Aurelia Butler

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Brazil’s congress has given President Luiz Inácio Lula da Silva the first significant legislative win of his administration, voting for rules to loosen limits on public expenditure.The so-called new fiscal framework replaces a stricter cap on spending and makes it mandatory for budgets to increase by more than the rate of inflation. It is the cornerstone of the leftwing president’s promises of extra money for social welfare and infrastructure in Latin America’s largest economy.Representatives in Brasília’s lower house gave final approval on Tuesday despite simmering investor concerns about government profligacy and the potential impact on public borrowing.The bill’s passage is a milestone for Lula, who previously ruled between 2003 and 2010 and returned to power in January after his election win over Jair Bolsonaro. It paves the way for a major public works programme underpinned by R$370bn ($74bn) of federal funds over four years.“The new framework expands the government’s margins for investments and spending. In this sense it is a victory for Lula,” Angelo Coronel, senator from the centrist Social Democratic party, told the Financial Times before the vote.The previous spending ceiling, in place from 2017, meant budgets could not rise by more than the rate of inflation. Investors saw it as a tool to stabilise Brazil’s debts.For Lula and his leftwing Workers’ party, however, it was an obstacle to improving livelihoods in a nation where about 60mn people live in poverty.The new fiscal regime comes as the outlook for the economy brightens. Forecasts for 2023 gross domestic product growth have been revised up to an average 2.3 per cent, from 0.8 per cent at the start of the year, according to a central bank survey of economists, driven in part by booming agribusiness.At the same time, Brazil’s central bank has begun monetary easing, cutting the benchmark lending rate by half a percentage point to 13.25 per cent this month.Under the new fiscal framework, expenditure will be allowed to rise annually by up to 70 per cent of the preceding year’s increase in government income. Within this, spending must grow annually by a minimum of 0.6 per cent above inflation, up to a maximum of 2.5 per cent.

Finance minister Fernando Haddad has pledged to achieve a balanced budget before debt interest payments by next year, intending to raise revenues with measures such as duties on online gambling and a clampdown on tax evasion.However, there is scepticism in the financial sector that the administration can eliminate the budget deficit without increasing taxes. Many economists believe revenue collection goals are too optimistic and criticise the absence of any meaningful reduction in spending.“The new framework is weaker than the spending cap when it comes to its ability to rein in the rise in public debt,” said Marcos Casarin, chief Latin America economist at Oxford Economics. “By shifting the focus away from spending and into a primary balance target, the new rule grants the government more leeway to increase spending by allowing authorities to artificially boost the following year’s revenue target. This perverse incentive is what weakens the rule.”Additional reporting by Beatriz Langella in São Paulo More

