
Jan, 2011
6.0
Source: CBIC, SINDUSCON, FGV
- 12 -
Construction Industry Confidence Indices
Entrepreneur Confidence Indicator* (points)
55 55.3
44.9
38.7
62.6
62.0
50
49.3
45
Jan, 2015
Sep, 2014
May, 2014
Jan, 2014
Sep, 2013
May, 2013
Jan, 2013
Sep, 2012
May, 2012
Jan, 2012
Sep, 2011
May, 2011
May, 2015
43.8
40
Jan, 2011
Jan, 2015
Sep, 2014
May, 2014
Jan, 2014
Sep, 2013
 Since May 2014, the business confidence index of the construction
sector, calculated by the National Confederation of Industry (CNI),
has followed a downward trend as a result of increased perceptions
for deteriorating conditions as compared to the previous six months
and more pessimistic expectations for the near term.
 The lack of confidence became more widespread and pronounced in
the beginning of 2015 as the confidence index reached an all-time
low in May 2015. Entrepreneurs remained pessimistic about both the
Brazilian economy and the performance of their own companies.
60.4
55
* Figures above 50 points indicate optimistic expectations for the next six months
Source: CEIC, CNI * All indicators vary between 0 and 100 points
May, 2013
Comments
66.9
60
Jan, 2013
* Figures above 50 points indicate a better situation as compared to the last six months
Expectation Index* (points)
65
28.6
Jan, 2011
* Figures above 50 points indicate that entrepreneurs are confident
70
36.1
25
May, 2015
Jan, 2015
Sep, 2014
May, 2014
Jan, 2014
Sep, 2013
May, 2013
Jan, 2013
Sep, 2012
May, 2012
Jan, 2012
Sep, 2011
May, 2011
Jan, 2011
35
46.1
35
Sep, 2012
40
May, 2012
45
50.3
49.8
45
50
May, 2015
55.7
Jan, 2012
58.3
58.0
55
Sep, 2011
60
65
63.0
May, 2011
65
Current Conditions Index* (points)
- 13 -
Construction Industry Survey
Actual-Usual Activity Level* (points)
Highlights
50
 The latest construction industry survey by CNI from March
2015 confirmed the ongoing negative trends.
45
 The activity in the construction sector remained well below
usual levels, reaching an all-time low for construction
companies of all sizes and segments in March 2015. This
led to a further decrease in the average capacity utilisation
rate of the sector to 60%, down from 69% in March 2014.
40.9
40
36.0
35.5
35
Dec-13
Mar-14
Jun-14
Sep-14
Construction of Buildings
Specialised Construction Services
Dec-14
Mar-15
Civil Engineering
 Local construction companies were more pessimistic about
the future activity levels and their backlog, which in turn
worsened the expectations for purchases of raw materials
and hiring personnel. Moreover, the investment intentions
index dropped to a record low, indicating that the majority of
the companies chose to delay investment decisions.
Capacity Utilisation Rate (%)
67 69
71
66 67
71
66 68 67
Dec-13
Mar-14
Jun-14
65
69 67
63 60 65
Sep-14
Dec-14
Civil Engineering
61
56
61
 Excessive tax burden, high interest rates, tighter access to
credit and increased customer default rates were the main
problems for the construction industry in the first quarter of
2015. The latter have severely affected the financial
performance of the sector. According to the National
Industry Confederation (CNI), dissatisfaction with profit
margins and financial situation reached a record high level
since the start of the survey in 2010.
Mar-15
Source: CNI, CBIC * The indicator varies between 0 and 100 points. Figures above 50 points indicate higher-than-usual activity levels
- 14 -
Construction Industry Survey (cont'd)
Expected Activity Level* (points)
Investment Intentions* (points)
60
60
55
55
50
50
41.9
41.4
39.2
45
40
35
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Civil Engineering
45
41.2
40
39.2
37.6
35
Mar-14
May-15
60
55
55
50
50
35
May-15
Mar-14
Jun-14
Sep-14
* Figures above 50 points indicate positive expectations
Dec-14
Mar-15
Civil Engineering
Source: CNI, CBIC * All indicators vary between 0 and 100 points
40.7
39.7
38.4
40
39.8
Dec-14
Mar-15
Civil Engineering
May-15
Civil Engineering
45
41.1
39.0
Mar-14
Jun-14
Sep-14
Mar-15
Expected Number of Employees* (points)
60
35
Dec-14
* The higher the figure, the more entrepreneurs are likely to invest
Expected New Developments and Services* (points)
40
Sep-14
45
Jun-14
- 15 -
May-15
Construction Industry: Main Problems
Construction of Buildings: Main Problems, Q1 2015 (%)
High Tax Burden
Civil Engineering: Main Problems, Q1 2015 (%)
High Tax Burden
35.4
High Interest Rates
Customer Default
33.0
Customer Default
26.3
High Interest Rates
Insufficient Internal Demand
26.3
Insufficient Internal Demand
Excessive Bureaucracy
Lack or High Cost of Unskilled Workers
11.1
Weather Conditions
None
11.1
Lack or High Cost of Unskilled Workers
Lack or High Cost of Electricity
10.8
Environmental Licensing
9.8
Other
7.1
Unfair Competition
16.7
12.0
11.3
10.0
8.7
5.1
7.3
Lack or High Cost of Electricity
7.3
Other
5.3
5.3
3.0
Difficulties in Transportation Logistics
Difficulties in Transportation Logistics
2.7
Unfair Competition
Lack or High Cost of Support Equipment
2.4
Lack or High Cost of Support Equipment
Weather Conditions
2.0
Availability of Land
Source: CNI
- 16 -
8.0
Legal Insecurity
Availability of Land
18.7
None
10.1
Environmental Licensing
20.0
Lack of Long-term Financing
11.8
Legal Insecurity
24.0
Excessive Bureaucracy
13.8
Lack of Long-term Financing
24.7
Lack or High Cost of Skilled Workers
19.5
Lack or High Cost of Raw Material
26.7
Lack or High Cost of Raw Material
20.2
Lack or High Cost of Skilled Workers
30.7
Lack of Working Capital
23.6
Lack of Working Capital
38.0
4.0
3.3
0.7
Housing Shortage
Housing Shortage Evolution (units)
Highlights
2010
2013
Absolute
change
(2013/2010)
Average
change per
year (%)
Southeast
2,674,428
2,440,605
-233,823
-3.0%
Northeast
2,111,517
1,839,886
-271,631
-4.5%
North
823,442
653,030
-170,412
-7.4%
South
770,749
632,184
-138,565
-6.4%
Central-West
560,555
501,617
-58,938
-3.6%
6,940,691
6,067,322
-873,369
-4.4%
Total
 In the past decade, the Brazilian housing sector - boosted
by positive demographic trends and rapid increase in real
estate prices in the main metropolitan areas - has struggled
to meet the demand for affordable housing. As a result, the
majority of low-income households were excluded from the
housing market, creating serious social and economic
challenges before the country.
 Since 2009, when the government launched its social
housing programme My House, My Life, the housing
shortage has been gradually decreasing. However, the
shortage of affordable houses stood at over 6mn units at
the end of 2013.
Housing Shortage by Region, 2013 (%)
Northeast
30.3%
 According to Secovi-SP, a total of 16.8mn new households
will be created in Brazil by 2024, of which 10mn will have
gross income of less than three minimal wages. Combined
with the estimated housing shortage of over 5mn units in
2014, the country is facing the challenge to provide
adequate housing for more than 20mn households over the
next decade. According to estimates by Secovi-SP, if 51%
of those households are included in the My House, My Life
programme, a total of 11.2mn new units should be built,
requiring investments of BRL 760.6bn.
North 10.8%
Southeast
40.2%
South 10.4%
Central-West
8.3%
Source: Joao Pinheiro Foundation, IBGE, Ex Ante Consultoria Economica, Secovi-SP, United Nations
- 17 -
Household Loans
Household Outstanding Loans Evolution
50.0
Household Debt
Value (yoy change, %)
Apr, 2015
Nov, 2014
27.6
Jun, 2014
Jan, 2014
29.4
Aug, 2013
Mar, 2013
30.7
Oct, 2012
Sep, 2010
Apr, 2010
Nov, 2009
2015
Jun, 2009
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
Value (BRL bn)
27.4
31.2
30.8
29.1
May, 2012
32.4
30.0
25.0
2014
35.7
Dec, 2011
35.0
42.2
46.3
45.1
43.9
39.8
Jul, 2011
40.0
Feb, 2011
12.1
1,447
1,438
1,428
1,424
1,412
1,387
1,375
1,357
1,345
45.0
Jan, 2009
Apr May Jun
13.6 13.3 13.2 13.7 13.2 13.3
13.1 12.7
12.5
1,330
14.2
1,322
14.6
1,308
1,291
15.0
Household Debt Evolution (%)*
Household Debt w/o Real Estate Financing Loans
Comments
The expanding middle class population combined with the access to subsidised loans have triggered a credit boom since 2003, which in turn boosted
consumer spending, mainly for durable goods including real estate. This consumer-borrowing model of growth has been losing pace since 2013 when the
Central Bank of Brazil adopted a contractionary policy by undertaking several increases in interest rates in order to curb inflation. The higher borrowing
costs combined with rising household indebtedness cooled the demand for loans, albeit it continued to grow during 2014. The indebtedness of Brazilian
households reached a record high in April 2015, when it accounted for 46.3% of the total household income for the last 12 months (27.6% if the real estate
financing loans were excluded).
