Title: Managing State Assets: The Case of Brazil
1Managing State Assets in Brazil The Case of the
National Development Bank Armando Castelar
Pinheiro BNDES - UFRJ Budapeste, September 19,
2000
2 The Creation of SOEs in Brazil
- Industrialization drive
- National security
- Nationalization of foreign assets (utilities)
- Verticalization and diversification of SOEs
- Bankrupt private companies
3 Controlling SOEs in Brazil
- 1960s Creation of holding companies (steel,
telecom, electricity, etc.) - 1967-78 Administrative reform reduced controls
over SOEs while keeping privileges - 1979-89 Creating centralized expenditure
controls and legal restrictions on SOE creation
(census) sale of small formely private SOEs
performance contracts - 1990-98 Privatization of large traditional SOEs
- 1999- Change in corporate governance
4Total Results (1991-2000)
On February 18, 2000
5PND institutional structure
Inspection, control and follow-up
Support
- Federal Audit Court
- House of Representatives Privatization
Sub-committee - External auditors
- Ministers responsible for the companies
- Monetary Council
- Brazilian Central Bank
6PND privatization process
7 Remaining State Assets in Brazil
- Power generation (being privatized)
- Real estate (being privatized)
- Roads (to be partly privatized)
- Water and sanitation (to be partly privatized)
- Banks (to be partly privatized)
- Oil company (not to be privatized, but end of
monopoly and sale of shares)
8Banks ongoing discussion on what to do
- Federal
- 2 commercial banks (agriculture and
housing) largest commercial banks
in Brazil - 2 regional development banks (also
commercial) - 1 investment bank (BNDES)
- Local states
- Several commercial banks being privatized
- Investment banks turned into development
agencies
9BNDES The Brazilian Development Bank
- Founded in 1952
- 100 owned by the Federal Government
- The main source of medium and long-term financing
in the Brazilian economy - Main Brazilian partner of multilateral credit
organizations - 1,600 employees
10BNDES along the years
2
11BNDES total disbursements
US billion
16,5
16,5
11,8
11,1
9,6
1997
1998
1999
1995
1996
2.000 forecast US 13.3 billion
12Private sector share ()
Loan Portfolio
Disbursements
13BNDES group structure
14BNDESPAR
- The investment corporation of BNDES
- Created in 1982
- Fully-owned by BNDES
- A public company since January 1998
- The most important venture capital agency in
Brazil
15Operations cycle
BNDESPAR
recycling
Monitoring
Divestment
Investment
funding
interest and dividends
BNDES
pay debt
16Investment highlights
- Always minority stakes of temporary nature
- Valuation is based on each firms prospective
performance - Investment may also be made indirectly, through
one of its closed-end funds - BNDESPAR offers special programs for small and
medium-sized technology-based businesses and
emerging companies
17Divestment
- Primarily through public offers in the domestic
or international capital markets - BNDESPAR often creates new financial products,
coupled with derivatives, to promote liquidity
and develop the capital market
18Key BNDESPAR Figures
US billion
Dec-98
Dec-99
Jun-00
12.8 7.7 6.9 4.6 2.3 3.7 3.9 214 510
11.6 5.6 10.4 8.3 2.0 .3 2.2 191 246
Total Assets Net Worth Market Value Stocks,
funds bonuses Convertibles Investment Divestme
nt Number of Companies Net Profit (US million)
11.6 5.4 11.2 9.1 2.1 3.2 .6 197 366
19BNDES access to credit
- Up to R 7 million ( around US 4 million )
- BNDES Automatic - financing through a network of
accredited financial institutions (pass-through
lending ) - In excess of R 7 million
- FINEM - Direct financing
- Unlimited
- FINAME - Machinery and equipment
(pass-through lending )
20credit policy procedures
BNDES
- Exposure limits sectors and clients
- Rating policy and Credit Committee
- No foreign capital discrimination
- All loans require collateral and repayment
capacity - Onlending through financial intermediaries,
which assume the final credit risk
21Changes in SOE Corporate Governance
- Failure of performance contracts
- More active board members (outsiders)
- Minister as president of board
- More transparent accounting practices
- BNDES on board of directors of privatized
companies with left overs in state hands
22BNDES - The Brazilian Development Bank
www.bndes.gov.br e-mail financia_at_bndes.gov.br