Long Run Financial Market, and Sources

Mercado de Financiamento de Longo Prazo e suas Fontes

Ministry of PlanningApril 2015April 2015

BRAZIL IN THE GLOBAL ECONOMYBRAZIL IN THE GLOBAL ECONOMY

• World´s 7th largest economy• Strong and increasing consumer market• Large and diversified productive sector• Large and diversified productive sector• Abundant natural resources• Consolidated democracy• Sound macroeconomic foundations• Sound macroeconomic foundations

2

DOMESTIC MARKET: ONE OF THE MAIN DRIVERS OF GROWTHONE OF THE MAIN DRIVERS OF GROWTH

Brazil is the fifth largest country

Has 14% of theHas 14% of  the world’s fresh water

71% of his population are in working age (between 14 and 65)

Source: APEX/PricewaterhouseCoopers (PwC) – 2014, IBGE and Porperty UK

(between  14 and 65)

3

SHARE IN THE MAIN MARKETSSHARE IN THE MAIN MARKETS• 1st world’s producer and exporter of sugar coffee and orange1 world s producer and exporter of sugar, coffee and orange 

juice • 1st world’s sugar cane ethanol producer • 2nd producer and exporter of soybeans • 3rd main aircraft manufacturer 

3rd d f 2 d t• 3rd producer of corn, 2nd exporter • 1st beef exporter • 5th exporter of cotton fiber5 exporter of cotton fiber • 5th largest market for medical equipment • 1st exporter of poultry meat p p y• 3rd largest market for computers • 4th in clean and renewable energy • 5th largest market for cell phones, automobiles and TVs 

4

FOREIGN DIRECT INVESTMENT: BRAZIL IS AMONG THE TOP 5 NET FDI DESTINATIONS

188United States 188124

7977

United StatesChina

Russian FederationHong Kong 77

646462

Hong Kong Brazil

SingaporeCanada

50393837

AustraliaSpain

MexicoUnited Kingdom 37

363028

United KingdomIreland

LuxembourgIndia

2724

20

GermanyNetherlands

Chile181717

IndonesiaColombia

Italy

FDI inflows: top 20 in 2013 (US$ billion) Source: UNCTAD. 

5

SOUND MACROECONOMIC POLICYSOLID FOUNDATIONS AND FINANCIAL STABILITY

The macroeconomic framework of Brazil has been the same for 15 years: • Inflation target policy • Floating exchange rate • Fiscal policy that ensures debt sustainabilityMacroeconomic and financial stability: y• Credit market with high potential of expansion • Financial and social inclusionFinancial and social inclusion • High level of international reserves (US$ 370 Billion) • Low external vulnerability (shift from large debtor for net externalLow external vulnerability (shift from large debtor for net external creditor)

6

Fiscal ConsolidationGovernment has adopted several measures to increase the primary surplus

The first measures were adopted in late December, two were:The first measures were adopted in late December, two were:• Start the process of increasing of the long run interest rate TJLP• Increase all interest rates under the PSI (Program to Support( g ppInvestment) and Constitutional Funds

Those measures intend to eliminate any form of subsidies that Treasurywould have to payGovernment has sent a bill to the Congress modifying the BudgetaryGuide Law (LDO) in its main aspects:Guide Law (LDO) in its main aspects:

• a new target to the fiscal primary surplus was set: R$ 66 billion (1,2%of GDP) – previous was 2,5% of GDP) p ,• the assumptions used to forecast revenues were closed to themarket expectations• focusing Gross Debt (not only Net Debt)

7

Fiscal Consolidation

Th G t i l t d t d dit d

Government has adopted several measures to increase the primary surplus II

Than Government implemented measures to reduce expenditure andincrease revenues.To reduce expenditure (R$ 85.5 billion):To reduce expenditure (R$ 85.5 billion):

• Sent to the congress two Bills (MP 664 e 665) to improve rules ofpension system, unemployment insurance, annual salary governmentbenefits for poor people (abono salarial PIS/PASEP), and seasonal salaryfor poor fisherman during prohibition period (R$ 19 billion)Eli i t th b id i l t i l bill (R$ 9 0 billi )• Eliminate the subsidy in electrical bills (R$ 9.0 billion)

• Pre Budget Law contingency + Decree 8.412: total R$ 57.5 billion• Establish a group (GTAG) to analyze the main government programs in• Establish a group (GTAG) to analyze the main government programs inorder to make them more focused and perhaps downsizing• Presidential Decree 8.407: elderly committed expenditures (2013 andPresidential Decree 8.407: elderly committed expenditures (2013 and2014) under scrutiny

8

Fiscal Consolidation

To raise revenues (R$ 24 3 billion):

Government has adopted several measures to increase the primary surplus (III)

To raise revenues (R$ 24.3 billion):• Increased IPI (tax over manufactured goods) over vehicles, lodgedproducts, and cosmetics (R$ 2.3 billion)p , ( )• Increased PIS/Cofins (contributions over enterprise turnover andpayroll) over beverages, fuel, and imports (R$ 2.6 billion)• Increased CIDE (contribution over fuel to finance improvements inroads: R$ 9.1 billion)I d IOF (t fi i l ti ) i l t l• Increased IOF (tax over financial operations ) in loans to people

from 1,5% p.y. to 3,0% p.y. (R$ 7.6 billion)• PIS/Cofins over financial operations (Decree 8 426/2015)PIS/Cofins over financial operations (Decree 8.426/2015)• Increased the social security percentage contributions oncompanies gross revenue (PL 863/2015)

