Stretched to the Breaking Point

Mar 1, 2003

A devalued currency, heavy dollar debts and plunging equity prices have taken their toll on Brazilian companies. Some are recovering while others have become acquisition targets for the survivors.

The change in government has coincided with a severe credit crunch that has squeezed even large and well-connected companies. Several of them are defaulting on billions of dollars in debt. Publicly traded non-financial, nonoil companies in Brazil had debts of R$236.52 billion ($60.72 billion) at the end of September 2002, according to Economática, a consultancy. About 70% of those debts were denominated in dollars, so last year's crash in the value of the real drove up indebtedness and debt service costs 40%, just about wiping out profits."This is one of the worst years [for corporate profits] in history," says Fernando Exel, president of Economática. "These companies made almost zero profit. It is a disaster." Net income for all listed companies last year fell by nearly half in local currency terms to an estimated R$8.68 billion, even though operating income rose 12% to an estimated R$51.05 billion....

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