Source: Central Bank of Brazil * Defined as the ratio between the current indebtedness of households and the value of their total income for the last 12 months
- 18 -
Real Estate Loans
Outstanding Real Estate Loans, BRL bn
Dec-10
Dec-11
Households
Dec-12
Dec-13
Non Financial Corporations
Dec-14
Apr-15
Total Loans
Households
Dec, 2014
Dec-09
189.4
1.3
1.1
1.0
0.8
0.6
0.0 0.5
Jun, 2014
131.3
2.6
Dec, 2013
15.1
84.3
255.4
2.0
337.2
Jun, 2013
22.4
460.4
3.5
Jun, 2012
431.6
32.2
4.6
4.0
42.9
Dec, 2011
153.7
53.8
5.8
Dec, 2009
99.4
7.0
6.0
Jun, 2011
221.6
8.4
8.0
Jun, 2010
298.3
66.2
Dec, 2010
391.0
10.0
528.4
68.0
Dec, 2012
497.9
Outstanding Real Estate Loans (% of GDP)
Non Financial Corporations
Comments
Construction and real estate were among the sectors that benefited the most from the credit boom and the government social housing initiatives in recent
years. In the 2009-2014 period, the outstanding real estate loans in Brazil rose fivefold reaching BRL 528.4bn at the end of April 2015. Notably, property
loans have grown at a higher pace than overall domestic credit, emerging as the main factor for the rapidly increasing indebtedness of the private sector
(households and non financial corporations). As a result, the outstanding real estate loans stood at 9.7% of the country's GDP in 2014, up from 3.1% in
2009. However, the property loan market in Brazil remains relatively small in comparison to that in the developed countries which signals high potential
market opportunities in the medium term.
Source: CEIC, Central Bank of Brazil
- 19 -
Real Estate Loans (cont'd)
Outstanding Real Estate Loans in Selected Countries (% of GDP)
United Kingdom, 2013
80.6
Canada, 2011
64.5
Portugal, 2013
64.3
United States, 2013
62.1
Spain, 2013
59.9
France, 2013
43.8
Germany, 2013
35.2
Italy, 2013
23.2
South Africa, 2013
22.0
Chile, 2012
18.9
China, 2012
14.5
Mexico, 2013
9.8
Brazil, 2014
9.7
India, 2011
Russia, 2013
Argentina, 2012
7.0
3.8
1.5
Source: ABECIP, Central Bank of Brazil, Hypostat, FELABAN, HFN
- 20 -
Household Real Estate Loans
Outstanding Household Real Estate Loans
29.0
Apr May Jun
28.0 27.9
460.4
452.0
439.6
26.7 26.5
26.3
431.6
422.7
414.5
405.3
26.7 26.9 27.0 26.6
444.8
27.5
399.0
382.0
373.7
364.5
28.0
390.7
29.6
Household Real Estate Loans (% of Total Household Loans)
28.2
28.6
28.9
29.4
29.7 29.9
30.2
30.5 30.6
30.9
31.2
31.4
31.8
2014
Value (BRL bn)
Apr May Jun
2015
2014
2015
Comments
In a scenario of deteriorating consumer confidence amid heightened economic uncertainty and increasing borrowing costs, the annual growth of household
loans moderated in 2014, albeit it continued to be at double-digit level. The main factor for this development was the record-high low-cost disbursements by
state-controlled banks, while private banks tightened their credit standards. At the end of April 2015, household real estate loans stood at BRL 460.4bn, up
by 26.3% y/y. Combined with the deceleration in the lending pace in the other credit types (motor vehicle financing, credit card and overdraft), the share of
real estate loans in total household debt climbed to 31.8%, up from 27.1% in December 2013. In the beginning of 2015, real estate loans continued to be
the most active segment in the lending market.
- 21 -
Non Financial Corporations Real Estate Loans
Outstanding NFC Real Estate Loans
4.2
4.1
4.1
17.8
4.2
4.1
4.1
4.2
4.2
4.2
4.1
4.1
68.0
19.9
67.6
67.3
22.0 22.5
66.4
66.2
65.1
64.4
23.9 23.7 23.4 23.1
63.4
62.7
25.4
61.7
60.9
59.6
27.5 28.3 28.6 27.8
57.7
Outstanding NFC Real Estate Loans (% of Total NFC Loans)
4.0
3.9
Apr May Jun
2014
Value (BRL bn)
Apr May Jun
2015
2014
2015
Comments
In 2014, the growth of outstanding real estate loans of non-financial corporations (NFC) moderated to a greater extent when compared to the expansion of
household loans, as a result of the deteriorating business confidence and heightened economic and political uncertainty that postponed investment
decisions. However, corporate real estate loans continued to grow at double-digit annual rates, reaching BRL 68bn in April 2015. The property loans were
one of the most preferred lending types by the NFC, gradually increasing their share in total business loans. Nevertheless, real estate loans continued to
represent less than 5% of total corporate debt.
- 22 -
Real Estate Loans by SBPE and FGTS
Real Estate Loans Disbursements, BRL mn
151,546
113,915
49,945
34,017
158,531
112,854
617,437
79,917
82,761
42,368
45,677
314,757
2013
2014
2009
1,004,576
1,023,055
453,209
529,797
538,347
456,523
474,699
474,779
484,708
2011
2012
2013
2014
949,431
927,908
492,908
437,663
2010
859,049
120,099
109,178
83,585
Number of Residential Units Financed (units)
421,386
302,680
56,198
15,928
27,387
33,998
37,338
2009
2010
2011
2012
FGTS
SBPE
Total
FGTS
SBPE
Total
Comments
In 2014, the new real estate loans financed by saving deposits under the Brazilian System of Savings and Loans (SBPE) amounted to BRL 112.9bn,
expanding by 3.4% y/y, the slowest growth rate since 2003. The main factor for this slowdown was the lower demand for construction real estate loans due
to the postponement of several investment projects by local developers as a result of high inventory. The demand for loans for acquisition of existing
homes also dropped, given the higher bargaining power of consumers and increased preferences for new units. Combined with the disbursements by
FGTS (including the My House, My Life programme), the new real estate loans stood at BRL 158.5bn in 2014, up by 4.6% y/y, which financed the
construction and acquisition of over 1mn units.
Source: ABECIP
- 23 -
Real Estate Loans by SBPE and FGTS (cont'd)
Average Loan Amount (BRL)
Disbursed Loans by Purpose (BRL mn)
206,075
209,631
150,855
154,958
89,237
94,235
182,610
162,133
133,364
112,386
80,891
50,604
2009
119,982
97,299
62,576
2010
129,430
74,472
78,656
2011
2012
FGTS
35.2
SBPE
24.4
2013
2014
Total
22.9
28.9
34.8
2009
2010
2011
2012
8.8
Existing Units Acquisition
31.4
27.9
35.3
49.0
46.2
2013
2014
19.9
13.9
5.5
14.6
Loan-to-Value Ratio Evolution (%)*
64.9%
15.9
28.1
32.2
New Units Acquisition
Loan Default Rate (%)*
65.4%
2.6%
63.8%
2.1%
63.0%
2.0%
1.8%
62.0%
1.7%
1.4%
61.1%
2009
2010
2011
2012
2013
2014
* Calculated as the ratio of the loan amount to the value of the property
2009
2010
2011
2012
2013
* Delinquent loans with more than three months overdue
Source: ABECIP, Central Bank of Brazil
Construction
- 24 -
2014
Real Estate Loan Interest Rates
Household Real Estate Loan Interest Rates (%)
18.0 17.6
16.0
15.2
14.0
12.9
12.0
The development of the construction and real estate sectors is
largely dependent on the lending interest rates, which in turn
are a function of the dynamics of the benchmark interest rate
(Selic).
The monetary tightening by the Central Bank of Brazil over
April 2013 – June 2015, which led to an increase by 6.5pp of
the Selic rate, pushed up the borrowing costs of the private
sector. In contrast to other loan types, housing loans were less
affected by the higher interest rate environment, given the fact
that the majority of them were borrowed at earmarked rates (a
below market interest rate for loans with compulsory allocation
and/or government’s funding).
Another factor is that real estate financing is concentrated in
state-run banks, which traditionally offer lower lending rates.
Notably, Caixa Economica Federal (CEF) accounted for 67.7%
of the outstanding real estate loans as of December 2014.
Despite the increasing Selic rate throughout 2014, CEF has
frozen its interest rates on real estate loans. However, the bank
made a turnaround in its policy in 2015 with two increases in
the interest rates for housing loans financed by saving deposits
(SBPE) in January and April (cumulative increase of 0.55pp for
regular clients). The terms on loans with resources of the My
House, My Life programme and FGTS were not amended. This
upward adjustment was shortly followed by the other banks,
thus, putting additional pressure on the budgets of future home
owners.
14.2
12.5
10.0
8.0 8.6
Highlights
8.5
8.8
9.5
7.1
6.0
Market Interest Rate
Earmarked Interest Rate
Non Financial Corporations Real Estate Loan Interest Rates (%)
14.0
13.0
12.0
11.0
10.0
9.0
8.0
7.0
Market Interest Rate
Earmarked Interest Rate
- 25 -
Number of Enterprises (year-end)
2010
195,954
147,175
2009
172,703
135,164
2008
Electrical, hydraulic
and other
installations in
buildings 11.1%
13.5%
8.9%
2011
6.4%
7.3%
223,773
15.1%
208,537
17.3%
Number of Enterprises by Activity, 2013 (%)
2012
Infrastructure works
for electricity,
telecommunications,
water, sanitation
1.8%
Construction of
buildings 43.5%
Comments
 The construction sector ended 2013 with a total of 223,773
companies, the majority of them small and medium-sized. Notably,
only 1,527 enterprises had more than 250 employees as of
December 2013.
