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12/09/2017 - 14:38hs

BNDES wants to attract Arab funds to Brazil

In an interview to ANBA, the president of the Brazilian Development Bank, Paulo Rabello de Castro, told about a trip to the Gulf seeking partnerships. He will give a lecture at the Arab Chamber, in São Paulo, on September 19.

São Paulo – The president of the Brazilian Development Bank (BNDES), Paulo Rabello de Castro, will give a lecture at the Arab Brazilian Chamber of Commerce, in São Paulo, on September 19. This Monday (11), he gave an exclusive interview to ANBA and went over some of the topics that he will discuss, such as the bank’s interest in attracting Arab funds to Brazil and the organization of a mission to the Gulf countries in November. He also talked about current issues facing the BNDES, such as the approval of the new Long Term Rate (TLP) by the Senate last week, which will replace the current Long Term Interest Rate (TJLP).

Sérgio Tomisaki/ANBA

The executive will propose the creation of joint investments funds

Castro plans to meet with representatives of funds of Arab nations and offer BNDES’s cooperation in the search for investment opportunities in Brazil and possible partnerships in ventures. “We will raise international funds by loans and eventually through partnerships with our own capital,” said the executive, who wants to propose for the Arabs to establish funds together with the Brazilian bank for investments in specific sectors.

He added that small and medium-sized businesses will receive the bank‘s attention from now on, including export and import operations. “This is one of the fields that the bank is best suited for and most interested in going forward,” he said.

The economist, who took over as president of BNDES in June, minimized the impact of the new TLP, scheduled to go into effect in 2018 and that can, in theory, make part of the bank’s loans more expensive. “The fact of the matter is that this new rate concerns only a limited part of the bank’s financing sources,” he said.

Returning from a trip to Asia, he also talked about the possibility of the government to ask for an early return of the funds loaned by the Treasury to the bank. “It’s a fact that the federal government will need rescuing, but the bank does not rescue either its clients or the government. What can eventually happen is for the bank to come up with a financial way of exchanging assets with the government,” he said. Here are the highlights of the interview:

ANBA – Were you in China?

Paulo Rabello de Castro – I was in China and Japan in an international mission, which was very good actually, we were able to see how they are acting abroad regarding the challenge of developing their respective countries and at the same time how much Brazilians owe themselves in terms of developing. BNDES has to be a collaborator in the next phase that is starting to take place with the transition government of president Michel Temer and which should bring positive innovations, as far as there is a political renewal in 2019 [when a new government will take over after the 2018 elections]. It’s a little bit in this sense that we plan to resume talks with the Arab countries, keeping in mind the high degree of complementarity of our interests.

You sir will give a lecture at the Arab Chamber on September 19. Can you go into a little of what you will say?

Sérgio Tomisaki/ANBA

The BNDES president wants trade with the Arabs to start growing again

We won’t reinvent the wheel, but we’ll establish two crucial things: the first, as I said before, is that there are institutional and natural complementarities between Brazil and the Arab countries, as well as financial ones, that are currently being approached in an insufficient way. And the second thing is the realization that culturally, Brazil and the Arab countries are very close in institutional and ethnic terms, but just like in the first case, this is being underexplored. 

One can look to the trade balance, which expanded a lot from 2007 to 2012, but from then on it has been growing as a “horse’s tail”, which means to say that it basically stagnated; and since 2015, to a great extent due to Brazil itself, trade started moving backwards, and that should be the focus of an immediate reaction. The presence of BNDES at the Arab Chamber and in this future mission [to Arab countries] is intended to achieve this reaction.

And what can BNDES do in this regard?

First, BNDES is maybe the greatest expert on investment opportunities in Brazil, and more than this, we are a good at gauging the risk of investing in the country, so I envision the possibility of growing financial cooperation among the Arab investment funds and BNDES.

In a lot of cases, BNDES can be more than an intermediary; it can be a partner in these investments, since, within the new approach that BNDES will have from 2018 on, we will be Brazil’s bank for international funds before anything else.

That is, you will raise funds from abroad…

We will raise international funds via loans and eventually through partnerships involving our own capital. Actually, even more than today, we will have the same vision of the international funds and the same risk orientation. In other words, BNDES will cultivate a vision that doesn’t differ in anything from the vision of an international fund that comes searching for opportunities in Brazil, the only difference being that BNDES has the “pretension” of thinking it knows more about this country called Brazil.

