Brazil's Real Advances to Three-Week High as M&A Deals Pick Up

  • Hypermarcas agrees to sell unit to Coty in $1 billion deal
  • Real still the worst performer among major tenders in 2015

Brazil’s real strengthened to a three-week high amid speculation that an increase in mergers and acquisitions signals investors see value in the country’s assets.

Coty Inc. agreed to buy the personal-care and beauty division of Hypermarcas SA for about $1 billion in cash, according to a statement Monday. BM&FBovespa SA, the operator of the Brazilian securities and derivatives exchange, said in a regulatory filing Tuesday it’s in preliminary talks to merge with clearing house Cetip SA.

“The announcement of Hypermarcas can be seen as very positive for Brazil as a whole; it shows that investors continue paying attention to assets in the country," said Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo. “It also generates expectations that similar deals might come in the near future."

The real gained 1.8 percent to 3.7847 per dollar as of 1:47 p.m. in Sao Paulo, the strongest level since Oct. 9. It was the best performer among 16 major currencies tracked by Bloomberg.

In a different deal, shoe manufacturer Alpargatas SA said it will sell two brands to a group of investors led by Carlos Wizard in a deal worth 48.7 million reais ($12.8 million), according to a regulatory filing.

The currency also got a boost from expectations the government may finally be able to find support among lawmakers for measures aimed at improving fiscal accounts.

The country’s lower house may vote this week on a bill to encourage the repatriation of overseas assets, newspaper O Estado de S. Paulo said. If passed, it would mark a victory for President Dilma Rousseff. The currency has tumbled 30 percent this year as Rousseff struggles to cut spending and boost government revenue in a bid to ward off another credit-rating cut after Standard & Poor’s reduced the country to junk in September.

"The political scenario remains the main focus for investors in Brazil," said Newton Rosa, chief economist at Sao Paulo-based Sul America Investimentos. "Any indication that the government might be able to pass fiscal measures in Congress could result in a recovery for Brazilian assets, including the real."

Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest-rate moves, declined 0.06 percentage point to 15.41 percent.

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