 Although the market remains fragmented, the know-how for complex
construction and infrastructure works is concentrated in a small group
of large companies, according to Fitch Ratings. Domestic enterprises
continue to dominate the construction sector, as local content
requirements for major infrastructure projects and complex business
environment create high entry barriers for foreign players.
10-49
employees
16.2%
50-249
employees
4.0%
[CATEGORY
NAME]
[PERCENTAG
E]
Source: CBIC, Ministry of Labour and Employment, Fitch Ratings
Construction of
highways, railways,
urban works and
special works of art
3.6%
2013
Number of Enterprises by Employees, 2013 (%)
Construction of other
infrastructure works
5.9%
Demolition and site
preparation 4.1%
Other specialised
services for
construction 12.3%
Number of Enterprises (yoy change, %)
≤ 9 employees
79.1%
Real estate
development 7.6%
- 26 -
Employment
Number of Employed Persons (year-end)
18.7%
2009
3.7%
2010
Number of Employees (thou)
2011
2012
Construction of
highways, railways,
urban works and
special works of art
11.6%
3,094
2,909
2,634
2,221
1,987
10.5%
3,015
18.6%
11.8%
2008
Number of Employed Persons by Activity, 2013 (%)
2009
2011
2012
After reaching a peak of 3.1mn employees in 2013, the construction
sector witnessed mass layoffs in 2014 triggered by the decrease in the
activity coupled with tighter access to credit and growing liquidity
problems of the sector players.
According to the Sao Paulo State Association of Construction and
Industry (Sinduscon-SP), this negative trend will deepen in 2015 due to
the further slowdown of activity and the increase of labour costs in line
with the reverse of the payroll-tax exemption for the sector from the third
quarter of 2015, as part of the austerity measures of the government.
The association projects 480,000 job cuts by the end of 2015.
104.5
2013
2014
-76.2
Jan-Apr
2015
Source: CBIC, Ministry of Labour and Employment *Employees working under the Consolidated Labour Laws (CLT)
Demolition and site
preparation 3.4%
Comments
235.9
2010
Finishing works 5.8%
Construction of
buildings 37.2%
347.7
-110.7
Real estate
development 6.5%
2013
Number of Employees (yoy change, %)
156.9
Other specialised
services for
construction 6.9%
Construction of other
infrastructure works
12.2%
2.6%
Job Creation Balance in Construction Sector* (thou jobs)
236.9
Infrastructure works
for electricity,
telecommunications,
water, sanitation
7.1%
- 27 -
Foreign Direct Investment
FDI Equity Capital Inflow in Construction Sector, USD mn
1,164
1,143
955
717
785
664
Comments
689
748
 Brazil's construction sector (comprising construction of
buildings and civil engineering) was the seventh-largest
recipient of FDI in the form of equity capital among the
services sector, attracting a total of USD 12.9bn over
2006-2014.
825
648
426
209
2009
2010
75 62
2011
2012
2013
2014
 The FDI in the sector reached a peak of USD 1.9bn in
2011, driven by the buoyant domestic demand, massive
infrastructure investment and optimistic business
expectations related to the hosting of the 2014 FIFA
World Cup and the 2016 Summer Olympic Games.
However, since 2012 the investments in the sector have
moderated in line with the slowing economy and concerns
for overpriced properties.
Jan-Feb
2015
Civil Engineering
Share of Construction Sector in Total FDI Equity Capital (%)
2.3%
1.3%
2.0%
1.3%
1.7%
1.6%
1.1%
1.1%
2011
2012
1.5%
1.3%
1.5%
2013
2014
1.6%
1.3%
 2014 is likely to be a turnaround point, with a new recordhigh FDI of USD 2bn, boosted by the high growth
potential of the infrastructure construction segment, the
depreciation of Brazilian real that made domestic assets
cheaper in U.S. dollar terms, and the expected
restructuring of the construction sector, as a result of the
ongoing corruption investigation in Petrobras.
0.4%
2009
2010
Civil Engineering
Jan-Feb
2015
Source: Central Bank of Brazil
- 28 -
Government Policy
Housing
Financing
System (SFH)
Being highly dependent on the availability of credit, the construction sector is directly affected by the government's credit policy
regulations. In 1964, the government created the Housing Financing System (SFH) under Law 4,380 to promote the construction and
acquisition of an own home by the population, targeting the low-income population. The system has two funding pillars: the earmarked
funds deposited in the Unemployment Compensation Fund (FGTS) managed by the federal bank Caixa Economica Federal, and
earmarked allocation from saving account deposits under the Brazilian System of Savings and Loans (SBPE). The main funding
source of FGTS is a mandatory tax obligation of 8.5% of an employee's payroll. The SFH offers mortgage loans at below market rates
for up to 90% of the appraised value of the purchased property, which may not exceed BRL 750,000, for a period of up to 30 years.
The maximum effective real cost for the borrower, including interest rate and fees, may not exceed 12.0% per year.
Real Estate
Financing
System (SFI)
In 1997, the government created the Real Estate Financing System (SFI) under Law 9,514 to tackle the shortcomings of the
overregulated SFH and promote the development of primary (loans) and secondary (securities backed by receivables) markets for real
estate financing without government subsidies and incentives. The SFI system provides loans at market interest rates using as
collateral mortgages, fiduciary assignment credit rights or fiduciary lien. The new regulation also modified the acquisition and
securitisation of real estate credits, making the structure less expensive. In Brazil, the securitisation of credits is made by real estate
securitisation companies that acquire and securitise real estate credits through the issuance of real estate receivables certificates
(CRI) or other securities, including debentures and notes, backed by real estate credits. In January 2015, the covered bonds (LIG)
were introduced in the funding structure of the real estate financing under Law 13,097. The Ministry of Finance expects that the new
instrument will attract financing for BRL 110bn.
Fiscal
Adjustment
In 2014, Brazil recorded its first primary budget deficit since 2001 of 0.63% of GDP. With the goal to restore credibility and attract
investments, the government pledged to reach a primary surplus of 1.2% in 2015 by adopting several austerity measures, including
spending cuts, reduction in tax breaks (on new car purchases, white goods, home appliances and construction materials), higher
income taxes and cuts in retirement and unemployment benefits. Moreover, the government allowed a hike in the administered prices of
electricity, fuels and public transport from January 2015. In May 2015, a total of BRL 69.9bn of budget cuts for 2015 were unveiled. The
latter had a negative impact on the government’s investment programme Growth Acceleration Programme (PAC), which saw its budget
downsized by BRL 27.5bn to some BRL 40.5bn. The social inclusion programme My House, My Life (Minha Casa, Minha Vida), which
is part of PAC, had its budget revised from BRL 19.9bn to BRL 13bn.
Source: ABECIP, CBIC, Ministry of Development, Industry and Foreign Trade, Ministry of Planning, Budget and Management
- 29 -
Government Policy (cont'd)
Growth
Acceleration
Programme
In 2007, the government launched the Growth Acceleration Programme (PAC) with the goal to address infrastructure deficiencies in
four main areas: sanitation, logistics, energy and housing. According to the latest balance of the second phase of the programme, PAC
2, the realised investments under the initiative exceeded BRL 1tn at the end of 2014, equivalent to 96.5% of the planned budget for
2011-2014. In April 2015, Brazil's President Dilma Rousseff unveiled a plan to launch a third phase of the programme in August 2015,
PAC 3, which shall focus on investments in sanitation, logistics, energy and housing, as well as in improvement of internet and
telecommunication services. However, no additional details of the budget, period and coverage of the programme were disclosed.
My House,
My Life
In 2009, the government launched the My House, My Life (Minha Casa, Minha Vida, MCMV) housing initiative, as part of the PAC
investment programme. The MCMV programme aimed to promote the construction and acquisition of housing units in urban and rural
areas by low-income households (with a gross monthly income of up to BRL 5,000) through federally-funded subsidies by FGTS and
tax incentives. Between 2009 and 2014, the programme contracted construction of 3.7mn housing units, of which 2mn were delivered,
serving over 6.8mn beneficiaries in 5,288 municipalities. The investments under the programme totalled BRL 225.9bn as of September
2014, of which BRL 107.1bn were subsidies to households. In March 2015, Brazil's President Dilma Rousseff unveiled a plan to
launch a third phase of MCMV, with the aim to deliver additional 3mn housing units by 2018.
BNDES
Financing
The construction sector was one of the largest beneficiaries of loans at subsidised interest rates from the Brazilian Development Bank
(BNDES), receiving a total of BRL 48.5bn between 2009 and 2014. Only in 2014, the funds for the sector stood at BRL 10.3bn, 6% up
y/y, accounting for 5.5% of the disbursements of BNDES throughout the year. However, the role of BNDES as a primary source of
long-term debt and equity financing will be reduced in line with the ongoing fiscal adjustment by the government. In June 2015,
BNDES adopted new lending rules for companies with an annual turnover of over BRL 1bn and loans that exceed BRL 200mn, with
the aim to reduce its share in project financing at the expense of greater participation of the capital market. Under the new scheme, the
bank will provide loans at its subsidised Long-Term Interest Rate (TJLP) for up to 50% of total financing conditioned on the issuance of
bonds by the borrower. Without the issuance of bonds, BNDES will limit the financing with low rates to only 25% of the loan.
