1 brazil, bndes and financing infrastructure wagner bittencourt de oliveira vice-president

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Brazil, BNDES and Financing Infrastructure

Wagner Bittencourt de OliveiraVice-President

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Part I: The Economy

Fundamentals of the Brazilian Economy Investment: current status and perspectives

Part II: BNDES

Part III: Financing of Infrastructure Projects

Infrastructure Division

Logistics Investment Program

Financing Infrastructure

Agenda

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Part I: The Economy


Part II: BNDES





Agenda

/ / 4

Brazil has solid fundamentals to sustain economic growth

Stable legal and institutional framework;

Social inclusion has driven the domestic market;

Healthy banking sector unexposed to troubled assets;

Robustness of the external sector;

Strong long-term planning;

Government is ready to foster growth:Fiscal and monetary instruments;Improved regulatory framework;Private sector partnerships.

/ / 5

Gross Fixed Capital Formation (% of GDP)

Expanding investment is a government priority

Source: IBGE.

14%

16%

18%

20%

22%

24%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

3Q/2

013*

17,5

%17

,5%

17,0

%15

,9%

16,5

%15

,0%

14,8

%14

,0%

14,2

%14

,6% 15

,5% 16

,7%

17,2

%17

,9% 18

,9%

19,0

%18

,0% 19

,1%

/ / 6

Increasing public sector investment

Public Sector Investment (% of GDP)

Source: IPEA.

/ / 7

Sound macroeconomic framework: Declining Net Public Debt/GDP

Consolidated Public Sector Net Debt (% of GDP)

Source: Brazilian Central Bank. *position on November 2013

/ / 8

CPI Inflation (IPCA index, % YoY)

Sound macroeconomic framework: Inflation is under control

Source: Brazilian Central Bank and IBGE.

/ / 9

International Reserves (US$ billion)

Sound macroeconomic framework: Strength of the external sector

Source: Brazilian Central Bank

/ / 10

Sources: National Agency for Civil Aviation (ANAC), National Agency for Aquatic Transportation (ANTAQ), Brazilian Association of Highway Concessionaires (ABCR) and Brasilian Association of Automative Vehicle Manufactures (ANFAVEA).

Increasing demand for infraestructure

/ / 11

Part I: The Economy


Part II: BNDES





Agenda

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2014-2017: very promising investment outlook

Source: BNDESSource: BNDES

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Total Fixed Investment in Brazil may reach US$ 1.9 trillion in the coming 4 years (*)

(*) Note: The BNDES research on the investment outlook for 2013-2016 covers 66% of the total industrial investments. and 100% of investments in infrastructure. totalizing about 58% of the investments in the economy (excluding residential construction). Agriculture and Services investments are based on queries to Sectorial entities and/or econometric forecast.

Investment Outlook for Brazil (2014-17) (U$ billion - Constant prices)

13

Sectors

2009-2012 2014-2017

Δ%

Industry 421.4 523.9 24.3

Infrastructure 194.4 242.7 24.8

Housing 338.6 413.1 22.0

Agriculture & Services 547.6 716.7 30.9

Total 1,502.0 1,896.3 26.3


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Provisional estimates for GFCF (% GDP)

19,1%19,4%

19,6%19,8%

20,2%

20,6%

19,1%

19,5%

20,1%

20,7%

21,5%

22,2%

18,5%

19,0%

19,5%

20,0%

20,5%

21,0%

21,5%

22,0%

22,5%

2013f 2014f 2015f 2016f 2017f 2018f

Without infrastructure concessions With infrastructure concessions

Logistics Investment Program (PIL) will contribute decisively to raising Brazil’s GFCF


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Part I: The Economy


Part II: BNDES





Agenda

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100% Public

Stable Funding (FAT)

2,853 employees

Instruments Direct Operations Indirect Operations MSME (financing and guarantee) Exports (Pre and Post shipment) Project finance Equity (Shareholding) Non-reimbursable Resources

BNDES: Among the most efficient development banks in the world

BNDES KFWGermany

CDBChina

KDBSouth Korea

Assets 367,825 657,347 1,191,597 147,067

Outstanding Loans 254,019 526,401 1,016,959 85,572

Net Profit 3,009 3,063 9,995 836

ROA (%) 0.90 0.47 0.92 0.50

NPL (%) 0.06 0.21 0.30 1.60

Foundation 1952 1948 1994 1954

Employees 2,853 5,190 8,038 na

2012 (in US$ million)


Source: Banks' balance sheets. We used the appropriate data to the IFRS (International Financial Reporting Standards).

