Infrastructure: BNDES concentrates 89& of its investments in five industries; three relate to the Brazilian infrastructure.

BNDESPar concentrates 89% of its investments in five industries

By Fernando Torres and Francisco Góes São Paulo and Rio de Janeiro
In the last ten years, BNDESPar, the investment arm of the Brazilian Development Bank (BNDES), increased the concentration of its money allocations. A study conducted by Valor shows that the oil and gas, mining and power industries, which accounted for 54% of BNDESPar’s portfolio in 2002, jumped to a 75% share in 2012. The study is based on information released in financial statements over the last 11 years and took into account direct and indirect stakes in publicly traded companies.
If two other sectors — food and pulp and paper — are included, concentration rises to 89% of the total portfolio. In financial terms, this means that of R$74.5 billion the company had invested at the end of 2012, R$66.3 billion were allocated in only five industries, with R$8.2 billion spread among all others.
Concentration increased not only because of strong gains in Petrobras and Vale share prices in good part of the last decade, but also because of new injections in those two companies and in others from those sectors, including power concerns Eletrobras, CPFL and MPX and oil company OGX more recently.
BNDESPar director Julio Raimundo
BNDESPar’s investment portfolio rose more than fourfold between 2002 and 2012, to R$74.5 billion from R$16.2 billion, considering its stakes’ market value. Growth aside, there’s a significant decline since its peak, at the end of 2010, when the portfolio was valued at R$102 billion.
Such decline from the peak is explained both by falls in stock prices, with R$10.8 billion represented only by the drop in Petrobras share prices, and by stock sales, either directly on the market or as a R$6 billion transfer to state-controlled bank Caixa Econômica Federal at the end of 2012.
An industry analysis of BNDESPar’s portfolio also allows one to notice that the telecommunications sector, which in 2002 accounted for 11% of the total, now represents less than 1% of investments.
Out were telecoms, in were food companies, with meat processors standing out. Today represented by JBS, Marfrig, BRF and Vigor (dairy company recently split up from JBS), the food industry wasn’t even showing in the 2002 portfolio, but at the end of 2012 it account for 6% of total investment. LBR, another dairy company, is not included because, aside from not being publicly traded, it was written off for the expectation that its investment will not be recovered.
An industry that despite highs and lows over the 11 years always had a relevant share in BNDESPar’s portfolio was the pulp and paper one, which closed last year accounting for 8% of total investments. In 2002, it accounted for 10%.
It’s curious to note that none of these five most-representative industries — oil and gas, mining, power, food and pulp and paper — is among the sectors elected as priority in the industrial policy announced by the administration of former President Luiz Inácio Lula da Silva, which listed capital goods, software and pharmaceuticals, along with innovation-related projects, as the country’s preferred ones.
This criterion tends to be followed in investments made by BNDESPar in emerging companies, such as the ones by seed-capital fund Criatec, which has a formal selection process. But the big capital injections, defined by another department at the bank, follow another policy, not always clear.
Looking at individual companies, the ten largest investments amount to 85% of the portfolio: Petrobras and Vale account for 60% of the total, whereas pulp producer Fibria, JBS, Brasiliana (holding company of power utilities Eletropaulo and AES Tietê), power companies Copel, CPFL, CEG and Eletrobras and pulp and paper manufacturer Suzano respond for another 25%.
Excluding Petrobras, Vale and Eletrobras, the top 20 individual investments represent 85% of the portfolio. Along with the companies already mentioned, the list includes paper manufacturer Klabin, foundry Tupy, steelmakers Gerdau and CSN, logistic concerns ALL and Ecorodovias, power companies MPX, Light and Cemig, airplane maker Embraer, food producer Marfrig and telecommunications company Oi.
And where does BNDESPar’s money come from? In addition to funds from sales of appreciated stocks, the state firm got from BNDES, between 2007 and 2012, R$50 billion to increase its capital, which ended last year at R$60 billion.
BNDES, for its part, has as funding sources both infusions from the federal government and money from FAT and PIS, social programs funded by payroll taxes, and also more recently directly from the Treasury, which injected more than R$350 billion in the development bank since 2007.
BNDESPar gained weight as the international crisis was more acute. Between 2002 and 2007, the company’s equity was practically stable, at about R$10 billion. In 2008 and 2009, it got an R$20 billion injection, and since then it got another R$30 billion.
The largest amount invested in a single company was in 2010, when Petrobras had its big capitalization. The government injected R$22 billion for BNDESPar to use the money purchasing shares in the state-owned oil company’s public offering. Petrobras then used the proceeds to help in the purchase of 5 million barrels of pre-salt oil (at a total R$71 billion), with the money returning to the National Treasury.
BNDESPar director Julio Raimundo said that portfolio variations reflect the capital-intensive nature of some industries, such as oil and gas, mining, pulp and paper and steelmaking. He also said that the greater investment concentration in some industries is due to stock-price rises and capital injections made by the government, among them the R$22.4 billion transferred by the Treasury to invest in Petrobras’s capital increase in 2010. “Despite the concentration, which could lead to the false conclusion that BNDES is reproducing a certain standard of the Brazilian economy’s compartmentalization, it’s important to verify [BNDESPar] moves with lower values, but representative in portfolio terms,” Mr. Raimundo says. 
As an example of those moves, he cites the case of the information technology industry. He said that of the four Brazilian companies in the industry that are publicly listed, three – Totvs, Linx and Bematech – have the BNDES “footprint.” But he admitted that “unfortunately, the [IT] industry [in Brazil] still doesn’t have the importance in capital-market terms that it has in more developed economies.”
Criticism to portfolio concentration would be more valid, Mr. Raimundo said, if Brazil faced an intrinsic and even cultural situation where capital markets have several technology companies that don’t count on BNDES support. “The history we’re writing, and I’m sure will become clearer in the future, is that technology companies that sought the stock-market path have the BNDES footprint,” Mr. Raimundo says.
The executive says the trend is banks increasing their portfolio exposure to riskier industries such as those involving technology or intangible assets, for instance. He says that in 2012 alone, BNDESPar made ten new direct investments in companies focused on clean technology and innovation. The amount invested in those deals was R$1.9 billion. Also last year, the bank injected R$882 million in share subscription deals from three pulp and animal protein companies (Fibria, Suzano and Marfrig), as well as a Contax bond issue.

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