Recent Measures Adopted By The Brazilian Government Which Affect The Financial And Capital Markets

The purpose of this article is to present an overview of the recent measures adopted by the Brazilian Government which deal with the financial and capital markets and deserve to be highlighted to those individuals and legal entities interested in investing in Brazil.

1. Brazilian Finance Programs For The 2014 World Cup

   The Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) has designed two specific programs to foster environmentally and economically sustainable investments in order to prepare Brazil for the 2014 World Cup, namely: (i) the Arena Program (ProCopa Arenas), whereby BNDES will finance the construction and reform of sports arenas (stadiums) that will host Cup matches1; and (ii) the Tourism Program (ProCopa Turismo), which is intended to prepare Brazilian hotels for increased demands caused by the Cup, improving the capacity and the quality of accommodation offered to Brazilian and foreign tourists expected to attend the games and inducing the hotels' environmental commitment by giving better conditions to those projects which take into account concerns for energy efficiency and environmental sustainability. The main features of both programs are outlined below.

   The ProCopa Arenas has a R$ 4.8 billion budget for construction and reform of the venues expected to stage the World Cup games and for investments related to the urbanization of its surroundings. This program will finance up to 75% of the total cost of projects to reform or construct competition venues, limited to R$ 400 million (whichever is the lowest) per project. The projects should cover improvements in the surroundings, promoting accessibility and integration with urban spaces. For direct operations, the cost will be the Long-Term Interest Rate (Taxa de Juros de Longo Prazo – TJLP), which currently is 6% per annum, plus the BNDES spread of 0.9% per annum and a risk spread. On indirect financing, a financial intermediation rate of 0.5% is also levied. The repayment deadline will be up to 15 years, including up to a 3-year grace period.

   In order to submit requests for the BNDES' analysis, bidders are required to: (a) seek the approval of Fédération Internationale de Football Association (FIFA) for the basic design; (ii) submit a detailed budget of expected investments; and (iii) submit an economic and financial feasibility study of the stadium, covering, mainly, its long-term financial sustainability. The projects should also be approved by an environmental quality certification entity that is internationally recognized and/or accredited by the Brazilian System of Metrology, Standards and Industrial Quality (Sistema Nacional de Metrologia, Normatização e Qualidade Industrial – SINMETRO). The contracting period for these operations is open until December 31, 2011.

   The ProCopa Turismo will assign up to R$ 1 billion to the construction, reform, expansion and modernization of hotels. For the first time, maximum repayment deadlines for this sector may reach 12 years to modernize existing units and up to 18 years to build new units. Energy efficiency and/or sustainable construction projects certified by entities accredited by the Brazilian Institute of Metrology, Standards and Industrial Quality (Instituto Nacional de Metrologia, Normatização e Qualidade Industrial – INMETRO) may have the terms of their loans extended. If energy efficiency certification is presented, the reform, modernization and expansion projects may have their terms of loan extended to 10 years. For the construction of new units, this term of loan may reach 15 years.

   In order to obtain the maximum term of loan expansion (12 and 18 years, respectively), bidders should submit sustainable construction certification which, besides energy efficiency, incorporates other requirements, such as rationalization of water and waste management. In direct operations, the applicable interest rate varies from 6.9% (micro, small and medium-sized companies) and up to 8.8% (large-sized companies), plus a risk spread. In order to apply for the funds, bidders should submit their applications by December 31, 2012.

   The ProCopa Turismo will also allow direct operations from R$ 3 million. Operations of up to R$ 10 million are usually performed through accredited financing institutions. For large companies, the BNDES' maximum participation will be limited to 80% of the total investments. For micro, small and medium-sized companies, however, such percentage may reach 100%.

2. Foreign Exchange Non-Deliverable Forward Contracts In Brazil

   As of January 18, 2010, the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros - BM&FBOVESPA) has authorized the registration of U.S. Dollar, Euro, Japanese Yen, and cross-rate non-deliverable forward contracts in its Over-The-Counter (OTC) market.

   Initially, only foreign exchange transactions established by the Central Bank of Brazil (Banco Central do Brasil – Bacen) can be registered. As of...