BNDES fishes for funds

The Brazilian National Development Bank, the BNDES, is fishing for extra funds after recalculating its investment plans and projecting that it will lend as much as 15% more than expected for the 2008-11 period, as it seeks to step up lending in infrastructure. BNDES President Luciano Coutinho has been talking about growth of 10% in lending for infrastructure projects, focused on energy, communications, railways, ports and water and sanitation and the bank has already announced it needs an extra R$25 billion for next year. That has been spawning speculation about how the money will be found.

Some funding is likely to come from the Brazilian Treasury, the majority owner of the Rio de Janeiro-based banking institution. Minister of Finance Guido Mantega has said that additional funding for the BNDES may come in the guise of a sovereign fund, although he has not provided details on just what this would look like, and he has already scotched rumours that the Treasury would divert some $4-5 billion of its international reserves to fund the bank’s spending spree.

Much of the need for the hefty step-up in lending comes from growing government pressure on the BNDES to bankroll its ambitious infrastructure development plans. Infrastructure is at the heart of the Brazilian government’s mandate with the cherished growth acceleration programme (PAC). As the PAC plan has come under fire for falling short of its aims, the government has been pushing the bank harder. “The direction of the bank is really a political decision. Under the Lula government, the state developmental model is in charge,” according to Celina Vansetti-Hutchins, senior analyst at Moody’s. It’s not only the national bank but the respected national statistical institute, the IPEA, that is being brought to heel, she believes. The IPEA lost four economists who were known to have disagreements on the direction of the government’s economic policies.

The BNDS may be prepared to toe the government line more closely, but project finance experts say that the jury’s out on just how successful the BNDES will prove in providing funding for the infrastructure sector. They point out that the bank is hamstrung by the need for corporate guarantees, which particularly reduces their ability to lend during the construction phase of a project. It is increasingly facing competition from multilateral lenders including the International Finance Corporation (IFC) and the Inter-American Development Bank with only limited cooperation between the Brazilian bank and Washington institutions, at least for now. The Brazilian bank faces specific structural issues although it is making a determined effort to get to grips with project financing, says Silvana Bianco, manager of structured and corporate finance in the energy and infrastructure sector at WestLB. That means that although the BNDES is likely to work on energy and road projects, where its staff has experience, it will be hard pressed to operate in other areas where it is a newcomer, she notes.

At the same time, the BNDES is finding more competition in corporate funding. Interest rates have been falling, driving ever more companies to use banks and capital markets to obtain financing while multilaterals, again, have become more active in this segment. The IFC, for example, recently bought an 8% stake in Banco Fibra as well as lending the mid-sized bank $30 million near the time of the . bank’s IPO.

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