Main source of long term financing in Brazil

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Increasing demand for resources

Converted to US dollar on the disbursement dates

Average growth of 22% in disbursements during the 2008 – 2012 periodSource: BNDESSource: BNDES

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Diversified allocation of resources, keeping up with Brazil’s recent transformation

Disbursement by Sector 2007-2013 (%)

Disbursement by Region 2007-2013 (%)


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Support for large-scale firms, main actors in investment in Brazil...

Disbursement per Company Size – 2007-2013 (%)


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MSMEs 2007-2013

...but also financing MSMEs: important for job generation


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-

0,5

1,0

1,5

2,0

2,5

3,0

. . . . .

2008 2009 2010 2011 2012 2013

Áfica

Europa e Ásia

América do Norte

América do Sul e Central

Export financing: Focus on capital goods and engineering services

Exports: Pre and Post Shipment by destination 2008-2013


Africa

Europe and Asia

North America

South and Central America

In U

S$ b

illio

n

Acumulated in 12 months

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sep/13 Estimated market value (US $ b.) 45.4Nº firms with direct support 203Nº Investment Funds 44

Equity portfolio: institutional and strategic

Portfolio Composition – sep/2013

Equity Portfolio


Oil & Gas, 47,4%

Mining, 17,5%

Electric power, 10,5%Pulp & Paper,

7,6%

Food & Beverage, 6,9%

Others, 10,1%

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BNDES’ infrastructure loans are firmly on the rise

BNDES disbursements in Electricity and Logistics 2005-2013

U$ billion


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Industrial Policy Disbursements (Brasil Maior Plan) 2007-2013

US billion

Industrial Policy Disbursements (Brasil Maior Plan) 2007-2013

US billion

Government’s priority: disbursements to industry and innovation

Disbursement to Innovation 2007-2013

US billion


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BNDES plays a key role in generating jobs

Estimated job creation or job upkeep associated with BNDES financing - 2007 to 2012 (in thousands)

1.156

1.618

2.225 2.245 2.376

3.178

1.978

2.841

4.460 4.356

4.843

5.871

2.536

5.033

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

2007 2008 2009 2010 2011 2012 2013

BNDES Disbursements Total InvestmentsSources: IBGE, MTE, FGV and BNDES. Elaborated by BNDES.

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BNDES fosters investment that otherwise would not exist

Growth in fixed assets of 3,000 industrial firms: supported x non-supported firms in 2010

Source: BNDES, based on SERASA data.

Sixteen published BNDES assessments between 2006 and 2013, of which 11 showed positive impacts, while five showed partial positive or less meaningful effects. Topics: employment, productivity, balance sheets, firm exports, effects on local governments and sectors (four of these made by BNDES staff).

23%

21%

10%

0% 5% 10% 15% 20% 25% 30% 35%

Supported

Non Supported

Investment without BNDES Induced by BNDES

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BNDES and other development banks in 2012 (Outstanding Loans/GDP and Outstanding Loans/Total Credit)

Source: Annual reports of the respective banks, IIF and Central Banks of the respective countries. Produced by BNDESKDB: Korea Development Bank; CDB: China Development Bank; KfW: KfW Bankengruppe (Germany).

BNDES: the same relative size, but Brazil´s credit market appears to be limited

7.4

11.3 12.415.5

4.6

21.0

8.0

12.7

KDB BNDES CDB KfW

Outstanding Loans/GDP Outstanding Loans/Total Credit

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Part I: The Economy


Part II: BNDES





Agenda

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Infrastructure Division Portfolio of projects

Projects status: disbursing and under analysisSector

Number of Projects

BNDES Credit Line R$ 000

Total Investment R$ 000

Generation 113 80,481,805 132,711,492

Transmision 57 11,983,113 23,493,635

Distribution 69 14,288,051 27,581,080

Subtotal 239 106,752,969 183,786,207

Roadways 31 14,820,309 27,026,849

Railways 13 10,581,296 31,830,684

Ports 26 9,304,263 18,853,977

Airports 6 6,224,992 9,861,837

Pipeline Transportation 1 4,101,400 8,690,000

Shipping industry 9 1,920,571 2,901,865

Terminals and Warehouses 13 517,986 736,449

Others 4 36,742 41,619

Subtotal 103 47,507,559 99,943,280

TOTAL 342 154,260,528 283,729,487

Electric Power Industry

Transportation and Logistics

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Infrastructure Division Annual Disbursement

37 9

16 1519

2528

3340

4450

0

10

20

30

40

50

60

0

10

20

30

40

50

60

2006 2008 2010 2012 2014E 2016E

Energy Power Industry

Transportation andLogistics 2

68

1312

14

1719

02468101214161820

0

4

8

12

16

20

2006 2007 2008 2009 2010 2011 2012 2013

GenerationTransmissionDistribution

1 1 1

3 3

5

7

9

012345678910

0

2

4

6

8

10

2006 2007 2008 2009 2010 2011 2012 2013

RailroadsToll roadsPortsAirportsOthers

Transportation and Logistics Breakdown

Eletric Power Industry Breakdown

Forecast

Infrastructure Division Performance

34% p.a

40% p.a

R$ billion

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Infrastructure Division Approvals between 2003 and 1st semester of 2013

