Brazil's Billionaires Got Cheap State Bank Loans for Their Companies

Luciano Coutinho, president of the Brazil National Development Bank (BNDES), speaks during the Institute of International Finance Annual Membership Meeting in Washington, D.C., U.S., on Friday, Oct. 11, 2013. The meeting will provide an overview and several perspectives on the macroeconomic environment as well as the prospects ahead for the global economy. Photographer: Pete Marovich/Bloomberg *** Local Caption *** Luciano Coutinho
Luciano Coutinho, president of the Brazil National Development Bank (BNDES), speaks during the Institute of International Finance Annual Membership Meeting in Washington, D.C., U.S., on Friday, Oct. 11, 2013. The meeting will provide an overview and several perspectives on the macroeconomic environment as well as the prospects ahead for the global economy. Photographer: Pete Marovich/Bloomberg *** Local Caption *** Luciano Coutinho

Brazil’s state development bank has been quietly supporting the companies controlled by many of the country’s billionaires.

More than two dozen of Brazil’s wealthiest people have stakes in companies that received loans or investments from the bank, with most of those who took loans receiving below-market rates at least once. That includes most of the Brazilians on the Bloomberg Billionaires Index.

Details of the bank’s lending -- 320 billion reais ($102 billion) in Brazil since 2012, as well as $11.9 billion for loans abroad since 2007 -- were released last week, amid growing pressure to open its books.

The bank’s financial ties to Brazil’s big companies, many of which are often top campaign donors, is pitting President Dilma Rousseff against the nation’s highest court. Brazil’s Supreme Court is calling for more transparency even as Rousseff vetoed a proposal to end bank secrecy rules that conceal the lender’s business.

Brazil's state development bank funds both domestic and foreign projects for the companies held by some of Brazil's richest
Brazil's state development bank funds both domestic and foreign projects for the companies held by some of Brazil's richest

“BNDES subsidies to big groups didn’t necessarily lead to higher investment or performance in more recent years,” said Sergio Lazzarini, professor at Sao Paulo-based business school Insper and co-author of a book on the development bank. “By exposing firm-level data, BNDES will now have to better justify why the bank supported a particular firm and at which cost.”

The bank said in an e-mailed response that its loans and investments are aimed at creating Brazilian jobs, not supporting wealthy individuals. New rules are aimed at shifting large companies, which account for about two-thirds of the bank’s lending, away from BNDES loans by offering them incentives to also issue local bonds.

Preliminary Inquiry

A court ruling on May 25 required the Treasury-owned bank to provide government auditors with details of its financial relationship with the world’s biggest meat producer, JBS SA, which is controlled by five billionaire children of founder Jose Batista Sobrinho.

A corruption scandal at state oil company Petrobras also has put pressure on BNDES to boost transparency of its loans to contractors cited in the investigation. Prosecutors last month opened a preliminary inquiry into whether ex-President Luiz Inacio Lula da Silva used his connections to persuade BNDES to provide loans for conglomerate Odebrecht SA’s projects in other countries including Cuba, where BNDES rates were as low as 4.4 percent. Lula, BNDES and Odebrecht have denied wrongdoing.

The 25 billion reais that taxpayers contribute annually to pay for loan subsidies at BNDES is about the same cost of the country’s Bolsa Familia welfare program, according to Insper’s Lazzarini. BNDES also has faced scrutiny for giving loans to companies that are building infrastructure abroad rather than at home.

Below-Market Rates

Founded in 1952 to develop Brazil’s industry and infrastructure and buffer against crises, BNDES’s role has evolved to include support for exports, according to its website. Under BNDES President Luciano Coutinho, Rousseff’s former professor, the 62-year-old bank countered slowing growth with a credit boom largely funded by taxpayers. The Treasury has lent more than 400 billion reais since 2008 to BNDES, according to Fabio Klein, analyst for Tendencias Consultoria in Sao Paulo.

Most of the billionaires whose companies took BNDES loans in Brazil received a below-market rate on at least part of the financing, according to data compiled by Bloomberg from the bank information released June 2. While BNDES didn’t specify which loans are subsidized, below-market rates can imply subsidies.

Local Bonds

Votorantim Cimentos SA secured a four-year multi-tranche loan with rates as low as 3 percent in 2013 -- one-third the borrowing cost of similar-maturity local bonds the company issued that year. Owned by the billionaire Ermirio de Moraes family, Votorantim’s steel and metals units also received rates as low as 3 percent for loans totaling 560 million reais.

Separately, BNDES lent 1.2 billion reais to the group’s paper company and owns a 30 percent stake. Family members Ermirio Pereira de Moreas and Maria Helena Moraes Scripilliti each have fortunes worth $4.9 billion. A Votorantim spokesman declined to comment.

Brazil’s richest man, Jorge Paulo Lemann, has an interest in retailer Lojas Americanas SA, which received a 1.2 billion reais loan in March 2014. He shares control of Lojas with partners Carlos Sicupira and Marcel Telles, Brazil’s third- and fourth-wealthiest people, according to the Bloomberg index.

Billionaire Abilio Diniz has a $635 million stake in food retailer BRF SA. It received a three-year loan for 812 million reais in 2012 at a rate of 2.5 percent. Diniz, the chairman, invested in BRF in 2013. The company in April approved plans to take more BNDES debt. A spokesman said BRF’s BNDES loans are only 3 percent of its total debt.

Innovation, Research

Globo, the media empire controlled by three billionaire sons of founder Roberto Marinho, received a capital injection for its cable unit from the bank when it was in financial trouble in 2002. It hasn’t received any support since then.

Other billionaire-held companies that received BNDES lending include the Camargo family’s Camargo Correa SA, Jorge Moll’s Rede D’Or Sao Luiz, Jose Luis Cutrale’s Sucocitrico Cutrale, Carlos Sanchez’s EMS, Miguel Krigsner’s Grupo Boticario, Nevaldo Rocha’s Lojas Riachuelo SA, and Antonio Luiz Seabra’s Natura Cosmeticos SA, according to the bank’s website.

Spokesmen for EMS and Natura said the loans support their innovation and research. A Boticario spokeswoman said the loans supported small entrepreneurs by financing its franchising expansion. A Rede D’Or spokeswoman said the loans are 3 percent of its debt. The other companies declined to comment.

While most of the billionaires’ companies received loans below the market rate, the loans for Lojas Americanas and Rede D’Or were at a spread above the benchmark Selic rate.

‘No Secrets’

Rousseff, whose second four-year term began in January, appointed cost-cutting Finance Minister Joaquim Levy in December to avoid further downgrades after a state bank lending binge contributed to ratings cuts. BNDES disbursements peaked at 190 billion reais in 2013 before dropping to 188 billion last year.

Supreme Court Judge Luiz Fux said in his decision on May 25 that there are “no secrets” for those who contract BNDES loans. BNDES’s Coutinho told reporters on June 2 in Brasilia he is working on ways to open up without violating rules on banking secrecy or hurting competitiveness of clients.

“We are determining how to improve transparency of the information without hurting commercial strategies of companies involved,” he said.

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