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Managing State Assets in Brazil: The Case of the National Development Bank Armando Castelar Pinheiro BNDES - UFRJ Budapeste, September 19, 2000. The Creation of SOEs in Brazil. Industrialization drive National security Nationalization of foreign assets (utilities)

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Managing

State Assets in Brazil: The Case of the

National Development Bank

Armando Castelar Pinheiro

BNDES - UFRJ

Budapeste, September 19, 2000


The creation of soes in brazil
The Creation of SOEs in Brazil

  • Industrialization drive

  • National security

  • Nationalization of foreign assets (utilities)

  • Verticalization and diversification of SOEs

  • Bankrupt private companies


Controlling soes in brazil
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


Total results 1991 2000

US$ million

Number of Companies

Debts Transferred

Sector

Proceeds

Total

Steel

Petrochemicals

Railroads

Mining

Telecom

Power

Others

Minority shareholdings

Federal-level

State-level

Total

8

27

7

2

26

3

18

-

91

34

125

5,562

2,699

1,697

3,305

26,978

3,909

1,472

1,102

46,724

26,172

72,896

2,626

1,003

-

3,559

2,125

1,670

343

-

11,326

6,592

17,918

8,188

3,702

1,697

6,864

29,103

5,579

1,815

1,102

58,050

32,764

90,814

Total Results (1991-2000)

On February 18, 2000


Pnd institutional structure

Decision

President of the Republic

Privatization Council

Management

BNDES

Evaluation

External consultants

PND institutional structure

Inspection, control and follow-up

Support

  • Ministers responsible for the companies

  • Monetary Council

  • Brazilian Central Bank

  • Federal Audit Court

  • House of Representatives Privatization Sub-committee

  • External auditors


Pnd privatization process

Inclusion in PND

Tenders for consulting

Consultant A

Consultant B

Financial and

economic

valuation

Financial and economic

valuation, special auditing,

assets and legal appraisal

Sale model & financial adjustments

Minimum price

Privatization

Council - CND

Call for

tenders

Auction / Offers

PND privatization process


Remaining state assets in brazil
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)


Banks ongoing discussion on what to do
Banks: 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


Bndes the brazilian development bank
BNDES 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


Bndes along the years

50

Infrastructure - Steel

Energy - Intermediate inputs - Consumer goods

Import substitution of intermediate and capital goods

Private industry and agribusiness

Private infrastructure and exports

Management of privatization process

60

70

80

90

BNDES along the years

2


Bndes total disbursements
BNDEStotal 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


96%

73%

74%

90%

78%

59%

1997

1998

1997

1998

1999

1999

Private sector share (%)

Loan Portfolio

Disbursements


Bndes group structure

BNDES

Finances long-term

investment

BNDESPAR

FINAME

Equity participation

Finances capital

goods purchases and

foreign trade

BNDES group structure


Bndespar

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

BNDESPAR


Operations cycle
Operations cycle

BNDESPAR

recycling

Investment

Monitoring

Divestment

funding

interest and dividends

BNDES

pay debt


Investment highlights

Alwaysminoritystakes oftemporary nature

Valuation is based on each firm’s prospective performance

Investment may also be made indirectly, through one of itsclosed-end funds

BNDESPAR offersspecial programsfor small and medium-sized technology-based businesses and emerging companies

Investment highlights


Divestment

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

Divestment


Key BNDESPAR Figures international capital markets

US$ billion

Dec-98

Dec-99

Jun-00

Total Assets

Net Worth

Market Value

Stocks, funds & bonuses

Convertibles

Investment

Divestment

Number of Companies

Net Profit (US$ million)

12.8

7.7

6.9

4.6

2.3

3.7

3.9

214

510

11.6

5.4

11.2

9.1

2.1

3.2

.6

197

366

11.6

5.6

10.4

8.3

2.0

.3

2.2

191

246


BNDES international capital markets 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 )


BNDES international capital markets

credit policy & procedures

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


Changes in soe corporate governance
Changes in SOE Corporate Governance international capital markets

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


BNDES international capital markets - The Brazilian Development Bank

www.bndes.gov.br

e-mail:[email protected]


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