You Could Brew 36 Billion Bottles of Beer With These Writedowns

  • Brazilian companies write off $25 billion in assets in 2015
  • Companies blame price tag on recession, plunging commodities

Brazilian companies aren’t what they used to be. In fact, they’re worth about $25 billion less.

That’s the price tag on asset writedowns that Brazil’s biggest non-financial companies took in 2015 after being pummeled by the worst recession in a century and plunging commodities prices. The figure, tallied from the earnings reports of companies on the Ibovespa stock index, tops the total amount of assets held by brewer Ambev SA in the Americas. The beverage maker, which produced the equivalent of 36 billion bottles of beer last year, is Latin America’s largest company.

Almost all of the $25 billion (92.2 billion reais) in impairments were tied to the decline in the price of raw materials, which account for about half of Brazil’s exports and are the main business line for some of the most traded companies. With crude and iron ore losing at least a third of their value in 2015, oil producer Petroleo Brasileiro SA and miner Vale SA reported a combined 82.7 billion reais in write-offs, leading a pack of commodity producers that also includes steelmakers Gerdau SA and Usinas Siderurgicas de Minas Gerais SA, known as Usiminas.

"Those impairments are an adjustment to bring the numbers back to reality," said Fausto Gouveia, a director at Sao Paulo-based AZ Legan, which manages 1 billion reais in assets. "The stock market in general is improving now on hopes of a political change, but there’s still a long way before any change can bring actual improvement to corporate earnings."

Companies that depend on domestic demand are also taking a second look at how much their assets are worth, Gouveia said. BM&FBovespa SA, the operator of Latin America’s biggest exchange, took a hit of 1.7 billion reais on its balance sheet. Homebuilder PDG Realty SA, which has a market value of just over 200 million reais, reported 945 million reais in impairments.

Oi SA, the troubled phone company that is trying to restructure its 55 billion reais in debt, announced a charge of 3.1 billion reais. That doesn’t include the 5 billion reais in write-offs tied to a shareholder restructuring that auditor KPMG pushed for, according to the company’s earnings release. Oi said in its financial statement that it’s waiting to hear from Brazil’s securities regulator before deciding on those potential losses.

Brazil’s economy shrank 3.8 percent in 2015. It’s likely to contract an additional 3.7 percent this year, according to a central bank survey of economists. For 2017, survey respondents forecast a sluggish 0.35 percent rebound.

The Ibovespa fell 2.1 percent as of 2:36 p.m. on Thursday in Sao Paulo, trimming its gains this year to 16 percent.

Oi and BM&FBovespa declined to comment further. Usiminas’s press office referred to the company’s earnings release, which blamed the writedowns on lower iron ore prices paid to its mining unit. Vale also pointed to its earnings statement, in which the company mentions changes in the outlook for iron ore and an increase in mining costs in some of its units.

PDG said in an e-mail that the impairments reflect current conditions in the industry and the economy. Gerdau said its financial statements meet international accounting standards. Petrobras’s press office referred to its earnings statement, which cites the drop in oil prices among reasons behind the write-offs.

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