The mission that you plan to organize is to the Gulf region?

Initially to the Gulf region, which obviously involves some obvious destinations, namely the United Arab Emirates, Saudi Arabia, Qatar and Kuwait, but after that we plan to expand to North Africa, so we can approach Algeria, Libya and Morocco.

What fields might be the most interesting investment targets for these funds?

Sérgio Tomisaki/ANBA

For Castro, the bank is the greatest expert in opportunities in Brazil

The money-making field! That’s the answer. Our approach is usually to identify fields of interest beforehand, and the obvious answers are: the food industry, real estate – to name a couple – but this approach isn’t about one specific thing, it’s about all opportunities for Arab capital to join forces with BNDES capital.

That’s why I’m anticipating the possibility of developing a kind of “funds’ fund,” controlled by the BNDES, containing capital from the BNDES and three or four funds, perhaps five or six that want to look into specific projects together.

Do you plan on offering specific projects or simply conveying the bigger picture?

We’ll first give an overview of our work plan in this technical mission, to get the conversation going, but for the mission that I’d like the president himself to join – because he confided to me that he’s interested during our trip to China –, we could have a business forum, like the one we had in Beijing, a meeting of would-be Arab and Brazilian players, both in exports and imports, but as I said the main export product that Arab countries have is capital; not oil, not fertilizers or anything else.

One thing they are very much interested in is agriculture and food security, and not only in exporting but in investing as well.

We will be sure to explore that, we’ll sure explore it as a priority. What I do not want is for our approach to be confined to this sector, important as it may be. We must take an innovative approach, because the way I see it, there’s a lack of a vehicle to develop these investments. Ok, so we’ve ascertained that foodstuffs are a strategic field, but what then? How do we go about investing?

Is the BNDES that vehicle?

The vehicles are funds that BNDES is part of, occasionally as a manager. But does the BNDES usually do this? The answer is no, this is a new thing to the BNDES as well.

Can this initiative come out of whatever comes up in these talks [with Arab funds]?

It can come out of this approaching of Arab capital, but not from any other capital. When it comes specifically to creating investment funds, the Arab countries are more well organized and have a greater complementarity.

A third field we’ll probably explore on our trip as a potential target for immediate investment is Arab investment in some funds to be created with stakes we own in major Brazilian companies. We own stakes in JBS (food), Fibria (wood pulp), Suzano (wood pulp), Petrobras (oil), Totvs (TI), BRF (food), the list goes on and on. You can create a “Brazil fund” and it might have a certain behavior that will interest these investors.

 When you mentioned the bank’s having a more international profile when it comes to risk assessments...

 I meant the assessment of the risks it itself takes.

 ...yes, and of where to put money in, what should be the effect of that? Does that include, for instance, creating the TLP rate?

Not to rain on anyone’s parade or take away from the joy that some of the players on the market derived from the TLP’s approval, the fact of the matter is that this new rate concerns only a limited part of the bank’s financing sources, which is the FAT (Fundo de Amparo ao Trabalhador, the workers support fund). Only we haven’t asked the “Russians” (the FAT), as we call them, whether they agree with this remuneration scheme or not, because it could be that they’ll agree with a different remuneration scheme, which is still being worked out, since a contract is being worked on between the BNDES and the FAT.

Sérgio Tomisaki/ANBA

Controversy surrounding the TLP is a lot of noise for nothing, says Castro

This new marriage will determine what remuneration will look like for resources that are said to be from the budget but really aren’t; they are constitutional, because they originate from a constitutional clause that allocates to the BNDES 40% of resources from the PIS/Pasep (Programa de Integração Social/ Programa de Formação do Patrimônio do Servidor Público, the social security programs for the general public and for government employees), which get allocated to the benefit of workers via investment made by the BNDES. The BNDES does not keep these resources, it navigates the economic environment with them, it remunerates these resources and returns them to the FAT. Today, it returns them at a prefixed rate that’s being changed; tomorrow, I might return these resources with some other type of remuneration that’s agreed upon by the BNDES and the FAT. In that sense, workers really do partake of BNDES’ capital. In other words: if the BNDES is to have an owner, more so than the federal government, it’s the workers in the collective sense, and this is what must be discussed anew in our current scenario of reforms.

