Brazil, BNDES and Financing Infrastructure

1. Brazil, BNDES and Financing Infrastructure Wagner Bittencourt de Oliveira Vice-President

2. Agenda • 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

3. Agenda • 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

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. Expanding investment is a government priority Gross Fixed Capital Formation (% of GDP) Source: IBGE.

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. Sound macroeconomic framework: Inflation is under control CPI Inflation (IPCA index, % YoY) Source: Brazilian Central Bank and IBGE.

9. Sound macroeconomic framework: Strength of the external sector International Reserves (US$ billion) Source: Brazilian Central Bank

10. Increasing demand for infraestructure 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).

11. Agenda • 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

12. 2014-2017: very promising investment outlook Source: BNDES

13. Total Fixed Investment in Brazil may reach US$ 1.9 trillion in the coming 4 years (*) Investment Outlook for Brazil (2014-17) (U$ billion - Constant prices) (*) 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. Source: BNDES

14. Logistics Investment Program (PIL) will contribute decisively to raising Brazil’s GFCF Provisional estimates for GFCF (% GDP) Source: BNDES

15. Agenda • 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

16. BNDES: Among the most efficient development banks in the world • 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 • Main source of long term financing in Brazil 2012 (in US$ million) Source: Banks' balance sheets. We used the appropriate data to the IFRS (International Financial Reporting Standards). Source: BNDES

17. Increasing demand for resources Converted to US dollar on the disbursement dates Average growth of 22% in disbursements during the 2008 – 2012 period Source: BNDES

18. Diversified allocation of resources, keeping up with Brazil’s recent transformation Disbursement by Sector 2007-2013 (%) Disbursement by Region 2007-2013 (%) Source: BNDES

19. Support for large-scale firms, main actors in investment in Brazil... Disbursement per Company Size – 2007-2013 (%) Source: BNDES

20. ...but also financing MSMEs: important for job generation MSMEs 2007-2013 Source: BNDES

21. Export financing: Focus on capital goods and engineering services Exports: Pre and Post Shipment by destination 2008-2013 Africa Europe and Asia Acumulated in 12 months North America South and Central America In US$ billion Source: BNDES

22. Equity portfolio: institutional and strategic Equity Portfolio Portfolio Composition – sep/2013 Source: BNDES

23. BNDES’ infrastructure loans are firmly on the rise BNDES disbursements in Electricity and Logistics 2005-2013 U$ billion Source: BNDES

24. Government’s priority: disbursements to industry and innovation Industrial Policy Disbursements (Brasil Maior Plan) 2007-2013 US billion Disbursement to Innovation 2007-2013 US billion Source: BNDES

25. BNDES plays a key role in generating jobs

26. BNDES fosters investment that otherwise would not exist Non Supported 21% Supported 23% 10% 0% 5% 10% 15% 20% 25% 30% 35% Investment without BNDES Induced by BNDES 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).

27. BNDES: the same relative size, but Brazil´s credit market appears to be limited 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 BNDES KDB: Korea Development Bank; CDB: China Development Bank; KfW: KfW Bankengruppe (Germany).

28. Agenda • 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

29. Infrastructure Division Portfolio of projects Projects status: disbursing and under analysis

30. Infrastructure Division Annual Disbursement Eletric Power Industry Breakdown 34% p.a 40% p.a R$ billion Infrastructure Division Performance Forecast Transportation and Logistics Breakdown

31. Infrastructure Division Approvals between 2003 and 1st semester of 2013 Transportation and Logistics

32. Agenda • 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

33. Logistics Investment Program Highways (1/2) A snapshot of the brazilian road network Private Roads Federal States 4,774 km 69% 31% 10,680 km PIL will increase the current network toll road by near 50% • 9 road stretches • Totaling 7,000 km • Estimated investment US$ 23 bn

34. Logistics Investment Program Highways (2/2) Main Regulatory Aspects • 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. Ongoing feasibility studies Road Concession Auctioned (2013) Next Auctions

35. Logistics Investment Program Railroads (1/2) Current railroad network 12 Concessionaires (28,314 km) Cargo Volumes 76% iron ore Logistics Investment Program • 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: • the infrastructure manager and • the rolling stock operator

36. Logistics Investment Program Railroads (2/2) New Regulatory Model: open access The Concessionaire owns the right to exploit the railway. Valec (state-owned company) purchases the integrality of the operational capacity of the railway, and pays a tariff to the Concessionaire. 1 2 3 Valec sells the railway capacity to rolling stock operators, which can be a cargo owner, independent train/logistics operators, and rail concessionaires.

37. 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

38. Logistics Investment Program Airports (2/2) Authorization for private airports dedicated exclusively to general aviation. Investment in Regional Airports - US$ 3.6 billion in 270 regional airports. Concession of the two of the major international airports 3 2 1 • Strengthen and restructuring of Brazil's regional aviation network. • Regional airports will be managed through administrative PPP.

39. Logistics Investment Program Ports (1/2) New Port Law (no12,815/13) changed the Regulatory Framework Two ways for private exploitation of ports: • 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) • 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.

40. Logistics Investment Program Ports (2/2) Investment opportunities: R$ 54 billion RegulatoryAgency (ANTAQ) announcedthathasalreadyreceived 123 request for authorization, ofwhich: • 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;

41. Agenda • 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

42. Financing Infrastructure Stimulating bonds issuance • The size of the loan is calculated taking into account the project’s capacity of repayment. • Debt Service Coverage Ratio (DSCR) ≥ 1.2 • Instalments calculated using the Constant Amortization System • 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.

43. Financing Infrastructure Guarantees General Structure Loan Tenure • Debt service account (3 instalments) • Pledge of the SPC’ shares • Pledge of receivables and rights (including any indemnity payment) • Step in rights Post-Completion Pre-Completion • Corporate Guarantee • Bank Guarantee • Equity Support Agreement • Package of insurance • Operational and Financial Covenants

44. Financing Infrastructure Holdings and SPC’s • Brazilian Infrastructure Bonds and infrastructure investment funds – benefits for non-resident investors: • zero Income Tax rate • zero IOF (Financial Operation Tax) Bond Holding Equity Bond SPC 1 SPC 2 SPC N Equity Government Banks/Fundsmayco-investwithstrategicand financial investors, eitherdirectly in theSPC’sorthroughthe holding company’sequity, takingminorityequitystake

45. Financing Infrastructure Loan conditions Financial Conditions – Logistics Investment Program * * Limited to DSCR ≥ 1.2

46. Thank you!