Source: ABECIP, BNDES, Caixa Economica Federal, Central Bank of Brazil, FGV, EZtec, Instituto Lula, Rossi Residencial
- 30 -
II. Residential Construction
- 31 -
Residential Construction Highlights
Residential
Market
Development
After a housing boom in the period 2008-2013, triggered by strong demand fundaments like easy access to mortgage loans at
subsidised interest rate, rising household income, active government's policies to tackle the residential housing shortage and
massive investments in urban infrastructure, the real estate market in Brazil entered into a period of moderation. 2014 was
marked by weak demand, as a result of the deteriorating consumer confidence stemming from heightened economic and
political uncertainty and higher borrowing costs, combined with mounting residential stock, postponement of investment
projects and decelerating house price growth. However, Brazil remained one of the world's most dynamic housing markets in
2014, ranking on the 15th place in terms of annual house price increase, according to Knight Frank.
Growth
Drivers and
Constraints
The real estate market is going through an adjustment phase. From the demand side, the major constraints for the segment are
the low consumer confidence amid high-interest rate environment, fiscal austerity measures, restricted credit supply and
stubbornly high inflation that shrink the disposable income of the population. From the supply side, the main impediments are
the growing construction costs and the increasing residential stock that put pressure on the profit margins of developers, while
increasing the bargaining power of consumers. However, the housing market has a strong growth potential, driven by positive
demographic trends (rising middle class and urbanisation patterns), significant residential housing shortage, massive
investments in urban infrastructure and improved attractiveness of the country as investment destination in light of the hosting
of two sport events in 2014 and 2016.
Forecast
The outlook for 2015 remains bleak, with an expected lower number of new launches as real estate developers will focus on
reducing existing inventory, while cautiously evaluating new projects. The house sales are forecast to continue to
underperform, as consumers with available cash will be more eager to negotiate price discounts, while those willing to finance
the house purchase with a loan will be less active, given the higher borrowing costs. For the first time in the last five years, the
nominal house price growth is expected to fall behind inflation. However, analysts agree that there are no signs of an emerging
real estate bubble, as the real estate market remains with strong demand fundamentals in the medium term. Moreover, the
price correction is largely seen as positive and necessary for the sustainable development of the sector, given the double-digit
increases in property prices in recent years.
- 32 -
Residential Unit Launches
Number of Residential Units Launched in Main Capital Cities
Jan-Apr
2015
5,214
2,049
1,367
1,210
1,206
1,168
610
391
4,505
2014
8,094
5,712
2,778
7,606
4,495
1,165
6,225
2012
 The housing market in the eight main state capital
cities in 2014 showed signs of weakening, with a
decrease in the number of new launches combined
with decelerating demand and moderation in price
growth.
 A total of 74,981 residential units arrived to the
market in 2014, 10.3% down y/y, as local
homebuilders postponed projects due to growing
existing stock and slowing demand.
 For a consecutive year, the total number of
residential units sold (59,575) fell behind new
launches, resulting in an increase of the existing
inventory to 77,443 units as of March 2015.
 However, the housing market in the eight main
capital cities showed mixed performance in 2014.
The largest real estate markets, namely Sao Paulo
and Rio de Janeiro, recorded a significant drop in
new launches as a function of poor sales and high
level of existing inventory. On the other hand, the
housing market in the cities of Porto Alegre and
Goiania witnessed a positive development, as sales
exceeded new launches, thus reducing inventory
stock.
31,778
16,830
3,722
6,643
2,882
527
7,407
2013
Comments
2,488
736
8,051
5,356
33,199
21,247
Sao Paulo
Goiania
Rio de Janeiro
27,773
19,481
Fortaleza
Belo Horizonte
Recife
Porto Alegre
Maceio
Source: CEIC, CBIC
- 33 -
Residential Unit Demand and Supply
Number of New Residential Units Sold in Main Capital Cities
JanApr
2015
2014
4,921
2,395
1,802
1,361
1,340
1,128
1,074
594
Mar,
2015
6,618
10,184
4,612
6,854
6,032
3,069
630
Dec,
2014
4,751
2012
2,716
743
7,254
Sao Paulo
Dec,
2013
Goiania
Rio de Janeiro
26,958
5,917
4,268
3,303
2,053
8,784
9,896
7,697
5,298
4,267
2,268
1,702
12,065
Dec,
2012
Recife
Belo Horizonte
1,724
1,488
Maceio
- 34 -
4,579
5,644
18,460
Sao Paulo
10,599
Rio de Janeiro
Fortaleza
12,619
Fortaleza
25,832
13,690
Porto Alegre
Source: CEIC, CBIC
7,381
33,319
5,142
4,432
7,912
2,434
996
9,351
12,814
3,422
3,127
2,103
27,965
12,820
10,379
10,246
21,576
10,285
14,371
2013
Number of New Residential Units Offered in Main Capital Cities
10,527
20,488
Goiania
Recife
Porto Alegre
Belo Horizonte
Maceio
Residential Home Prices
FipeZap Composite Asking House Price Index*, yoy change (%)
13.5
12.9
12.4
12.2 11.9
11.9 11.9 11.8 11.7 11.9
12.8 12.7
12.5 12.2
12.1
11.8
11.4
10.8
10.4
9.9
9.2
8.2
2013
2014
4.5
May
5.0
Apr
5.4
Mar
6.1
Feb
Jan
6.8 6.5
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
7.3
2015
Comments
After reaching a record high of 26.3% in 2011, house price growth has been slowing due to the sluggish economy, rising interest rates combined with tighter
access to credit and growing residential stock. According to the FipeZap price index, the asking house prices in the seven main real estate markets in Brazil
rose by 6.8% in 2014, the lowest annual rate since 2011, when the index was launched. The broad FipeZap index that tracks the housing prices in 20
Brazilian cities grew by 6.7%, slightly above the annual inflation rate of 6.4%. The negative trend deepened in the first five months of 2015, when house
prices in all 20 cities recorded a real decrease of 3.9%, as the cumulative price growth (1.2%) fell behind the inflation rate for the period (5.1%).
Source: FIPE, Zap Imoveis *Based on the median asking house price in Sao Paulo, Rio de Janeiro, Belo Horizonte, Brasilia, Recife, Fortaleza and Salvador
- 35 -
Residential Home Prices (cont'd)
Average Asking Price by City (BRL/m²), May 2015
Rio de Janeiro
Cumulative Price Change by City, April 2014 - May 2015 (%)
10,642
Sao Paulo
Vitoria
8,585
Brasilia
10.8
Goiania
7,947
8.8
Campinas
7.8
Niteroi
7,710
Belo Horizonte
7.8
Average (20 cities)
7,599
Porto Alegre
7.5
Florianopolis
6,047
Vila Velha
7.3
Recife
6,021
Sao Bernardo do Campo
7.1
Belo Horizonte
5,912
Santo Andre
6.8
Sao Caetano do Sul
5,691
Contagem
6.2
Fortaleza
5,667
Santos
6.1
Porto Alegre
5,379
Fortaleza
6.0
Campinas
5,243
Florianopolis
5.8
Vitoria
5,222
Sao Paulo
5.8
Curitiba
5,162
Salvador
Santo Andre
4,982
Average (20 cities)
Santos
4,887
Sao Caetano do Sul
Sao Bernardo do Campo
4,704
Recife
Salvador
4,628
Rio de Janeiro
Vila Velha
4,288
Niteroi
Goiania
4,161
Curitiba
Contagem
3,541
Brasilia
Source: FIPE, Zap Imoveis
- 36 -
5.2
4.9
4.4
3.6
3.3
2.8
2.0
-1.2
III. Non-Residential Construction
- 37 -
Non-Residential Construction Highlights
Office and
Logistics
Market
Development
The decelerating economy and the deteriorating consumer and investor confidence in 2014 as a function of the above-target
inflation, restrictive credit environment and poor fiscal policy, put a negative pressure on the non-residential construction
segment. The office market, highly concentrated in the two largest cities of Brazil, Sao Paulo and Rio de Janeiro, witnessed
high volume of new deliveries amid low net absorption, causing an increase of the overall vacancy rate. In this scenario,
tenants had a higher bargaining power to renegotiate existing contracts or migrate to premium office buildings at a lower price,
causing a drop in the average asking rental price. On the other hand, the logistics real estate market showed a better
performance, marked by growing net absorption and decreasing vacancy rates, driven by strong demand for modern facilities
from the industrial and consumer goods sectors, mainly in the Sao Paulo-Rio de Janeiro axis and the Northeast region.
Growth
Drivers and
Constraints
Several demand fundamentals outline the growth potential of the non-residential real estate market, including the massive
investments in infrastructure and public transport systems, the growing preferences for high-end office buildings in the main
markets of Rio de Janeiro and Sao Paulo, along with the unmet demand for office and logistics facilities in less developed submarkets. The government's measures to boost the development of industrial parks and free trade zones nearby rapidly growing
consumer centres in the North, Northeast and South regions through tax exemptions, trade benefits and improvement of
transport and supporting infrastructure, will also trigger the activity in the segment. The challenging macroeconomic and fiscal
environment remains the major constraint in the short term, as several projects for expansion or construction of new facilities
are likely to be postponed due to tighter access to financing combined with increasing borrowing costs.
Forecast
2015 is forecast to be a year of moderation for the non-residential construction market, with an expected high volume of new
deliveries and a weak occupier demand, which are expected to push down asking rental prices. Another negative impact is
likely to come from the decelerating activity in the manufacturing and retail sectors, which shall hamper the absorption of new
logistics facilities. A significant recovery in the demand and the rental prices is estimated as early as 2017, when the results of
the current economic and fiscal adjustments will be evident. The office market in Rio de Janeiro is likely to show a lower
correction due to the massive infrastructure investments and the large pipeline of high-standard commercial developments in
line with the hosting of the 2016 Summer Olympic Games, which should raise the attractiveness of the city for international
occupiers.
