The effects of RJ on investment funds and in the field – Money Times

The market has been closely following, since last Wednesday (18), the rumors about a possible request for judicial recovery (RJ) of one of the consolidators of the agricultural inputs distribution market, AgroGalaxy (AGXY3), controlled by the Aqua Capital fund and with shares listed on B3.

More precisely, at around 5:30 pm on Thursday 19/09, the “judicial secrecy” that hung over the petition requesting the favor of judicial recovery of the companies that form the so-called: “AgroGalaxy Group” – as named in the petition itself filed in court by the group's lawyers to obtain the legal favor – was lifted, with the market's fear materializing.

The group's intention to try to obtain judicial protection from creditors to renegotiate an astronomical liability of around R$4.7 billion was confirmed. The list of creditors is extensive, from workers to suppliers, financiers and others. stakeholderstaking in the entire chain of production, distribution and financing of these inputs and services, in addition to financial creditors and even those who invested their savings in the shares of Agrogalaxy Participações SA Reality justified everyone's concern.

Rosary of apologies in RJ's lawsuit

By reading the petition, which is now public and available for the entire market to read, we were able to see that more frightening than the group's total debt were the reasons listed by the company to justify the RJ request, namely:

1. contractual triggers due to the total lack of financial resources to pay for an issue of CRAs (Agribusiness Receivables Certificates) worth R$500 million;
2. illiquidity of an “accounts receivable” of R$ 1.6 billion that looks more like something along the lines of Americanas (AMER3) than derived from any agribusiness challenge;
3. market challenges – cyclical factors that we have addressed in our column throughout this year, such as lower prices of commoditiesclimate and some credit problems with producers who are customers of the products sold by the company.

The most frightening thing about this “rosary of excuses” was the claim that the serious fires that ravaged much of the country last month had a significant impact on accounts receivable that already showed R$1.6 billion in arrears, as if the fire could have retroactive effects to encompass a flow of monthly receivables, which at the beginning of this year, was already prompting articles about balance sheets with negative cash generation and cash flow, in addition to other bad indicators.

Do judicial recoveries in the sector impact AgroGalaxy's financial health?

In addition to what is stated above, the petition also presented the factor “judicial recovery of the rural producer” as a possible cause of the credit problem due to the illiquid “accounts receivable” of R$ 1.6 billion, when we know that:

1. the number of processes of this nature inspires caution, but the law grants financing in agriculture – especially to barter – the safeguards necessary for the receipt of credits and that;
2. the capillarity of AgroGalaxy's operations, both due to geographical and statistical factors, do not allow us to corroborate this statement.

Likewise, we have stated that the issue of rural producer RJ is certainly a cause for concern, but this scenario is much more apparent in the imagination of Faria Lima than in the reality of those who produce diligently and who know that credit is a key factor in the exercise of agribusiness activities, which demand around R$1 trillion per year to carry out their activities.

Expectation vs. Reality

Of course, the absolute truth in this entire RJ process, as occurred in the case of Lojas Americanas, will only emerge during the course of the process, which is likely to continue for months or years to come.

However, we can state here from our space, at this moment, that in addition to this RJ impacting the supply and service distribution chain in agribusiness, it will generate a significant impact on fund shareholders and other financial investors who invested in CRAs and/or fund shares that invested in AgroGalaxy operations and/or related to the company's chain.

However, this is another discussion that we have provoked here in our column, as fund managers who invest in agriculture need to pay more attention to the reality of commercial and financial operations directly with rural producers, cooperatives and their associations – based on the physical, real market – rather than seeking audited intermediaries with guarantee structures that often repeat the logic of a market that is much further away from agribusiness than its investors and investments imagine.

In fact, they seek to endorse as “agro pop and everything else” structures that repeat the same logic of market situations that we have been following for a long time from outside Brazilian agribusiness and that have caused more noise than necessary for the good development of the Brazilian capital market, a market that our agribusiness needs so much to continue on its path of prosperity and continuous development.