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CAPITAL MARKETS

Brazil: Wanted: infrastructure bonds for long-term finance

Government loans to BNDES to be restricted; Tax breaks for long-tenor investors

In a coordinated series of announcements the Brazilian government has attempted to promote long-term private-sector financing. In the month before Dilma Rousseff assumed the presidency on January 1, her financial team sent clear signals that her administration aimed to have the private sector take a greater role in infrastructure projects.

At the end of November, finance minister Guido Mantega revealed that in 2011 the government would halve the loans it provides to state development bank BNDES, worth about $61 billion in 2010, whose loan advances at subsidized interest rates have been said to be blocking long-tenor private finance.

"Brazil now has projects that require financing for 20, 25, 30 years. It was necessary to take measures to make this long-term credit viable"

Guido Mantega

On December 15, Mantega also announced a range of measures to encourage private-sector development. "Big projects have come back," he said. "Brazil now has projects that require financing for 20, 25, 30 years. It was necessary to take measures to make this long-term credit viable."

The income tax on earnings from infrastructure bonds will be reduced or eliminated and the income tax on foreign investors buying corporate bonds with a tenor of more than four years will be scrapped – putting investors in corporate debt on the same tax footing as investors in sovereign bonds.

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