- 38 -
Central Business District Office Market
CBD Class A Office Inventory, Q4 2014 (thou m²)
CBD Class A Office Direct Net Absorption in 2014 (m²)
162,097
2,905
587
1,289
193
2,318
297
32
266
1,096
Sao
Paulo
Rio de Brasilia
Janeiro
Occupied Area
219
157
152
130
95
34,775
6
30
39
30
1
213
122
118
100
94
Porto Curitiba Recife Salvador Vitoria
Alegre
Vacant Area
7,607
Sao
Paulo
Total Area
Vacancy Rate by Sub-Market, Q4 2014 (%)
Curitiba
20.2%
Recife
20.0%
Rio de Janeiro
15.0%
Brasilia
10.7%
Porto Alegre
Vitoria
2.9%
0.8%
Source: Cushman & Wakefield
Rio de Brasilia Curitiba Vitoria
Janeiro
1,721
623
-1,018
Recife Salvador Porto
Alegre
 Brazil ended 2014 with a total Class A office inventory of 5.2mn m2,
distributed in the main central business districts (CBD) surveyed by
Cushman & Wakefield. The office market remains highly
concentrated in Sao Paulo and Rio de Janeiro, which accounted for
80% of the existing premium office space.
 The direct net absorption for the CBD regions totalled 242,043 m2 in
2014, with Sao Paulo, Rio de Janeiro and Brasilia representing nearly
94% of the new inventory absorbed.
 At the end of 2014, the cities of Vitoria, Porto Alegre and Brasilia
showed the lowest vacancy rates, highlighting the growth potential of
these regions.
23.1%
Sao Paulo
4,851
Comments
24.9%
Salvador
31,387
- 39 -
Central Business District Office Market (cont'd)
CBD Class A Office Asking Price vs Vacancy Rate
15.8
14.5
14.7
Average Weighted Asking Price, Q4 2014 (BRL/m²/month)
Rio de Janeiro
16.3
15.0
129.1
Sao Paulo
115.4
Brasilia
120.0
124.3
80.8
Recife
118.1
114.7
71.9
Curitiba
109.3
65.2
Porto Alegre
Q4 2013
Q1 2014
Q2 2014
Average Asking Price (BRL/m²/month)
Q3 2014
Q4 2014
Salvador
Vacancy Rate (%)
Vitoria
Inventory Under Construction by Sub-Market*, Q4 2014 (m²)
Sao Paulo
73,930
Recife
57,828
Curitiba
21,480
Porto Alegre
20,711
Vitoria
5,284
Source: Cushman & Wakefield * Class A office buildings under construction with delivery dates until Q4 2016
43.4
 Since 2013, the average asking rental price in the main CBD regions
has followed a downward trend, pressured by the continuous delivery
of new inventory and weak demand for office expansion. In the fourth
quarter of 2014, the average asking rent in Brazil was BRL
109.3/m2/month, down by 11.5% y/y.
 By 2016, new office buildings with a total area of over 1mn m2 will
arrive to the market. Apart from Sao Paulo and Rio de Janeiro, the
cities of Salvador and Recife recorded the largest project pipeline at
the end of 2014, which is expected to increase by nearly 50% the
existing class A inventory in these sub-markets over the next two
years.
351,705
Salvador
58.9
Comments
570,607
Rio de Janeiro
62.5
- 40 -
Class A Logistics Parks Inventory
Existing Inventory by State, Q1 2015 (thou m²)
Existing Inventory and Vacancy Rate Evolution (year-end)
19.0
16.0
7.4
6,740
5,117
2011
8,371
2012
2013
Existing Inventory (thou m²)
18.0
17.0
9,575
9,812
Sao Paulo
Rio de Janeiro
Pernambuco
Minas Gerais
Parana
Santa Catarina
Amazonas
Ceara
Espirito Santo
Rio Grande do Sul
Para
Goias
Federal District
Paraiba
Bahia
2014
Q1 2015
Vacancy Rate (%)
Vacancy Rate by State, Q1 2015 (%)
Paraiba
Para
Rio Grande do Sul
Goias
Sao Paulo
Parana
Ceara
Bahia
Rio de Janeiro
Espirito Santo
Pernambuco
Minas Gerais
Santa Catarina
Federal District
Amazonas
Comments
100%
 The class A logistics parks market ended March 2015 with an existing
inventory of 9.8mn m2, up by 2.5% from December 2014. The state of
Sao Paulo concentrated 62.6% of the inventory, followed by Rio de
Janeiro (10.7%). However, the states of Pernambuco, Minas Gerais,
Parana and Santa Catarina are rapidly emerging as important
logistics and distribution hubs.
 In 2014, the overall demand exceeded the delivered inventory,
triggering a slight drop in the vacancy rate to 18%. The states of
Amazonas, Pernambuco and Santa Catarina recorded the largest
decreases in the availability rate compared to 2013, highlighting the
growth potential of these markets.
70%
53%
31%
21%
20%
12%
11%
10%
9%
8%
4%
4%
4%
2%
Source: Colliers International
6,144
1,046
707
546
376
341
177
126
117
59
48
40
40
28
18
- 41 -
Class A Logistics Parks Net Absorption
Net Absorption Evolution (thou m²)
983
960
1,122
Net Absorption by State in 2014 (thou m²)
Sao Paulo
Pernambuco
Parana
Minas Gerais
Espirito Santo
Rio de Janeiro
Ceara
Amazonas
Santa Catarina
Bahia
Rio Grande do Sul
Para
1,078
219
2011
2012
2013
2014
Q1 2015
Net Absorption by State in 2014 (%)
-1
 The demand for Class A logistics parks in 2014 was the second
highest in the last four years, with a net absorption exceeding 1mn
m2. The state of Sao Paulo was responsible for more than half of the
national net absorption, followed by Pernambuco with a share of
18.5%, as a result of the completion of new built-to-suit logistics
facilities nearby the Suape port.
Parana 8.8%
Espirito Santo
4.3%
Minas Gerais
6.3%
Rio de Janeiro
2.6%
 A total of 4.4mn m2 of class A logistics facilities were absorbed
between January 2011 and March 2015, largely concentrated in the
Southeast and Northeast regions of Brazil.
Others 6.5%
88
63
43
26
20
15
11
11
9
Comments
Pernambuco
18.5%
Sao Paulo
53.0%
531
185
- 42 -
Class A Logistics Parks Lease Price
Average Asking Lease Price Evolution (BRL/m²/month)
20.5
20.0
20.0
Q2
Q3
Average Asking Lease Price, Q1 2015 (BRL/m²/month)
Rio de Janeiro
Amazonas
Sao Paulo
Santa Catarina
Espirito Santo
Para
Federal District
Minas Gerais
Parana
Rio Grande do Sul
Pernambuco
Paraiba
Goias
Bahia
Ceara
20.3
19.3
19.0
18.8
18.9
18.5
Q1
Q2
Q3
2013
Q4
Q1
2014
Q4
Q1
2015
26.2
24.0
20.5
19.3
19.2
19.0
18.0
18.0
17.5
17.3
16.6
16.5
16.0
16.0
15.5
Comments
The average asking lease price followed an upward trend throughout 2014, as demand growth was consistently outpacing supply. The delivery of logistics
parks in expensive and underserved regions also pushed up the overall asking price. In the fourth quarter of 2014, the average asking lease price in Brazil
stood at BRL 20.5/m2/month, up by 10.8% y/y. The highest price increases were recorded in the states of Para, Minas Gerais and Espirito Santo, while the
largest declines were observed in the states of Sao Paulo and Rio Grande do Sul. However, it should be noted that the effective prices in the majority of
the regions remained stable, or even showed a slight decline, as landlords were more flexible in terms of discounts and grace periods to future tenants.
- 43 -
Class A Logistics Parks New Inventory
Inventory Under Construction by State, Q1 2015 (thou m²)
Sao Paulo
Sao Paulo
1,040.1
Rio de Janeiro
51.6
25.6
Santa Catarina
20.4
Minas Gerais
20.1
Pernambuco
18.3
274.7
Minas Gerais
133.1
Federal District
395.4
Bahia
347.1
Amazonas
Bahia
Inventory Under Project by State, Q1 2015 (thou m²)
153.8
Parana
120.5
Pernambuco
114.0
Para
46.3
Espirito Santo
37.5
Santa Catarina
34.2
Paraiba
32.0
Ceara
30.5
Goias
23.1
Rio de Janeiro
22.6
Comments
The logistics market ended March 2015 with properties under development with a total area of 1.7mn m2, concentrated mainly in the Sao Paulo-Rio de
Janeiro axis. However, several states in the North and Northeast regions, mainly Amazonas, Bahia and Pernambuco, also displayed significant investment
activity, as a result of tax incentive policies, improved local infrastructure and land opportunities in high-growth potential locations. Notably, the
development of secondary logistics hubs will be one of the driving forces of the sub-sector in the long term. The project pipeline stood at 1.3mn m2 as of
March 2015, of which 67.5% were located outside the states of Sao Paulo and Rio de Janeiro.
- 44 -
IV. Infrastructure Construction
- 45 -
Logistics Investment Programme – Phase 2
Estimated Private Investment by Infrastructure Mode, BRL bn
Estimated Private Investment by Type of Concession, BRL bn
Road
66.1
Port
37.4
Railway
86.4
New
Concessions
156.3
Existing
Concesssions
42.1
Airport
8.5
Comments
In June 2015, the government announced a new stage of the Logistics Investment Programme (PIL), which envisages the concession of infrastructure
projects with the aim to modernise the transport infrastructure and spur economic activity. The programme aims to draw BRL 198.4bn in private investment
in road, rail, airport and port infrastructure, of which BRL 69.2bn will be allocated between 2015 and 2018. The remaining BRL 129.2bn will be invested
from 2019 onwards. Although, the National Development Bank (BNDES) will remain the main source of financing (funding up to 70% of investment in road,
port and airport infrastructure and up to 90% in rail infrastructure), the new programme foresees a greater participation of the private sector and the capital
market (through infrastructure bonds) in project financing.
