|BNDES: a negligent agent? – Part I|
It's important to rethink the institution's role in the development of best practices
Since it was founded in 1952, the Brazilian Development Bank (BNDES) has been the main long-term investment financier in the Brazilian corporate environment. The bank had displayed many unquestionable merits during its trajectory. Recently, it was one of the main agents responsible for credit maintenance and expansion in the months that followed the global financial crisis, beginning in September 2008. According to the institution's calculations, the BNDES contributed with 36% of the increase in financing operations during that period. Its operations also enabled the maintenance and/or creation of over 3 million jobs in 2009.
The bank presents impressive numbers. Last year, it spent R$ 137.4 billion (around US$ 77 billion), three times more than the total sum spent by the Inter-American Development Bank (BID) and the International Finance Corporation (IFC), a branch of the World Bank, which together spent US$ 25 billion in 2009. BNDES's total assets, adding up to R$ 386 billion (around US$ 217 billion), are approximately twice as much as the total amount held by BID (US$ 84 billion) and the IFC (US$ 51 billion). In fact, this scenario puts it closer to the International Monetary Fund (IMF, with about US$ 340 billion) than to these institutions.
Such enormous proportions raises questions about the economic legality of the investments made and the BNDES's impact on governance quality within its target companies. To analyze these questions in depth, this article is divided into two parts. The first part is provided below and the second will be in this column's next issue, to be published in June.
It is important to remember that the BNDES lends resources at a subsidized cost, essentially through taxpayers (using funds from the National Treasury) and through workers (using the Workers' Support Fund — FAT). In 2009, for example, the government transferred R$ 100 billion to the bank under the long-term interest rate (TJLP), which is lower than Selic (the rate paid by the government to finance public debt). On the other hand, those who most benefit from these resources are large companies, usually ones with better credit risk and a higher probability of raising funds through the market. According to the bank, 83% of outlays in 2009 were directed to large companies. The fact that these companies´ financing was subsidized by mostly low-income workers attracted the magazine The Economist’s attention in its report on Brazil in late 2009. At that time, the publication criticized the initiative, calling it fundamentally unfair.
The following graph reveals the BNDES's significance in the Brazilian market. The bars indicate the origin of the long term funds raised in the Brazilian market from 2000 to 2009; the line reveals the percentage of long term funds from the BNDES vs. the total raised by companies in the capital market. As shown in the graph, after a relative descending trajectory starting in 2003, the BNDES was once again the main long term funding source in 2008, reaching almost three quarters of the total in 2009.
There is no clear evidence, from an academic point of view, of any positive impacts by the BNDES on corporate governance in Brazil. However, an analysis of its public information and recent credit or shareholding operations does not indicate that the bank has been effectively inducing elevated governance standards.
The BNDES also operates as a shareholder and debenture holder, through its subsidiary BNDESPar. In this field, its numbers are also striking. By the end of 2009, it held securities issued by 198 corporations (including shares from 155 companies) and shares in 31 funds. Apart from that, it had representatives on 24 boards of directors and was part of the shareholder agreement at 62 companies.
An average of 74% of the bank's stock market investments (estimated around R$ 93 billion in market value, at the end of 2009) was concentrated in 11 companies: Eletrobras, JBS, Vale, Valepar, Fibria, Copel, Brasiliana, Telemar Participações, Petrobras, Banco do Brasil and Marfrig. Besides those, the BNDESPar held a significant amount of shares in 24 other companies: ALL Logistica, Bom Gosto, Bradesco, Brasil Telecom Participações, Braskem, Brenco, BRF Foods, CEG, Cesp, Coteminas, CPFL Energia, CSN, Embraer, Gerdau, Itau Holding, Klabin, Light, LLX, MPX, Ouro Fino, Paranapanema, Rede Energia, Tele Norte Leste Participações and Rio Polímeros.
A governance standards analysis on the 35 companies where BNDESPar holds an interest reinforces the theory that the bank does not pay enough attention to the matter. Only nine of these companies are listed on the Novo Mercado. An average governance score analysis was performed, based on the scoring developed for The Best Companies for Shareholders ranking by CAPITAL ABERTO, released last October. It revealed that the companies in which BNDESPar invests scored very similarly to the other, previously scored companies. Once again, this reveals that the bank does not promote higher governance standards.
The group of target companies also includes some companies that recently ran into trouble for management practices, such as Fibria (speculative derivatives) and Copel (problems with minority shareholders regarding decisions made by the controller that were harmful to the company's profitability). The group also includes companies that refused to abide by the management compensation disclosure requirements set forth by CVM Instruction 480. They include Brasil Telecom, CPFL Energia, CSN, Klabin, Gerdau and Vale. Fibria's case is emblematic. BNDESPar is the largest single shareholder, with 33.6%. Still, the company chose not to disclose information regarding compensation, going against the CVM's best governance practices and standards.
Finally, BNDESPar has approximately R$ 6 billion invested in debentures, with 87% of the money concentrated in nine companies: Metalúrgica Gerdau, Vale, AG Telecom, LF Tel, Lupatech, ALL Logística, Suzano Papel Celulose, Gasmig and Votorantim Industrial. Of these, only one (Lupatech) is part of the Bovespa's highest listing tier.