Brazil Development Bank’s $29 Billion Divestment Push at Risk as Runoff Nears

Jair Bolsonaro oversaw a dramatic shrinking of the state development bank, known as BNDES, which at one point was bigger than the World Bank

The shrinking of BNDES was a core tenet of the current government, and a reversal of previous policy under Lula and his allies.
By Vinícius Andrade and Martha Beck
October 21, 2022 | 08:36 AM

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Bloomberg — One of the most profound changes in Brazil’s economic policy is at risk of coming to an end as President Jair Bolsonaro fights for another term in this month’s election.

The incumbent oversaw a dramatic shrinking of the state development bank, known as BNDES, which at one point was bigger than the World Bank. Since Bolsonaro took over in 2019, it’s slashed holdings in equities, local bonds and investment funds by more than 56%.

Now, what happens to the remaining 60 billion reais ($11 billion) in its portfolio of publicly-traded firms -- and how big the bank’s role as a corporate lender will be in the years to come -- will likely depend on whether Bolsonaro wins and continues with his divestment push, or the leftist former President Luiz Inacio Lula da Silva retakes the reins and tries to dial it all back.

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Voters will make their choice on Oct. 30, with weighty questions about the state’s role in the economy at stake. The shrinking of BNDES was a core tenet of the current government, and a reversal of previous policy under Lula and his allies, who sought to use the bank to bolster Brazil businesses and create national champions in the meat, oil and pulp industries.


“Visibility is low on what the BNDES will look like in the next years,” said Felipe Thut, the head of Banco Bradesco SA’s investment-banking arm. “There’s still some pretty significant stakes in its portfolio, although the bulk of it has been already divested.”

The most recent polls show Bolsonaro is chipping away at Lula’s lead ahead of the runoff election. The leftist challenger saw his advantage over Bolsonaro narrow to 5.6 percentage points in a Quaest poll published Oct. 19, from nearly 8 points two weeks ago. An Ipespe survey released the previous day showed the candidates statistically tied.

If Lula wins, BNDES will likely hit the brakes on the asset-sale push, according to Guilherme Mello, one of the economists who has been advising the former president. He wouldn’t necessarily stop all sales, but would take a closer look at the bank’s holdings and consider what might be worth keeping, Mello said. The bank still owns stakes in firms including state-controlled oil producer Petroleo Brasileiro SA, and Tupy SA (TUPY3), a maker of cast-iron products used in the auto, industrial and agricultural sectors.


BNDES Chief Executive Officer Gustavo Montezano, a former partner at BTG Pactual SA, attended a global climate conference last year amid efforts to help improve Brazil’s battered green credentials. One of the bank’s recent initiatives was to stop financing thermal power plants that use coal.

He oversaw sales of about 93 billion reais in assets -- equivalent to $18 billion -- during his tenure. They included stakes in miner Vale SA (VALE3), meatpacker JBS SA, and paper-packaging producer Klabin SA. The bank also sold a chunk of Petrobras shares just before the oil crash in 2020 and was the seller behind Brazil’s largest block trade on record, taking advantage of increased appetite for Vale the same year.

The sales helped boost fees for investment bankers, who coordinated deals such as the privatization of power company Centrais Eletricas Brasileiras SA in the world’s second-largest share sale this year. BNDES also sharply cut back on lending during Bolsonaro’s administration. That left room for private investors to fill the void, helping bolster the local corporate bond market.

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While BNDES hasn’t been frequently mentioned in Bolsonaro’s speeches ahead of the runoff vote, investors expect continuity in case he remains in office -- especially after the incumbent signaled that Economy Minister Paulo Guedes will stay in his job if he wins.


After Lula’s two terms in office, during the government of his successor Dilma Rousseff, BNDES’s loan portfolio jumped to as high as $200 billion. Much of the financing backed companies like Petrobras and JBS SA (JBS3) as they embarked on acquisition sprees and global expansions. The bank also financed infrastructure projects in Latin American countries including Venezuela as Brazil sought to extend its regional influence.

This campaign season, Lula has been saying that BNDES should focus on offering more subsidized credit for smaller companies.

If Lula wins, “we would expect a more activist BNDES in originating credit,” said Alberto Ramos, the chief economist for Latin America at Goldman Sachs Group Inc. “But likely not to the extent we saw in the past and likely more focused on medium-sized companies rather than the large national champions.”


--With assistance from Cristiane Lucchesi