Source: Ministry of Planning, Budget and Management
- 46 -
Logistics Investment Programme – Phase 2 (cont'd)
Road
Infrastructure
The Logistics Investment Programme (PIL) – Phase 2 foresees the concession of 6,974 km of highways under the existing
model of auction at the lowest toll rate, which is estimated to draw total private investment of BRL 66.1bn. The government
plans to offer four concessions for 2,603 km of highways in seven Brazilian states by the end of 2015. Together with the
successful auction of the BR-101/RJ (Rio-Niteroi Bridge) concession in March 2015, the contracted investment shall reach BRL
19.6bn in 2015. Additional 11 concessions for 4,371 km of highways in ten Brazilian states will be offered in 2016, with
projected investment of BRL 31.2bn. Moreover, investments of BRL 15.3bn are expected from existing road concessionaires.
Rail
Infrastructure
In the second stage of PIL, the auction model for railways will include as selection criteria the highest license payment to the
government and sharing of investments, apart from the lowest transport price. A total of BRL 86.4bn investments are expected
in the construction and modernisation of five railways. The flagship project is the construction of the Brazilian section (3,500
km) of the Bi-Oceanic railway, connecting the Central-West and North regions of the country with the Pacific coast of Peru. The
BRL 40bn project, which will give Brazil a cheaper route to China, has already received interest from Chinese investors.
Additional BRL 16bn will be invested by current rail concessionaires through renewal of existing contracts.
Airport
Infrastructure
The second stage of PIL foresees total investments of BRL 8.5bn through the concession to the private sector of four
international airports: Salvador (investments worth BRL 3bn), Porto Alegre (BRL 2.5bn), Fortaleza (BRL 1.8bn) and
Florianopolis (BRL 1.1bn) as well as seven regional airports in the states of Sao Paulo and Goias (Araras, Jundiai, Braganca
Paulista, Itanhaem, Ubatuba, Campinas and Caldas Novas) for a combined investment of BRL 78mn. The first airport bids
under the highest license payment mode are scheduled for the first quarter of 2016. Brazilian state-controlled air operator
Infraero will have a minimum of 15% in the new concession contracts (down from the 49% limit under the first stage of PIL).
Port
Infrastructure
The second stage of PIL for port infrastructure has estimated investments of BRL 37.4bn, distributed in 50 new port terminal
leases (BRL 11.9bn), authorisations for construction of 63 new private use terminals (TUP) in 16 Brazilian states (BRL 14.7bn)
and investments in existing port terminals through early renewal of 24 lease contracts (BRL 10.8bn). According to Decree 8,464
from June 2015, in the concession and lease of ports will be used one or a combination of the following selection criteria:
highest license payment, best technical offer, highest handling capacity, lowest time for cargo handling, lowest price, highest
value of investment by the concessionaire and lowest consideration by the government.
- 47 -
Road Infrastructure (cont'd)
Direct Federal Investment in Road Infrastructure (BRL mn)
Private Investment by Concession Programme (BRL mn)
6,911
6,983
400
505
448
597
2,449
9,051
8,363
3,072
9,352
11,213
10,265
7,824
5,110
4,996
4,640
1,411
166
199
191
1,149
936
239
2007
2008
2009
2010
2011
2012
2013
2007
2014
Federal
114
241
1,605
3,515
267
298
418
252
361
306
3,879
2,897
2,114
1,621
1,985
909
1,112
964
2008
2009
2010
Sao Paulo
3,801
1,510
1,859
2,184
2011
2012
2013
Parana
2,984
2014
Other Programmes
Comments
Between 2007 and 2014, the government continued to be the largest investor in road infrastructure, disbursing a total of BRL 66.2bn. Although private
investments have showed an upward trend in the 2007-2011 period, they did not exceed 30% of the annual investments in road infrastructure. A significant
push for private investments was the launch of new road concessions under the Logistics Investment Programme (PIL) in 2012. A total of 5,350 km of
highways were auctioned over 2012-2014, which triggered private investment of BRL 18.5bn in construction and modernisation of roads. According to the
Brazilian Association of Highway Concessionaires (ABCR), the private sector will invest an additional BRL 55bn over 2015-2019, emerging as one of the
largest contractors for engineering and road construction works.
Source: ABCR, CNT
- 48 -
Rail Infrastructure
Railway Network, 2014 (year-end)
Railway Network by Track Gauge, 2014 (%)
Extension (km)
Share (%)
America Latina Logistica Malha Sul S.A. ALLMS
7,304
26.1%
Ferrovia Centro-Atlantica S.A. - FCA
7,220
25.8%
TLSA/FTL
4,207
15.0%
1,989
7.1%
1,945
6.9%
1,674
6.0%
Estrada de Ferro Vitoria a Minas - EFVM
905
3.2%
Estrada de Ferro Carajas - EFC
892
3.2%
762
2.7%
720
2.6%
248
0.9%
164
0.6%
28,030
100.0%
America Latina Logistica Malha Paulista S.A. ALLMP
America Latina Logistica Malha Oeste S.A. ALLMO
MRS Logistica S.A. - MRS
America Latina Logistica Malha Norte S.A. ALLMN
VALEC/Subconcession: Ferrovia Norte-Sul FNS
Estrada de Ferro Parana Oeste S.A. FERROESTE
Ferrovia Tereza Cristina S.A. - FTC
Total
Broad 19.9%
Metre 78.1%
Mixed 2.0%
Comments
 Railways are the second most used transport mode in Brazil in terms
of cargo volume, with a share of 20.7% in 2014. However, with
28,030km of railway network, the country has an extremely low
density of railway infrastructure – 3.3km of railway lines per 1,000
km2, ranking last among the BRIC countries (average density of
11.9km).
 The lack of standardisation of gauges is another major problem of the
country. The use of three types of track gauges causes connectivity
problems as well as higher operational costs and transportation time.
Source: ANTF
- 49 -
Rail Infrastructure (cont'd)
2007
2,499
2008
2009
5,000
2014
4,674
2013
4,901
2012
2011
2012
2013
2014f
2,924
4,173
2,684
2,300
2011
4,596
2010
2,597
2009
Private Investment in Rail Infrastructure (BRL mn)
1,083
2008
1,558
994
2007
923
508
2,550
Direct Federal Investment in Rail Infrastructure (BRL mn)
2010
Comments
The private sector has been the main investor in rail infrastructure since 1996 when the privatisation process of the segment began. Brazilian rail
concessionaires disbursed BRL 31.4bn in the 2007-2014 period, more than double the federal investments (BRL 12.6bn). The Growth Acceleration
Programme (PAC) is the government's main instrument for investments in rail infrastructure. According to PAC's latest balance, the programme has
supported the construction of 1,100km of railways by the end of 2014, with additional 2,700km being under construction. Although none of the 14 railway
concessions included in the Logistics Investment Programme (PIL) have been auctioned over 2012-2014, the segment continued to receive over BRL
4.5bn in private investments per year.
Source: ANTF, CNT
- 50 -
Airport Infrastructure
Comments
Number of Airports*
According to CNT, Brazil is currently the world's third-largest market for
air transport services in terms of number of carried passengers, following
the United States and China. Domestic air passenger traffic more than
tripled during the 2003-2013 period, while demand for cargo transport
increased by 48%.
In order to meet growing demand for air transport services as well as to
attract private investments for the improvement and expansion of local
infrastructure, the government has auctioned the country's five largest
airports in 2012 and 2013. As a result, Routes Online estimated that the
capacity of domestic airports, as measured by the number of available
departure seats, grew by 15.6% over the 2010-2014 period.
Public Airports
677
2010
2011
2012
Guarulhos (Sao Paulo)
Brasilia (Brasilia)
Santos Dumont (Rio de Janeiro)
Largest Airports in Terms of Capacity, 2014 (%)
12.7
11.5
15.9
Guarulhos
Congonhas
Brasilia
Galeao
Santos Dumont
Belo Horizonte
Viracopos
Salvador
Curitiba
Porto Alegre
Others
8.3
7.7
8.6
7.9
15.2
13.2
11.2
9.3
7.7
14
13.2
11.6
13.4
13
11.8
8.9
7.2
7.9
6.8
11.9
12.1
11
Capacity of Main Airports (mn available departure seats)
2013
2014
Congonhas (Sao Paulo)
Galeao (Rio de Janeiro)
Source: ANAC, CNT, Routes Online, - * Data as of 5 June 2015
Private
Airports 1,773
- 51 -
12.1%
9.7%
8.7%
6.3%
5.9%
5.3%
4.8%
4.6%
4.0%
3.7%
34.8%
Airport Infrastructure (cont'd)
Direct Federal Investment in Airport Infrastructure* (BRL mn)
2010
2011
3,000
4,056
1,780
1,411
2,400
688
2009
2,400
456
2008
2015f
2016f
660
471
2007
1,172
680
3,197
Private Investment in Airport Infrastructure (BRL mn)
2012
2013
2014
2012
2013
2014f
Comments
The airport infrastructure received total public investment of BRL 3.5bn between 2007 and 2011, mainly done by the state-controlled air operator Infraero.