TIANJIN, China (Reuters) – At an unfinished Country Garden residential complex on the outskirts of the northern Chinese metropolis of Tianjin, construction has slowed to a dull whirr and a few idle workers roam a near-empty site.”They haven’t paid us since Chinese New Year (in January). We are all worried,” said a labourer surnamed Wang, 50, who said he had stopped work at the Yunhe Shangyuan site last week.The sprawling complex is one of two projects Reuters visited on Friday in Tianjin, a port city of 14 million people about 135 km (84 miles) southeast of Beijing. Both sites are run by Country Garden, China’s largest developer by sales volume before this year, now mired in a debt crisis threatening to spill over to the wider economy.Construction had partially or fully stopped at both sites – the larger one with a few rows of unfinished five-storey apartment blocks and the other with lifeless cranes and thick green scaffolding hanging over skeletal high-rises. Workers at dorms on the sites complained of months without pay.”I’m under a lot of pressure,” said a worker at the Yunhe Shangyuan site surnamed Wei, also in his 50s, who added that he had only received a one-off living stipend of 4,500 yuan ($618) so far this year.”I have a wife and kid who’s about to return to school, as well as elderly parents … Workers can’t live on this.”Once considered one of the more financially sound developers, Country Garden is now a bellwether of how the cycle has turned for developers.Its financial woes have added to the debt crisis in China’s real estate sector, which accounts for roughly a quarter of the world’s second-largest economy, currently losing steam amid a housing slump and weak consumer spending.A representative of Country Garden’s Yunhe Shangyuan project said in a Wechat statement its “registered employees” were all being paid.At the Yunjing Huating site, the government in June ordered construction to be suspended to fix management problems, a project representative told Reuters in a separate statement. It has since passed inspection and work is expected to resume next week, the person said, adding the suspension would have no impact on the targeted completion date of October 2024.Some workers are not employed directly by the developer, the Yunjing Huating representative said, but by its contractor, which “has promised to pay the workers’ wages by the end of this month”.The project contractor, Shenyang Tengyue Construction, did not pick up calls from Reuters or respond to emails seeking comment.The housing ministry did not comment on Reuters queries about halting of construction in the property sector in general or Country Garden in particular.UNFINISHED HOMES Country Garden has nearly 1 million homes to complete, according to estimates from Japanese investment bank Nomura. It has not publicly acknowledged whether any of its projects have halted construction due to financial constraints. In an exchange filing on Aug. 10, Country Garden said it would “spare no effort to ensure delivery” of apartments and that it would “ensure the operation of projects nationwide” to fulfill its commitment to home buyers.Country Garden built its success by quickly selling a large number of units for low margins and by promising “five-star living” in less popular, smaller cities.Tianjin has about a dozen Country Garden projects, with the majority finished and delivered, said Gao Fei, investment advisory manager at the Tianjin branch of Centaline Property Agency.Gao said halted construction projects were “relatively rare” in the city, representing about a dozen out of 300 sites for sale, but “there are indeed projects whose development progress has slowed down”. “In China, it is a common phenomenon because now all developers control the rhythm of construction based on the sales rate … so once sales slow down, so will construction,” Gao told Reuters.Confidence in the sector took a big hit last year after many Chinese homebuyers threatened to stop repaying mortgages, as developers stopped building pre-sold housing projects due to strapped liquidity and strict COVID-19 restrictions.China’s real estate market slightly rebounded in the first quarter of 2023 but transaction volumes have since declined, with the majority of city housing markets remaining in a “depressed” state, said Gao.”We have seen that many home buyers are affected by a lack of income, and their home buying choices and what they can afford have been impacted in turn.” More

NEW YORK (Reuters) – Private equity firm Roark Capital is in the lead to acquire sandwich chain Subway for well over $9 billion after attaching conditions to some of the windfall the two families that own it will get, people familiar with the matter said on Tuesday. These conditions, known as an earn-out, defer payment on part of the deal consideration, the sources said. For the full price to be paid, Subway’s cash flow would need to reach certain milestones over a specified period after the deal closes, the sources added.The previously unreported arrangement helped bridge a gap in the valuation expectations between the DeLuca and Buck families that own Subway and the buyout firms vying for it, according to the sources. The families put Subway up for sale hoping to fetch more than $10 billion based on its strong brand and international growth, but the private equity firms countered it was worth less because they deemed its U.S. business saturated.A challenging financing market for leveraged buyouts amid high interest rates also weighed on the sale process. A consortium of TDR Capital, Sycamore Partners and Goldman Sachs Group Inc (NYSE:GS)’s private equity arm, which has offered less than Roark for Subway, also attached an earn-out to its offer, the sources said. Further details of the proposed earn-out structures could not be learned.The consortium has been seeking to convince Subway’s owners that a deal with Roark would face U.S. antitrust risk given the latter’s ownership of other restaurant brands, including sandwich chain Jimmy John’s, the sources said.So far, the families have taken the view that the restaurant market is too fragmented for a deal with Roark to raise competition concerns, the sources added. A deal could be reached as early as this week, according to the sources.The sources requested anonymity because the matter is confidential. The Wall Street Journal reported on Monday that Roark Capital was nearing a deal to buy Subway for about $9.6 billion. A spokesperson for Subway declined to comment, while representatives for Roark and TDR did not immediately respond to requests for comment. Sycamore and Goldman Sachs declined to comment.Earn-out structures, while uncommon in the consumer and retail sector, are increasing in frequency in a challenging market for mergers and acquisitions as a way to reconcile price differences. Lingerie maker Victoria’s Secret & Co negotiated the acquisition of online startup Adore Me last year using an earn-out structure. It agreed to pay $400 million up front, with subsequent payments totaling between $80 million and $300 million subject to Adore Me’s financial performance two years after the completion of the deal. MENU OVERHAULFounded in 1965 by 17-year-old Fred DeLuca and family friend Peter Buck, Subway has been owned by the founding families since its first restaurant opened as “Pete’s Super Submarines” in Bridgeport, Connecticut.The Milford, Connecticut-based company has been revamping its operations to deal with outdated decor and $5 deals on foot-long sandwiches that eroded franchisees’ profits. In 2021, the chain launched a menu overhaul and splashy marketing campaign as it embarked on a turnaround plan that has helped sales grow.Subway, which has closed thousands of U.S. locations since 2016, said a year ago that it wants to shift away from its current base of small franchisees that own just one or two shops, which tend to be family-run and sometimes barely scrape by.The company saw a 9.85% increase in same-store sales in the first half of 2023. Its 12-month earnings before interest, taxes, depreciation and amortization are around $800 million, according to the sources.Roark controls Inspire Brands, owner of the Jimmy John’s, Arby’s, Baskin-Robbins, Buffalo Wild Wings, Dunkin’, Rusty Taco and SONIC Drive-In chains.Champaign, Illinois-based Jimmy John’s has more than 2,600 restaurants in 43 states. Subway has more than 37,000 restaurants in over 100 countries. More

