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)

Verticalization and diversification of SOEs

Bankrupt private companies
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
Sector
Number of
Companies
Steel
Proceeds
Debts
Transferred
Total
8
5,562
2,626
8,188
27
2,699
1,003
3,702
Railroads
7
1,697
-
1,697
Mining
2
3,305
3,559
6,864
26
26,978
2,125
29,103
Power
3
3,909
1,670
5,579
Others
18
1,472
343
1,815
-
1,102
-
1,102
Federal-level
91
46,724
11,326
58,050
State-level
34
26,172
6,592
32,764
125
72,896
17,918
90,814
Petrochemicals
Telecom
Minority shareholdings
Total
On February 18, 2000
PND institutional structure
Support

Ministers responsible
for the companies

Monetary Council

Brazilian Central Bank
Inspection, control
and follow-up
Decision
President of the Republic

Federal Audit Court

House of
Representatives
Privatization Subcommittee

External auditors
Privatization Council
Management
BNDES
Evaluation
External consultants
PND privatization process
Inclusion in PND
Tenders for consulting
Consultant A
Financial and
economic
valuation
Consultant B
Financial and economic
valuation, special auditing,
assets and legal appraisal
Sale model &
financial
adjustments
Minimum price
Call for
tenders
Auction / Offers
Privatization
Council - CND
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

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
 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
60
Energy - Intermediate inputs - Consumer
goods
70
Import substitution of intermediate and
capital goods
80
Private industry and agribusiness
90
Private infrastructure and exports
Management of privatization process
2
BNDES total disbursements
US$ billion
16,5
9,6
1995
16,5
11,8
1996
11,1
1997
2.000 forecast : US$ 13.3 billion
1998
1999
Private sector share (%)
Loan Portfolio
Disbursements
73%
90%
96%
1998
1999
59%
1997
1998
74%
1999
78%
1997
BNDES group structure
BNDES
Finances long-term
investment
BNDESPAR
Equity participation
FINAME
Finances capital
goods purchases and
foreign trade
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
Operations cycle
BNDESPAR
recycling
Investment
Monitoring
Divestment
funding
interest and dividends
BNDES
pay debt
Investment highlights
• Always minority stakes of temporary nature
• Valuation is based on each firm’s
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
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
Key BNDESPAR Figures
US$ billion
Dec-98
Total Assets
Dec-99 Jun-00
12.8
11.6
11.6
Net Worth
7.7
5.4
5.6
Market Value
6.9
11.2
10.4
Stocks, funds & bonuses
4.6
9.1
8.3
Convertibles
2.3
2.1
2.0
Investment
3.7
3.2
.3
Divestment
3.9
.6
2.2
Number of Companies
214
197
191
Net Profit (US$ million)
510
366
246
BNDES 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 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
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 - The Brazilian Development Bank
www.bndes.gov.br
e-mail: financia@bndes.gov.br