After a Public Fund Deficit of Over 1 Billion, Correios Seeks to Terminate Lease for FII Asset in Contagem, MG

The announcement followed a report by Poder360, which disclosed confidential documents showing that Correios recorded a record-breaking R$ 1.81 billion deficit. The report revealed urgent measures to maintain the R$ 21.9 billion budget cap, including suspending new hires, renegotiating existing contracts, and extending contract durations.

The report also indicated that Correios is at risk of insolvency, meaning its debts could exceed its assets, potentially requiring a bailout by the Brazilian National Treasury.

Data obtained from the Transparency Portal shows that Correios spent R$11.1 billion between January and June 2024, approximately 54% more than in the same period of the previous year. According to the nominal employee list, the company currently has around 92,000 active employees, excluding those seconded to or from other public entities.

*In a statement released after the publication of the report, Correios attributed the negative results to three main factors: the inheritance of a R$ 1 billion deficit accumulated during the previous administration, the lack of tariff adjustments over the past five years, and the decline in international parcel volumes due to the Remessa Conforme program.

*Additionally, the state-owned company claimed that the dismantling process carried out by the previous administration, which aimed to privatize the company, further worsened its financial situation.

Translation: 

a) the temporary suspension of new hires (minimum of 120 days);
b) the renegotiation of the total value of current contracts, with a minimum reduction of 10% in the amounts allocated for 2024 and 2025; and
c) the extension of contract terms starting in October, only utilizing funds saved through the reductions mentioned in the previous item.

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In October, the property was closed by Contagem’s Civil Defense due to a municipal inspection suggesting a risk of collapse. However, three technical reports contradicted this claim, asserting that while the slope had shifted, there was no immediate collapse risk.

In November, these two separate issues became intertwined. Sources told REsource that Correios allegedly used the slope issue as a pretext to initiate the lease termination process, leveraging its federal influence to pressure the municipality into closing the property.

When questioned, Correios denied any role in the closure, stating:

"Correios did not request the property’s closure. The state-owned company sought a technical inspection by Civil Defense after observing worsening structural issues, such as cracking noises linked to the property’s movement. As a precaution, the facility was vacated on October 11, and Civil Defense visited on October 14, issuing a technical report advising temporary closure. The report noted issues such as excessive joint gaps, cracks in partition walls, structural wear, and a high risk of structural component detachment, classifying the property as high-risk. On October 21, Civil Defense independently returned and fully closed the facility, citing extensive slope movement and advanced erosion."

REsource attempted to contact the Contagem municipality for comment but received no response.

Correios has occupied the CLC property since 2020. Beyond mail and parcel deliveries, the facility also distributes school supplies and medications. Sources revealed that the property houses machinery worth R$ 40 million, currently idle due to the closure.

Additionally, approximately 30 tons of donations intended for flood victims in Rio Grande do Sul have been stalled for months. Correios confirmed the stalled items but stated that they await the restoration of operations for delivery.

“Out of the over 30,000 tons of donations collected and distributed to flood-affected communities in Rio Grande do Sul, about 800 pallets remain in the facility, already allocated to organizations but awaiting safe conditions for removal,” the company noted.

The allegations also extended to the state-owned company's maintenance of the property, which was described as “minimal or nonexistent.” The company, however, denied these claims, stating that “the facility's building maintenance has been rigorously carried out by the Correios.”

According to a statement issued this week, the initiation of the administrative process to terminate the lease agreement is an internal procedure by Correios, commonly used by public companies to assess situations and make decisions. However, this process does not have judicial status. The fund was invited to submit a preliminary defense within 10 business days.

The REsource team contacted TRBL11 for comments on the matter. The fund reiterated the details disclosed in its material fact notice and stated that it has been working “around the clock” to complete all necessary repairs.

The fund's management has already mobilized its legal team to prepare a swift and technical response, aiming to counter the state-owned company’s arguments and keep the lease agreement in effect. Additionally, the fund is considering potential legal action, if necessary, to ensure the contract's enforcement.

“The fund administrator's legal team is actively working on a legal strategy to ensure that the administrative defense is both prompt and thorough, addressing all issues raised by the tenant and securing the continuity of the lease agreement. Any updates will be promptly shared with investors and the market, including after the defense is submitted,” the fund stated.

According to the latest management report, the CLC Correios accounts for 46% of TRBL11’s revenue.

*Updated on 12/05/2024