Sector Installed CapacityNumber of Projects

BNDES Credit Line R$ 000

Total Investment R$ 000

Highways 5,064 km 40 14,792,293 26,635,253

Railways2,237 km, 15,212 wagons

and 227 locomotives28 14,096,989 30,211,077

Ports, Terminals and Warehouses

107,429,148 tons/annum 48 7,547,282 15,101,869

Airports 57 MM pax/annum 11 3,630,718 8,060,049

Shipping Industry 223 Ships 31 2,496,449 3,071,277

Pipeline 1,331 km 1 1,902,700 8,690,000

TOTAL 158 44,466,431 91,769,525

Transportation and Logistics

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Part I: The Economy


Part II: BNDES





Agenda

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Logistics Investment Program Highways (1/2)

A snapshot of the brazilian road network

31%

69%

FederalStates10,680 km

4,774 km

Private Roads

0

10

20

30

40

50

60

0,000

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Private Roads (Km)

Concessionaires

PIL will increase the current network toll road by near 50%

• 9 road stretches

• Totaling 7,000 km

• Estimated investment US$ 23 bn

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Logistics Investment Program Highways (2/2)

• Duplication works should take place within five years.• The EPL - Logistics and Planning Company (a state-owned company) is responsible

for obtaining environmental for duplication and improvement works.• Toll charging will be authorized after the completion of 10% of duplication works.

Main Regulatory Aspects

Road Concession Auctioned (2013)

Next AuctionsStretch Tariff

discount Bidders Km CAPEX(US$ bn)

BR-050 (GO/MG) 42,4% 8 436.6 1.15

BR-060/153/262 (DF/GO/MG) 52,0% 5 1,176.5 3.05

BR-163 (MT) 52,0% 7 850.9 2.35

BR-163 (MS) 52,7% 6 847.2 4.35

BR-040 (MG/GO/DF) 61,1% 8 936.8 3.35

Total 4,248.0 14.25

Stretch CAPEX(US$ bn)

BR-262 (ES/MG) 0.85

BR-101 (BA) 1.80

BR-153 (GO/TO)/TO-080 2.40

BR-116 (MG) 2.50

Total 7.55

Ongoing feasibility studies

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Logistics Investment Program Railroads (1/2)

Current railroad network

182 203 221 232 258 271 244278 291 298

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

billion tonne-km

11,738

10,283

4,207

1,674

412

ALL (4 stretches)

Vale (4 stretches)

Transnordestina

MRS

Others (2 stretches)

• 11,000 km railroad concession• 12 railroad stretches• 35-year term• Estimated investment: US$ 45.5 bn• Segregation of the system into two

separate private parties:

12 Concessionaires (28,314 km) Cargo Volumes

76% iron ore


(1) the infrastructure manager and

(2) the rolling stock operator

(1) the infrastructure manager and

(2) the rolling stock operator

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Logistics Investment Program Railroads (2/2)

New Regulatory Model: open access

Financing

Valec purchases 100% of the new rail capacity…

Financing

…and sells it to train operators through public tenders

Rail Infrastructure

Manager CargoOwner

►Guarantees the remuneration of the network administration

►Guarantees fair prices for rolling stock operators

Rail RollingStock Operator

The Concessionaire owns the right to exploit the railway.1

2Valec (state-owned company) purchases the integrality of the operational capacity of the railway, and pays a tariff to the Concessionaire.

3 Valec sells the railway capacity to rolling stock operators, which can be a cargo owner, independent train/logistics operators, and rail concessionaires.

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Logistics Investment Program Airports (1/2)

• Infraero (state-owned company) - responsible for the maintenance, operation and investment of 67* airports that accounted for 97% of the Brazil total passenger traffic.

Regulatory Model

* Before the auction of GRU, BSB, VCP, CNF and Galeão

1st Round (2012)Passenger

(Million)Winning bid (R$ billion)

Premium over the Minimum

Bid

Expected investment (R$ billion)

Concession Term

(years)

GUARULHOS (SP) 32.8 16.2 374% 5.2 20

VIRACOPOS (SP) 8.9 3.82 160% 8.7 30

BRASÍLIA (DF) 15.9 4.51 673% 2.8 25

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Logistics Investment Program Airports (2/2)

Concession of the two of the major international airports 1

Investment in Regional Airports - US$ 3.6 billion in 270 regional airports. 2

• Strengthen and restructuring of Brazil's regional aviation network.• Regional airports will be managed through administrative PPP.