U.S. regulators are seeking to strengthen oversight of the banking system, particularly in light of a string of collapses this year that included three of the largest in U.S. history.The proposal will likely require banks of $100 billion or more in assets to issue long-term debt that could absorb bank losses before depositors and the FDIC’s deposit insurance fund do, FDIC Chair Martin Gruenberg said in a speech this month. It will also require bank recovery and resolution plans, also known as “living wills,” to give the FDIC more options when overseeing a failed bank’s receivership, including by identifying parts of the lender that could be sold separately. More

The bill garnered 379 votes in favor and 64 votes against.Lawmakers had previously green-lighted the bill in May. However, due to subsequent amendments made by the Senate, the text returned to the lower house for a final round of voting.The proposal entails a cap on government spending, which cannot surpass 70% of any revenue increase. Additionally, spending growth is restricted to a range of 0.6% to 2.5% per year above inflation.The text further stipulates that if predetermined primary budget targets are not met, expenditure growth will be curtailed to 50% of revenue increases as a disciplinary measure.In a setback for the government, lawmakers rejected a Senate amendment enabling the government to incorporate a yearly inflation estimate that would have extended its expenditure ceiling when drawing up the 2024 budget law, which is due to be presented to Congress by the end of the month.Although less stringent than the constitutional cap, which has limited the growth of public spending to inflation since 2017, the new fiscal framework has already played a role in reducing future interest rates since its presentation by the government. It has also received plaudits from rating agencies S&P and Fitch, and has been acknowledged by the independent central bank as a pivotal step in addressing fiscal concerns. More

X is planning to remove the headline and text while retaining just the lead image from links to news articles shared on the platform, Musk said in a post late on Monday.Fortune had first reported the news on Monday, citing a source that the move was pushed directly by Musk. The move is likely an attempt by Musk to get users to spend more time on X and push them to opt the subscription service for more details.It is not immediately clear how the move will impact advertisers on the platform that Musk claimed in July had 540 million monthly users. Currently news links come up on the timeline of users as “cards” along with an image, source address and an abridged headline. Such a packaging helps draw clicks and helps publishers gain readers.But with the shortened links, users might end up writing some text along with their posts and eventually they could consider X’s premium service that allows a single post of up to 25,000 characters.With the changes, Musk is pitching X as a more relevant platform for content creators. Premium subscribers can now post longer videos, their posts are shown higher up and they also receive a cut of ad sales. More