New measures to reduce expenditure are going to be taken after budget approval by the Congress  9

Fiscal Consolidation

bli S i S l 2002 201Public Sector Primary Surplus, 2002 – 2015 (% of GDP)

3.2 3.33.7 3.8

3.2 3.3 3.4

2 73.1

2.0

2.72.4

1.9

1 21.2R$ 98.8 bilhões

‐0.62002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013p 2014 2015*

bilhões**

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013p 2014 2015

10

LENDING MARKET GROWTHLENDING MARKET GROWTH

• IPO• Credit/GDP• DebenturesI• Insurance

• Mortgage• Mortgage• Long‐term creditLong term credit

11

CREDIT OPERATIONS (% GDP)54,8

46,5

30,7

r‐07 ‐07

v‐07

r‐08 ‐08

v‐08

r‐09 ‐09

v‐09

r‐10 ‐10

v‐10

r‐11 ‐11

v‐11

r‐12 ‐12

v‐12

r‐13 ‐13

v‐13

r‐14 ‐14

v‐14

r‐15

Source: Central Bank of Brazil.

Mar Jul

Nov

Mar Jul

Nov

Mar Jul

No v

Mar Jul

Nov

Mar Jul

Nov

Mar Jul

Nov

Mar Jul

No v

Mar Jul

Nov

Mar

12

Mortgage Balance (% of GDP)8,1

4,6

1,5

r‐07

ul‐07

v‐07

r‐08

ul‐08

v‐08

r‐09

ul‐09

v‐09

r‐10

ul‐10

v‐10

r‐11

ul‐11

v‐11

r‐12

ul‐12

v‐12

r‐13

ul‐13

v‐13

r‐14

ul‐14

v‐14

r‐15

Source: Central Bank of Brazil.

Ma Ju Nov

Ma Ju Nov

Ma Ju Nov

Ma Ju Nov

Ma J u Nov

Ma Ju Nov

Ma J u Nov

Ma Ju Nov

Ma

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CAPITAL AND FINANCIAL MARKET MAIN SOURCES OF PRIMARY RESOURCES (R$ MILLION)

2011 2012 2013 2014

Equities (IPO) 13 536 7 365 6 223 15 099Equities (IPO) 13,536 7,365 6,223 15,099

Private Equity Investment Fund (FIP) 3,321 3,325 4,178 1,125

Private Bonds* (Debêntures*) 3 180 15 047 10 945 3 674Private Bonds* (Debêntures*) 3,180 15,047 10,945 3,674

Mortgage Backed Securities (Certificado de Recebíveis Imobiliários -CRI) 3,965 3,353 2,459 2,274

Real Estate Fund (Fundo de Investimento Imobiliário - FII) 7,665 11,070 10,550 4,727

Collateralized Debt Obligation Investment Fund (Fundo de Investimento em Direitos Creditórios - FIDC) 7,128 4,079 3,541 1,896

Source: CVM.* Disregards funding by leasing corporations 

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CAPITAL MARKET AND BNDES PRIMARY RESOURCES

200  190 188R$ billion

PRIMARY RESOURCES

160 

180 156

120 

140 140

80 

100 

40 

60 39  44  38  29 

‐

20 

2011 2012 2013 2014

Capital Market BNDES Disbursement 15Source: CVM and BNDES.

PRIVATE BONDS ISSUANCE FOR INFRASTRUCTURE TOTAL OF R$ 15 BILLION ACCUMULATED SINCE 2012*

6,11639%

7,0

TOTAL OF R$ 15 BILLION ACCUMULATED SINCE 2012

39%

4,910  31%5 0

6,0

4,034  26%

31%

4,0

5,0

3,0

0

2,0

0,0

1,0

2012 2013 201416

LIQUIDITY AT THE SECONDARY MARKETVOLUME TRADE VERSUS STOCKVOLUME TRADE VERSUS STOCK

3 54%4,0%

Private Bond (Debênture) 3,54%

3,0%

3,5%( )

Infrastructure Bond (Debênture de Infraestrutura)

2 0%

2,5%

1,5%

2,0%

0,37%0,5%

1,0%

0,0%2013 ‐03

2013 ‐05

2013 ‐07

2013 ‐09

2013 ‐11

2014 ‐01

2014 ‐03

2014 ‐05

2014 ‐07

2014 ‐09

2014 ‐11

2015 ‐01

2015 ‐0303 05 07 09 11 01 03 05 07 09 11 01 03

17Source: CETIP

INFRASTRUCTURE INVESTMENT PROJECTS APPROVED (R$ MILLIONS) POTENTIAL ISSUANCE OF PRIVATE BONDS

Hydroelectric Power Plant 66.832                                

Oil 30.000                               

OJ C S O ( $ O S) O SSU C O O S

Roads 20.967                                

Wind Power 14.105                               

Airport 8.878                                   

Railway 7.816                                   

Dutovia 7.000                                   

Thermal Electric Power Plant 5.235                                   

Transmission Lines 4.746                                   

Ports 2.750                                   

Large Broad Band Data Transmission 2.405                                   

Piped Gas 2.034                                   

Total 172.767                              

Source: CVM ‐ CETIP.  18

PRIVATE INVESTMENT IN INFRASTRUCTURE (US$ BILLIONS BY SECTOR)(US$ BILLIONS, BY SECTOR)