Authorization for private airports dedicated exclusively to general aviation. 3

2nd Round (2013)Passenger

(Million)Winning bid (R$ billion)

Premium over the Minimum

Bid

Expected investment (R$ billion)

Concession Term

(years)

GALEÃO (RJ) 17.5 19.0 294% 2.8 25

CONFINS (MG) 10.4 1.82 66% 1.8 30

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Logistics Investment Program Ports (1/2)

New Port Law (no12,815/13) changed the Regulatory Framework

Two ways for private exploitation of ports:

(i) concessions (for terminals located inside public ports): need to be auctioned and must include: expiration date, renewal clauses, leasing fees and the restriction to hire workers from OGMO (Port Labor Management Body)

(ii) authorizations (for terminals located outside of public port zones, i.e. private ports): does not require a public auction, only an authorization. There were two types of authorizations: exclusively for handling owned cargo and both owned and third party.

New law (n.12,815)

Allowance of Authorizations (Private Ports) to Handle Third- Party Cargo

Private ports are now allowed to handle third-party cargo and thus to freely compete against concessionaires of public port terminals.

Obligation to Hire Workers from the Port Labor Management Agency (OGMO)

Only the concessionaires of public port terminals are obliged to hire workers from OGMO.

Renewal of Concession Contracts Signed before 1993

Government plans to re-auction these terminals under the new ports law. There are 94 terminal in this situation, mostly focused on liquid bulk cargo.

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Logistics Investment Program Ports (2/2)

Investment opportunities: R$ 54 billion

Regulatory Agency (ANTAQ) announced that has already received 123 request for

authorization, of which:

• 63 for port terminals - R$23.5bn investment• 44 trans-shipment terminals, amounting to R$1.6bn investment• 11 small-size terminals and • 5 touristic terminals

For public port concessions, the auctions will be divided into four blocks totaling R$27bn in

investments among 159 bidding processes:

• Block 1 (R$5,4 bn): 10 terminals in the Ports of Santos (R$ 2,0 bn) and 20 terminals in

the Ports of Pará (R$ 3,4 bn).• Block 2: 11 terminals in the Port of Paranaguá (R$ 2,8 bn) and 6 terminals in the ports of

Bahia.• Block 3: Ports of Suape, Itaqui and remaining North and Northeast terminals.• Block 4: Ports of Vitoria, Rio de Janeiro, Itaguai, Rio Grande and Sao Francisco do Sul;

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Part I: The Economy


Part II: BNDES





Agenda

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Financing InfrastructureStimulating bonds issuance

• The size of the loan is calculated taking into account the project’s

capacity of repayment.

• Instalments calculated using the Constant Amortization System

• Debt Service Coverage Ratio (DSCR) ≥ 1.2

• The amortization curve can be based on French Amortization

System (Price Table), in case the SPC issues bonds.• Collateral sharing.

• Repayment schedule of bonds customized according to the cash

flow generation of the project.

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Financing InfrastructureGuarantees

Loan Tenure

Pre-Completion

• Debt service account (3 instalments)• Pledge of the SPC’ shares• Pledge of receivables and rights (including any indemnity payment)• Step in rights

• Corporate Guarantee• Bank Guarantee• Equity Support Agreement• Package of insurance

Post-Completion

General Structure

• Operational and Financial Covenants

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Financing Infrastructure Holdings and SPC’s

HoldingHolding

Government Banks/Funds may co-invest with strategic and financial investors, either directly in the SPC’s or through the holding company’s equity, taking

minority equity stake

SPC 1SPC 1 SPC 2SPC 2 SPC NSPC NBond

Equity

Bond

Equity

Brazilian Infrastructure Bonds and infrastructure investment funds – benefits for non-resident investors: (i)zero Income Tax rate(ii)zero IOF (Financial Operation Tax)

Brazilian Infrastructure Bonds and infrastructure investment funds – benefits for non-resident investors: (i)zero Income Tax rate(ii)zero IOF (Financial Operation Tax)

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Financing InfrastructureLoan conditions

* Limited to DSCR ≥ 1.2

Financial Conditions – Logistics Investment Program

*Sector

Grace Period (up to - years)

Loan Tenure (years)

BNDES Credit*Financial

CostSpread (% p.a)

Toll Roads 5 25 70% 2.0

Airports 20 70% 0.9 + Risk rate

Ports up to 20 65% 2.5

Railroads 5 30 70% 1.0

TJLP 5.0% p.a

6 months after the conclusion of the

project

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Thank you!

1 brazil, bndes and financing infrastructure wagner bittencourt de oliveira vice-president

Documents

bndes slide

brazilian economy investment

infraestructure slide

brazilian central bank

economy fundamentals

total fixed investment

gdp source

external sector source