I would say that what with all this joy about this TLP having been approved, the debate became restricted to a formula that allegedly minimized an incentive rate.

So if for instance you were to get resources from a fund in an Arab country...

In that case I’m completely out of the bounds of the TLP. I might get the resources in foreign currency and take the foreign-exchange related risk myself, or I might exchange those resources for real (Brazilian currency) and make loans denominated in real.

You are not obliged to use the TLP?

No. That’s why I’m saying this is a lot of noise for nothing. What is the sole message that the TLP conveys? It’s basically: forget the federal government as a source of financing going forward. Ok, not only we’re sure of that, we’re also being called on to contribute financially with the federal government.

It’s a fact that the federal government will need rescuing, but the bank does not rescue either its clients or the government. What can eventually happen is for the bank to come up with a financial way of exchanging assets with the government; the government provides an asset of some sort and we hold on to it.

But can it be that the bank may have to provide resources to the Treasury ahead of due time?

To give loans back? That’s a complicated thing. When we obtained funds via loans, we did it for a very simple reason: to invest them on the market at long or very long terms, and these funds are invested. How can I give back funds that are invested? In Currency and Banking classes, this is usually called a bank run, and we can’t imagine that the federal government would launch a bank run on the BNDES. It’s very important to know that if the bank has funds today, there’s only one reason, which by the way we take much pride on: throughout its 65 years, the bank never considered asking for help from its sole shareholder, which is the federal government. We’ve never asked for help from the government or anyone else. We’re a bank that’s worthy of its name. Secondly, if today we have more cash on our hands than provided for in our financial planning, the only reason is the depth of recession in Brazil – which fortunately we’re now leaving behind –, which means to say that these funds will be used up over the next months and years, but this cash does not mean we haven’t invested the funds we obtained.

Wasn’t there any demand?

There was no demand in 2015, 2016 and 2017, and that was enough to make the level of successful amortizations that are taking place exceed that of new loans. This means there’s some cash in our hands, but no one can look greedily upon this cash like it’s permanently available. This is why, although we may even make an exchange, we cannot simply return the funds as if they were permanently idle.

Broadly speaking, do you think the demand for loans will increase, despite the exchange rate switch?

As I said before, the interest rate has switched only in people’s minds, in investors’ minds, and it scared them about something that will probably never happen, which is for them to have to deal in TLP terms. The TLP will be rolled out in a very gradual way over the next five years, so this “supposed” TLP will be a reality only in 2022. In 2022, we’ll go back to discussing the TLP. Until then, I imagine a lot of water will have gone under the bridge.

What’s crucial for the bank today is to envision Brazil in 2019, to envision a configuration for this country that needs to get growing again, to help create jobs by the millions, to help support small and medium business which are major job creators, to enable access to credit – which is a very distorted thing in this country, because these companies are exactly the ones with no access to credit. And within this context, to increase the bank’s funding sources with an international perspective. Here we go back to our bank going on a mission to the Arab countries, because if we’re talking about capital, we need to talk about Arab countries.

When it comes to financing exports, the Arab Chamber has member companies of many different sizes, big and small. What does a small business owner do when in need of support to export?

This is one of the fields that the bank is best suited for and most interested in going forward. Besides putting emphasis on small and medium businesses, we want to put emphasis on small and medium exporting businesses, and possibly even in importation. Our so-called post-shipping [pós-embarque] credit lines are very important in this regard, and we may even emphasize different things for different segments or niches that might come up.

Recently, for instance, a “Brazil-China Fund” was established, and right now it’s looking precisely to identify the first companies, both in China and Brazil, that are interested in selling goods or exchange capital from one country to the other. Why not consider a similar fund involving Brazil and whatever Arab countries are interested? Unlike the Brazil-China Fund, this one could grow into a significant size very quick.

Quick facts

Lecture by Paulo Rabello de Castro, BNDES president

Tuesday, 19, 8pm at the Arab Brazilian Chamber

Avenida Paulista, 283, 11th floor, Bela Vista, São Paulo, SP

Members and guests only

For more information please call

Phone +55 (11) 3145-3277, c/o Tâmara Machado

Email: marketing@ccab.org.br

*Translated by Gabriel Pomerancblum

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