70

80

50

60

30

40

10

20

0

Water and sewerage Transport Telecom Energy

Source: SEAE/MF / World Bank 19

DEVELOPED INSURANCE MARKETPeriod of analysis: until December 2014

(R$ Billion; Susep data)Period of analysis: until 3rd quarter of 2014

(R$ Billion; ANS data)

583 2667,3 85,9 93,4

583,2469,9

545,8

26,3 27,031,2 35,8

77,7 79,4

2013 2014

Assets Provision Equity Capital

2013 2014

Assets Provision Equity Capitalq y p q y p

Assets, provision and equity capital y‐o‐y comparison

Source: DIOPS from ANS;SES  from Susep

capital y‐o‐y comparison 

20

INTERNATIONAL RESERVES (IN US$ BILLION)CURRENT LEVEL ENSURES SUSTAINABILITY OF EXTERNAL SECTORCURRENT LEVEL ENSURES SUSTAINABILITY OF EXTERNAL SECTOR

352 0373,1

358,8375,4

363,6 372,2 372,1400

288,6

352,0 358,8

320

360

193 8

238,5240

280

180,3193,8

160

200

53,8

85,880

120

16,3 20,5 27,5

0

40

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 nov/14dez/14 jan/15 fev/152002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 nov/14dez/14 jan/15 fev/15

Source: Central Bank of Brazil and Ministry of Finance.1. Excludes loans from IMF until December of 2005, when Brazil paid its debt. 21

INFRASTRUCTURE OPPORTUNITIESROADS

New concessions:New concessions:• 4 Procedures for Request for Proposal/ Expression of Interest (PMIs) launched and expected to be auctioned until the end of(PMIs) launched and expected to be auctioned until the end of this year

• BR‐476/153/282/480 (PR/SC) – 492.1 km – R$ 3.45 bi/ / / ( / ) $• BR‐364 (GO/MG) – 439.2 km – R$ 3.1 bi• BR‐163/230 (MT/PA) – 943 km – R$ 6.6 biR 63/ 30 (MT/PA) 943 km R$ 6.6 bi• BR‐364/060 (MT/GO) – 703.7 km – R$ 4.1 bi

• New call for Request for Proposal/Expressions of Interest (PMIs)New call for Request for Proposal/Expressions of Interest (PMIs) soon

22

INFRASTRUCTURE OPPORTUNITIESROADS

Investments in existing concessions:• 4th lane Porto Alegre/Canoas (RS)4 lane Porto Alegre/Canoas (RS)

• Duplication Rio/Petrópolis (RJ)

l h S d (S )• New lane on the Serra das Araras (SP)

Public investment (7,002 km of works funded with the Federal Budget resources: 2,612 km of duplication / adjustment and 4,390 km of construction and paving)

23

INFRASTRUCTURE OPPORTUNITIESRAILWAYS

Projects under construction phase:• Norte‐Sul (FNS)Norte Sul (FNS)• FIOL• TransnordestinaTransnordestina

Projects under analysis to RFP (PMI) to be tendered in 20152015

• Lucas do Rio Verde/Campinorte (FICO)• Sinop Miritituba• Sinop‐Miritituba

Investments in existing concessions: Transocean railway j t (BRA/PER/CHI)project (BRA/PER/CHI)

24

INFRASTRUCTURE OPPORTUNITIESAIRPORTS AND PORTS

New Airport concessionsPorts:

• Call for new leases being analyzed by the Federal Audit Court (TCU)• Expansion of investments in Private Use Terminals (TUPs)

• 39 terminals approved• R$ 10.9 billion in investments

• Renewal of existing leases• PMI for the concession of the access channel dredging

25

INFRASTRUCTURECONCESSIONS GRANTED

dRoads:• 5,350 Km granted on 7 road sections (R$ 34.8 billion in investments, and 50% in tariff reduction)• Rio‐Niterói bridge (18/03/2015; 36% in tariff reduction)

Airports:• Guarulhos – São Paulo/SP• Guarulhos – São Paulo/SP• Juscelino Kubitscheck – Brasilia/DF• Viracopos Campinas/SP• Viracopos – Campinas/SP• Galeão – Rio de Janeiro/RJC fi B l H i t /MG• Confins – Belo Horizonte/MG

• São Gonçalo da Amarante/RN 26

Bank and Capital MarketspChallenges Ahead

• Eliminating mismatches between loans and deposits

• Increasing institutional, and legal stability• Reducing costs• Improving:Improving:

• human capital expertise

• secondary market liquidity

• instruments to provide risk mitigation• instruments to provide risk mitigation27

Thank You

28