BNDES to repay Brazil Treasury debt with mix of cash, securities

November 23, 2016 1:54 PM EST

The headquarters of Brazilian Development Bank (BNDES) is pictured in Rio de Janeiro, Brazil, November 22, 2016. REUTERS/Sergio Moraes


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By Tatiana Bautzer and Rodrigo Viga Gaier

RIO DE JANEIRO (Reuters) - Brazil's state development bank BNDES plans to repay up to 100 billion reais ($29 billion) in loans owed to the federal government using a mix of cash and securities, Chief Executive Officer Maria Sílvia Bastos Marques said, a move that could help curb rapid public debt growth.

With the federal auditing court earlier on Wednesday ruling that the repayment is legal and the BNDES agreeing to repay the loans in full before the end of this year, the deal should help the government stem a budget deficit that could hit a record for a second year.

In an interview at the bank's Rio de Janeiro headquarters on Tuesday, Bastos said that BNDES would not use any of the 70 billion reais worth of equity holdings that it owns through investment arm BNDES Participações SA to fund the repayment.

"Brazil's first, second and third priority is fixing public finances," Bastos, 59, said. "We're doing our part."

Bastos had suggested in the interview that BNDES could accelerate the repayment of the loans - originally planned for three annual installments - if the government agreed to ease the bank's dividend payout to the Treasury. In the statement in which BNDES announced the early repayment, nothing about a change to payouts was mentioned.

She voiced agreement with Finance Minister Henrique Meirelles that the repayment should be used to cut Brazil's national debt, and not to help debt-laden states, as proposed by some ministers.

Since her appointment in May, Bastos has spearheaded the most ambitious turnaround of BNDES in two decades, reversing years of costly support for handpicked corporate 'national champions'.

She is imposing tougher terms for disbursements, asking BNDES-appointed board members to tighten scrutiny of decisions at major firms, and championing corporate transparency.

'MAKING PROGRESS'

"The bank has been affected by disputes and policies like the national champions for years ... We can't fix it all in one day, but we are making progress," Bastos said.

As part of that drive, Bastos said BNDES will disburse loans pegged to below-market interest rates mainly for projects that have "significant social impact," such as sanitation.

While details of the new disbursement policy will be announced next month, Bastos wants companies that can tap money elsewhere to consume less subsidized credit.

Since being founded in 1952, BNDES has been practically Brazil's sole source of long-term corporate funding - weakening public finances and squeezing commercial lenders out of capital markets.

Between 2009 and 2013, BNDES annually disbursed three times as much in loans as the World Bank. However, the end of a commodities boom and rampant government spending helped tip Brazil's economy into a painful recession now in its second year.

Bastos wants to dilute onerous local content requirements for loan approvals, with new guidelines announced in June. She also wants Congress to end legal secrecy on subsidized loans to corporations to enhance transparency.

Bastos is nearing a solution to a rise in defaulted airport operating licensees. BNDES is willing to discuss a request by the operators of Rio de Janeiro's international airport to ease license repayments over time.

The operators - Odebrecht SA and Singapore's Changi Airport Group - would pay smaller installments in the first years, gradually increasing as the end of the 25-year concession approaches. The accord hinges on regulatory approval, she said.

Bastos is also rethinking policies at BNDESPar, which has stakes or holds debt in 116 Brazilian companies. It has board seats on 45.

"We want to have more say in the companies' boards," said Eliane Lustosa, the bank's vice president for capital markets, in the same interview.

A first sign of this stance was BNDES' veto of meatpacker JBS SA's global reorganization last month.

Bastos said BNDES and BNDESPar need to analyze how to exit some equity stakes, which she believes are sometimes being held too long.

"We're a patient investor but patience has its limits," Bastos said. BNDESPar is Brazil's largest long-term holder of equity investments.

As part of a drive to promote capital markets, BNDESPar will hire a private asset manager to run some of BNDES's tax-exempt local debt holdings. The move could help boost the allure of the securities, Lustosa said.

($1 = 3.4092 reais)

(Editing by Guillermo Parra-Bernal and Bernard Orr)



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