However, since 2012, when the first airport auctions under the Logistics Investment Programme (PIL) were held, the private sector has emerged as the
largest investor in airport infrastructure, accounting for 60% of the total investments during the 2012-2013 period. At present, the largest capacity
expansion works are being implemented at the Galeao International Airport in Rio de Janeiro, operated by a consortium of Infraero, Brazilian industrial
group Odebrecht and Singapore's Changi Airport Group. The BRL 2bn investment envisages the expansion of the current airport capacity by 66% by 2016,
when the city will host the Summer Olympic Games.
Source: CNT, IPEA * Includes investment by state-controlled air operator Empresa Brasileira de Infraestrutura Aeroportuaria (Infraero)
- 52 -
Port Infrastructure (cont'd)
2007
2008
2009
2010
2011
2012
1,810
2014
1,640
523
1,690
2,660
2013
1,680
2012
1,710
2011
1,370
2008
Private Investment in Port Infrastructure (BRL mn)
1,440
2007
635
465
837
2010
1,037
1,285
2009
837
1,296
Direct Federal Investment in Port Infrastructure* (BRL mn)
2013
2014f
Comments
The private sector has been the main investor in port infrastructure between 2007 and 2014, disbursing a total of BRL 14bn, according to IPEA. The main
sources of financing were subsidised loans granted by the National Development Bank (BNDES) through the development programmes Finem and
Finame. On the other hand, the federal investments during the period were nearly two times lower (BRL 6.9bn). Although none of the 160 port terminal
concessions included in the Logistics Investment Programme (PIL) were auctioned over 2012-2014, the segment continued to receive private investments
of more than BRL 1.5bn per year.
Source: CNT, IPEA, - * Includes investment by state-controlled port operator Companhias Docas
- 53 -
V. Main Players
- 54 -
Top M&A Deals
Top 15 M&A Deals in the Construction Sector* in Brazil (2014-2015 YTD)
Target Company
Deal Type
Buyer
Country of
Buyer
Nov-14
Brookfield Incorporacoes SA
Tender offer
Brookfield Asset Management Inc
Canada
May-14
Cyrela Brazil Realty SA Empreendimentos e Participacoes
Open market
purchase
Oppenheimer Funds Inc
United States
Apr-15
Cyrela Comercial Properties SA Empreendimentos e
Participacoes
SPO
Undisclosed investor(s); The Bank of New
York Mellon Corp
Brazil; United
States
May-14
Open market
purchase
Orbis Investment Management Ltd
Bermuda
Dec-14
Tecnogera Geradores Ltda
Acquisition
P2 Gestao de Recursos Ltda (P2Brasil)
Brazil
May-15
BlackRock Inc
United States
Jun-14
Mills Estruturas e Servicos de Engenharia SA
The Capital Group Companies Inc
United States
Jun-14
PDG Realty SA Empreendimentos e Participacoes
Bank of America Corp
United States
Jan-14
Performance Katrina Empreendimentos Imobiliarios Ltda
Banco Modal SA
Brazil
Feb-14
Gafisa SA
Orbis Investment Management Ltd
Bermuda
Oct-14
Itau Unibanco Holding SA
Brazil
May-15
Even Construtora e Incorporadora SA
Nova Milano Investimentos Ltda
Brazil
Sep-14
Itau Unibanco Holding SA
Brazil
May-15
Direcional Engenharia SA
FMR LLC
United States
Jan-14
Green Ocean Camboriu Incorporacoes Imobiliarias SA
Date
Open market
purchase
Open market
purchase
Open market
purchase
Acquisition
Open market
purchase
Open market
purchase
Open market
purchase
Open market
purchase
Open market
purchase
Acquisition
Hestia Construcoes e Empreendimentos SA Brazil
Source: EMIS DealWatch *NAICS code 23
- 55 -
Deal Value
USD (mn)
153.3
(Official data)
144.4
(DW estimate)
137.0
(Official data)
128.0
(DW estimate)
111.3
(Market estimate)
82.1
(DW estimate)
76.0
(DW estimate)
(50.5
DW estimate)
35.3
(Official data)
31.5
(DW estimate)
21.5
(DW estimate)
21.1
(DW estimate)
19.3
(DW estimate)
18.9
(DW estimate)
18.4
(Official data)
Stake
(%)
42.8
5.9
44.3
5.1
50.1
5.0
5.1
5.3
75.0
5.1
5.9
6.1
5.0
5.8
100.0
M&A Activity (2013 - Q1 2015)
Number and Value of Deals in Brazil’s Construction* Sector
Q4
429
Q1
2013
Value of Deals (USD mn)
25
114
276
Q3
367
4
Q2
6
5
Q2
Q3
5
Q4
2014
Undisclosed;
32.8%
Q1
0-50mn;
37.9%
2015
Number of Deals by Region of Investors (%)
Europe 24.2%
Minority stake
purchase
20.7%
North America
17.7%
Australia &
Oceania 3.2%
Joint Venture
6.9%
Open Market
Purchase
36.2%
Tender Offer
1.7%
SPO 1.7%
Brazil 54.8%
Source: EMIS DealWatch *NAICS code 23
500.1-1000;
1.7%
Number of Deals
Number of Deals by Deal Type (%)
Acquisition
32.8%
50.1-100mn;
15.5%
100.1-500mn;
12.1%
17
6
286
7
466
Q1
9
8
726
8
Number of Deals by Deal Value, USD (%)
- 56 -
Construtora Norberto Odebrecht S.A.
Income Statement (Individual, BRL mn)
Highlights
32.1%
2012
Net Revenues
2013
EBITDA
Net Profit
 Founded in 1944, Construtora Norberto Odebrecht (CNO)
is the largest engineering and construction company in
Brazil in terms of gross revenues.
1,809
2,226
6,938
1,631
2,337
885
9,608
17.4%
1,622
9,309
24.3%
 The company offers integrated services for planning and
execution of engineering and construction works in all
segments, with a focus on large-scale construction projects
such as highways, railways, bridges, power plants, tunnels,
subways, buildings, port facilities, dams, manufacturing and
processing plants, mining and industrial facilities.
2014
EBITDA margin
Shareholders' Equity
 In May 2015, CNO announced a corporate reorganisation
that will lead to the separation and optimisation of the
company’s domestic and international businesses of
engineering and construction.
8,154
2014
 CNO is part of Brazilian industrial conglomerate Odebrecht,
active in the construction, chemical, oil & gas, energy,
infrastructure, sanitation and real estate sectors.
-3,137
12,243
6,673
11,646
Total Assets
2013
-2,746
2012
-2,734
5,890
10,271
Balance Sheet (Individual, BRL mn)
Net Debt
Source: Company data, EMIS Insight calculations, O Empreiteiro
- 57 -
Construtora Norberto Odebrecht S.A. (cont'd)
Consolidated Gross Revenues by Market, 2014 (%)
External
Market 73%
Highlights
 In 2014, CNO posted consolidated gross revenues of BRL
33.1bn (0.6% up y/y) and EBITDA of BRL 3.2bn, generated
from 191 projects in 18 countries in the Americas, Europe,
the Middle East and Africa.
[CATEGORY
NAME]
[PERCENTAG
E]
 In recent years, CNO has recorded a gradual decline in
revenues from projects in Brazil and rapid expansion of its
international operations. Notably, international contracts
accounted for 73% of the consolidated sales of the
company in 2014, up from 55% in 2011.
Consolidated Backlog Value by Market, December 2014 (%)
External
Market 70%
 CNO ended 2014 with consolidated backlog of USD
33.8bn, with international projects accounting for 70% of
the backlog. The share of projects for government clients in
Brazil (Federal, state and municipal) stood at less than 7%.
[CATEGORY
NAME]
[PERCENTAG
E]
 Odebrecht aims to generate about 75% of its consolidated
revenues in 2015 from international contracts, with the
largest growth rates expected from operations in Peru,
Colombia, Mexico, the United States and Africa.
Domestic
Market
Government
Clients 7%
Source: Company data
- 58 -
Construtora Andrade Gutierrez S.A.
Highlights
 Founded in 1948, Construtora Andrade Gutierrez (CAG) is
the second largest engineering and heavy construction
company in Brazil in terms of gross revenues, according to
the 2014 ranking of O Empreiteiro industry magazine.
3,947
2012
2013
Net Revenues
EBITDA
 The company offers integrated engineering and
construction services, with a focus on the execution of
large-scale projects across the entire infrastructure chain,
including power plants (hydropower, thermoelectric, nuclear
and petrochemical), steel mills, refineries, highways,
railways, airports, ports, sanitation and urbanisation
projects.
-351
-149
217
309
6.1%
191
346
4,375
5,078
7.9%
2014
Net Profit
EBITDA margin
Total Assets
2014
-406
-185
2013
 The company is part of Brazilian industrial conglomerate
Andrade Gutierrez, active in the construction, logistics,
energy, sanitation, telecommunications, infrastructure
concessions, health and real estate sectors.
2,368
2,401
-180
2012
 CAG has a portfolio of over 900 completed infrastructure
projects in more than 40 countries in Latin America,
Europe, Africa, the Middle East and Asia.
5,247
5,006
2,734
4,921
Net Debt
Source: Company data, own calculations, O Empreiteiro
- 59 -
Construtora Andrade Gutierrez S.A. (cont'd)
Domestic
Market 63.0%
Highlights
 Among the main projects of CAG in Brazil are: the Belo
Monte and Santo Antonio hydropower plants, the Angra 3
nuclear power plant, the Rio de Janeiro Olympic Park, the
Rio de Janeiro Petrochemical Complex and two subway
lines in Sao Paulo.
