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Why is there lack of attractiveness for investors in companies in restructuring processes?

Revista Capital Aberto - December / 2016

By André Pimentel

Imagine a scenario where you became ill, the health care system denied care, there was no access to medicines, and even friends and close people walked away in fear of the risk you would pose. Sounds absurd. However, this is what happens today with companies when, for some reason, they become financially destabilized.

In any healthy capitalist environment, undertak - not only in the sense of creating, but also in giving continuity to an economic activity - is the basis of development and wealth generation. It is also a consensus that there is a high degree of risk in this, since it means acting in a dynamic scenario, influenced by a large number of variables over which, in general, we do not exercise direct control.

And it is precisely because of these two characteristics that it seeks to construct rules and instruments to aid those who have the courage to undertake but for some reason are faced with great difficulties. This strengthens the confidence of the entrepreneurs in the process of undertaking. More important, it creates the right conditions for those who want to participate in corporate restructuring to follow clear rules and have security by managing only business risk related to the business itself.

This is not the case today in Brazil. Companies in difficulties, and undergoing a restructuring process, have an increasingly difficult life. They are marginalized, they have practically no support from economic agents and are set aside to become alone at the time of greatest fragility.

Virtually all sources of regular financial funding disappear or become unfeasible. When still possible, in most cases, they are gradually worsening the situation because they are designed to "save" in the short or very short term and are not part of a sustainable plan. The big banks are the first to cut the lines of credit that in moments of bonanza are abundantly available. Midsize banks, or even commercial enterprises, are more open to a risk / return relationship that rewards the maintenance of their credit lines, but increasing costs make these sources unfeasible, in addition to contributing to the worsening of the situation, since they are purely palliative .

And the healthier possibility in these cases - the entry of new and committed investors - encounters several barriers. Today in Brazil it is rare to find an investor who wants to continue the conversation when he realizes that the company faces problems. But the investor is not wrong it is real the difficulty of interrupting a negative cycle with current rules (or lack thereof) and a real risk of being dredged along with the problem rather than being seen as a solution agent.

Virtually all instruments for this, such as the Judicial Recovery Act (local version of Chapter 11 in US), are still little mature or are susceptible of interpretation and interference by a justice that does not yet understand, nor prepared to deal with it adequately.

The lack of attractiveness to the investors complicates, and often prevents, the recovery of the companies. It is very difficult to convince them to support the project with the necessary capital, even when there is a plan that everyone believes to be feasible and there are conditions to obtain adequate governance requirements. It is the Economic Dynamics ho loses with this as well as the various stakeholders, that is, the whole society.

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