[CATEGORY
NAME]
[PERCENTAG
E]
 The company ended September 2014 with a consolidated
backlog of BRL 29.1bn, equivalent to about 3.5 years of
revenues, including a diversified portfolio of projects for
transport infrastructure, hydropower plants, sanitation,
industrial and civil construction in 16 countries in Latin
America, Europe, Africa and Asia. According to Moody's,
CAG had a large exposure to public clients, which
accounted for 80% of its total backlog.
Consolidated Backlog Value by Market, September 2014 (%)
[CATEGORY
NAME]
[PERCENTAG
E]
Brazil 45.0%
 In 2015, CAG aims to expand its international operations in
Europe, Latin America and Africa, as some 61% of its
current backlog derives from international clients. The
company also considers a potential entry into the U.S.
market.
Europe, Africa
and Asia
17.0%
Source: Company data, Moody's Investors Service, Valor Economico
- 60 -
Construtora OAS S.A.
Highlights
 Founded in 1976, Construtora OAS (COAS) is the thirdlargest engineering and heavy construction company in
Brazil in terms of gross revenues.
2012
2013
Net Revenues
EBITDA
2014
Net Profit
 The company provides engineering and heavy-duty civil
construction works to the private and public sectors,
including highways, subways, airports, ports, dams,
sporting complexes, refineries, hydropower and thermal
power plants. COAS has operations in 20 countries in Latin
America and Africa.
-1,506
-1,566
4,433
409
4,790
124
164
3,700
4.4%
532
11.1%
EBITDA margin
-400
2013
 Given the unfavourable macroeconomic environment in
Brazil, the investigations over alleged corruption practices
in oil major Petrobras and the restricted access to
financing, in January 2015, OAS S.A. temporarily
suspended all debt-related payments and unveiled an intent
to achieve an organised financial restructuring to improve
its capital structure.
522
3,131
-609
2012
Total Assets
 COAS is part of Brazilian industrial conglomerate OAS
S.A., which is active in the construction, infrastructure
concessions, real estate, oil and gas, sanitation and
defence sectors.
2,417
4,776
-553
1,156
3,356
2014
Net Debt
Source: Company data, EMIS Insight calculations, O Empreiteiro
- 61 -
Construtora OAS S.A. (cont'd)
Domestic
Market 73.2%
Highlights
 In March 2015, OAS SA and nine of its subsidiaries,
including Construtora OAS acting as a bond guarantor, filed
a petition for judicial recovery in order to renegotiate
group's debts (estimated at BRL 9.6bn at the end of March
2015).
[CATEGORY
NAME]
[PERCENTAG
E]
 The group also presented a new business plan that
envisages organisational transformation, asset
monetisation, business refocusing and backlog streamlining
(from BRL 21.8bn in September 2014 to around BRL 11bn),
prioritising the core business of the group – the heavy
construction.
Consolidated Backlog Value by Market, September 2014 (%)
Domestic
Market 71.6%
 OAS plans to focus on clients from the Brazilian public
sector with high credit rating and selected private sector
projects. The group estimates new projects worth between
BRL 12bn and BRL 14bn to be added to its backlog over
the period 2016-2019.
[CATEGORY
NAME]
[PERCENTAG
E]
 In May 2015, Canadian asset management company
Brookfield Infrastructure offered OAS an BRL 800mn loan
in the form of a debtor-in-possession (DIP) credit facility in
order to meet the liquidity needs of OAS and its
subsidiaries. The transaction remains subject to court
approval.
- 62 -
Construções e Comércio Camargo Corrêa S.A.
Highlights
9.3%
7.9%
 Founded in 1939, Construcoes e Comercio Camargo
Correa (Construtora Camargo Correa) is the fourth-largest
engineering and construction company in Brazil in terms of
gross revenues.
2012
Net Revenues
4,574
2013
EBITDA
Net Profit
 The company offers planning, development and execution
of large-scale engineering and structured projects in four
segments: energy, oil & gas, infrastructure and industry. Its
portfolio includes over 500 projects in the energy,
sanitation, mining, oil & gas, ports, airports, roads,
transportation systems and industrial constructions
segments.
40
236
412
361
200
443
4,558
4,783
5.2%
2014
EBITDA margin
3,178
3,464
4,747
 Construtora Camargo Correa ended 2014 with operations
in Brazil, Argentina, Colombia, Peru, Venezuela, Angola
and Mozambique, and a team of 16,630 employees.
Camargo Correa S.A., active in the engineering,
construction, cement, energy, transport, urban mobility
concessions, shipbuilding, apparel, footwear and real
estate sectors.
2012
Total Assets
2013
-22
-355
264
2,351
4,290
5,063
2014
Net Debt
Source: Company data, EMIS Insight calculations
- 63 -
Construções e Comércio Camargo Corrêa S.A. (cont'd)
Individual Gross Revenues by Segment, 2014 (%)
Provision of
Services
Domestic
Market 97.3%
Highlights
 Among the main projects executed by Construtora
Camargo Correa in Brazil during 2014 are: the Jirau, Belo
Monte and Ituango hydroelectric power plants, the Sao
Paulo and Salvador subway systems, the Ferrosul railway,
the Minas-Rio iron ore pipeline, the Ethanol pipeline in
Logum and the Abreu e Lima refinery (RNEST).
Provision of
Services
External
Market 0.7%
 In 2014, Construtora Camargo Correa posted consolidated
net revenues of BRL 6.3bn (7.2% up y/y) and EBITDA of
BRL 564mn (8.7% up y/y).
2012
16.6
2011
28.5
25.1
2010
 The company ended 2014 with a backlog of BRL 10.4bn,
mainly from contracts with private clients, and a contractual
balance with Brazilian oil major Petrobras of less than 5%
(BRL 490mn).
23.6
32.9
Number of Employees (thou)
2013
2014
- 64 -
Construtora Queiroz Galvão S.A.
Highlights
11.1%
 Founded in 1953, Construtora Queiroz Galvao (CQG) is the
fifth largest engineering and construction company in Brazil
in terms of gross revenues, according to the 2014 ranking
of O Empreiteiro industry magazine.
1.4%
65
191
487
 The company offers integrated services for planning and
execution of engineering and construction works in all
segments, including transport infrastructure, refineries,
sanitation, energy and urban mobility, mainly under the
public private partnership mode.
-71
156
317
3,697
4,402
4,639
8.6%
2012
2013
Net Revenues
EBITDA
2014
Net Profit
EBITDA margin
1,641
0.49
2012
2013
237
Queiroz Galvao S.A., with operations in the environmental
engineering, infrastructure, construction, oil & gas,
shipbuilding, food and steel sectors.
651
1,738
0.45
Total Assets
10.06
 CQG is active in five countries in South America and the
Caribbean (Argentina, Venezuela, Peru, El Salvador and
Honduras) and other three in Africa (Ghana, Equatorial
Guinea and Angola).
3,119
3,195
142
1,773
2,506
2014
Net Debt
Net Debt/EBITDA
Source: Company data, EMIS Insight calculations
- 65 -
Construtora Queiroz Galvão S.A. (cont'd)
Consolidated Backlog Value by Market, December 2013 (%)
External
Market 54.0%
Highlights
[CATEGORY
NAME]
[PERCENTAG
E]
 In 2014, the net revenues of CQG grew by 5.4% y/y to
reach BRL 4.6bn. However, the company recorded a net
loss of BRL 71.3mn, as a result of a higher increase of the
operating costs (up by 15.9% y/y).
 Among the main projects of the company in Brazil are: the
Belo Monte hydropower plant, the Petrochemical Complex
of Rio de Janeiro (Comperj), the Abreu e Lima refinery
(RNEST), the Sao Paulo and Rio de Janeiro subway
systems and the Light Rail Transit between the cities of
Santos and Sao Vicente (Sao Paulo state).
Consolidated Backlog Value by Client, December 2013 (%)
Government
clients 88.0%
 CQG ended May 2015 with a consolidated backlog of BRL
32.2bn, up from BRL 30.9bn in December 2013, mainly
related to government contracts in Brazil and abroad.
[CATEGORY
NAME]
[PERCENTAG
E]
Source: Company data, Fitch Ratings
- 66 -
Contact:
Corporate Headquarters
6-8 Bouverie Street
London EC4Y 8DD
UK
Voice: +44 20 7779 8100
Fax: +44 20 7779 8224
Americas Headquarters
225 Park Avenue South
New York, New York 10003
US
Voice: +1 212 610 2900
Fax: +1 212 610 2950
Asia Headquarters
Eucharistic Congress Bldg. No.
III
4th Floor, 5 Convent Street
Mumbai 400 001
India
Voice: +91 22 22881123
Fax: +91 22 22881137
Disclaimer:
The material is based on sources which we believe are reliable, but no warranty, either expressed or implied, is provided in relation to the accuracy or completeness
of the information. The views expressed are our best judgment as of the date of issue and are subject to change without notice. EMIS and Euromoney Institutional
Investor PLC take no responsibility for decisions made on the basis of these opinions.
Any redistribution of this information is strictly prohibited. Copyright © 2015 EMIS, all rights reserved. A Euromoney Institutional Investor company.
About EMIS Insight
EMIS Insight is a unit of EMIS that produces proprietary strategic research and analysis. The service features market overviews, industry trend analysis, legislation
and profiles of the leading sector companies provided by locally-based analysts.
About EMIS
Founded in 1994, EMIS (formerly known as ISI Emerging Markets) was acquired by Euromoney Institutional Investor PLC in 1999. EMIS works from over 15 offices
around the world to deliver electronic information products, by subscription, to institutional customers globally. EMIS provides hard-to-get information covering more
than 100 emerging markets. Its flagship products are EMIS Intelligence and EMIS Professional.
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organisations, and others.
- 67 -

Construction Sector Brazil

Transcription

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